By Julie Jargon And Chelsey Dulaney
McDonald's Corp. posted its steepest monthly decline in U.S.
same-store sales in more than 14 years, adding urgency to the
burger giant's efforts to rejuvenate its business in its most
important market.
McDonald's reported sharper-than-expected sales declines in all
its divisions in November. The U.S. slide was the largest, with
sales falling 4.6% from the same month a year ago, far more than
the 1.9% drop analysts had projected and more than September's 4.1%
sales slide in what was then the company's biggest monthly drop
since early 2003.
McDonald's blamed the decline on "strong competitive activity"
and said it is "diligently working to enhance its marketing,
simplify the menu, and implement a more locally driven
organizational structure to increase relevance with consumers."
The company has been losing customers to fast-casual chains and
to such rivals as Five Guys Holdings LLC and Chick-fil-A Inc. that
focus on just a few menu items. McDonald's menu has become bloated
in recent years as the chain has added everything from fruit
smoothies to salads in a bid to appeal to a broad range of
customers. The result has been slower service, which has driven
away many customers.
McDonald's Chief Executive Don Thompson has vowed to fix the
problems and the company said it would host an investor conference
on Wednesday, presumably to update investors on its plans.
McDonald's also has shuffled its management ranks, naming a new
U.S. president in August and, more recently, creating a new
organizational structure in the U.S. with four geographic zones to
better respond to local tastes. Under that system, for example,
menu items that might appeal to customers in the South won't
necessarily be offered to those in the West.
"The reality is that our current U.S. structure is not optimized
for the customer," McDonald's U.S.A. President Mike Andres said in
an October email to U.S. franchisees and corporate staff, which was
reviewed by The Wall Street Journal. "What has worked for
McDonald's U.S. for the past decade is not sufficient to propel the
business forward in the future."
McDonald's shares, which were already down slightly for the
year, dropped by more than 3% in Monday morning trading after the
latest sales report.
The company said global same-store sales fell 2.2% in November,
while analysts had expected a 1.7% decline, according to Consensus
Metrix. November's drop-off followed a smaller-than-expected 0.5%
slide in October.
In the company's Asia-Pacific, Middle East and Africa region,
sales at existing locations fell 4%, missing the 3.8% drop analysts
were expecting. McDonald's performance in the region appears to be
improving somewhat after one of its meat suppliers was accused of
intentionally selling expired meat to restaurants in July. The
scandal shook consumer confidence and has driven down sales in
recent months. McDonald's said it expects the supplier issue and
currency fluctuations to bring down its fourth-quarter results.
In Europe, broader economic softness has been compounded by
political complications in Russia, where authorities have been
inspecting and shutting McDonald's restaurants--widely seen as
retaliation for U.S. sanctions in response to Russia's military
incursion in Ukraine. McDonald's sales fell 2% in its Europe
division in November as "very weak results" in Russia offset
strength in the U.K. Analysts had projected a 1.9% decline in the
region.
McDonald's projected the supplier issue in China would dent its
fourth-quarter earnings by between seven and 10 cents a share,
while the strengthening of the U.S. dollar against foreign
currencies is expected to bring down results by between seven and
nine cents a share.
Analysts polled by Thomson Reuters recently said they expected
per-share earnings to fall 9% to $1.27 a share in the fourth
quarter. Revenue is expected to fall 3% to $6.85 billion.
Write to Julie Jargon at julie.jargon@wsj.com and Chelsey
Dulaney at Chelsey.Dulaney@wsj.com
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