McDonald’s slide continues in first quarter

by LP Green, II

McDonald’s had a rough start to 2015, with sales declines around the world and a 33 percent drop in profit. In response, CEO Steve Easterbrook, installed in March, said the world’s largest restaurant company aims “to be more responsive to today’s customer.”

McDonald’s said it would lay out the initial details of its turnaround plan May 4. Investors on Wednesday cheered the plan and drove shares to their highest level in a nearly a month.

“A lot hinges on this meeting now,” said Edward Jones analyst Jack Russo. Russo, who has a “buy” rating on McDonald’s shares, said he would like to hear more at the May 4 meeting about closing of underperforming stores, new product innovation and mobile and other technology efforts.

The company said it closed about 220 poorly performing restaurants, primarily in the United States and China, and that McDonald’s Japan closed about 130 of its restaurants. The closings were on top of the 350 that McDonald’s has targeted around the world.

First-quarter sales at restaurants open at least 13 months, or comparable sales, fell 2.3 percent as fewer customers visited McDonald’s locations. In the United States, comparable sales dropped 2.6 percent, as products ranging from seasonal Shamrock Shakes to the limited return of Chicken Selects were not enough to overcome tough competition.

Analysts, on average, expected first-quarter comparable sales to fall 1.8 percent, according to Consensus Metrix. They had anticipated comparable sales declines across the chain’s major regions, including a drop of 2.1 percent in the United States.

McDonald’s global comparable sales have fallen in four consecutive quarters, something that had not happened in a dozen years.

Oak Brook-based McDonald’s expects its sales weakness to continue in the near term. It forecast a decline in global comparable sales for April. In March, such sales fell 3.3 percent, a steeper decline than in the first two months of the year.

McDonald’s faces wide-ranging competition, from fast-growing burger chains such as Five Guys, Shake Shack and BurgerFi, to fast-casual chains such as Chipotle Mexican Grill, where first-quarter comparable sales jumped 10.4 percent.

First-quarter profit fell to $811.5 million, or 84 cents per share, from $1.2 billion, or $1.21 per share, a year earlier. Revenue fell more than 11 percent to $5.96 billion.

Easterbrook quoted the corporation’s founder, Ray Kroc, in his assessment of what the company must now do in its turnaround effort.

“McDonald’s founder, Ray Kroc, made a statement about our business that is as relevant today as it was 60 years ago: ‘Take calculated risks. Act boldly and thoughtfully. Be an agile company,’ ” Easterbrook said in a statement Wednesday. “McDonald’s is employing these timeless business philosophies as we embark on a turnaround to drive momentum in our business. We are committed to making McDonald’s a modern, progressive burger company delivering a contemporary customer experience.”

Easterbrook and his team — including a new president of the U.S. business, Mike Andres — have wasted little time in implementing sweeping changes.

So far this year, McDonald’s has overhauled everything from its ingredients to its employee compensation to its advertising as it tries to boost sales around the world.

A survey issued this month by industry publication Nation’s Restaurant News shows the battle the company faces in the United States. Consumers in an online survey rated 111 limited-service chains on 10 attributes including food quality, likelihood to recommend and service. The winner was In-N-Out Burger. McDonald’s was No. 110, just ahead of the lowest-ranked chain in the survey, Chuck E. Cheese’s.

By Jessica Wohl from Chicago Tribune

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