Fast-food giant's sales slowed significantly in quarter as investors look for next big move

By Julie Jargon 

All-day breakfast at McDonald's Corp. is starting to lose its popularity with consumers.

Sales at the fast-food giant, which had been riding high on its October launch of all-day breakfast -- the company's biggest operational change since the 2009 rollout of McCafe coffee drinks -- slowed significantly in the latest quarter.

Even though it was the fourth consecutive quarter of positive sales at McDonald's stores open at least a year, it wasn't the growth analysts expected, and investors are wondering what the burger company's next big move will be.

McDonald's is testing various new products in different markets, including Chicken McNuggets without artificial preservatives, bigger and smaller Big Macs, and Quarter Pounders made with fresh beef. The company is also experimenting with self-order kiosks that allow guests to customize their orders, and curbside collection that lets customers who order ahead with a mobile app pick up their food without waiting in the drive-through line. But McDonald's Chief Executive Steve Easterbrook declined on Tuesday to offer specifics about what else the company has in store.

"Clearly, we plan to grow our business. But at the same time, we're not trying to do that on a quarter-to-quarter-to-quarter basis," Mr. Easterbrook told investors.

Mr. Easterbrook said he expected that demand for all-day breakfast would settle down from its initial boost but that the company expects to get another lift in the fall, when it makes more breakfast items available all day and that the company will continue to make improvements to its food and operations.

He also cited softening growth in the restaurant industry as a reason for the results. Consumers have been pulling back as a result of economic uncertainties.

"First of all, there is a widening gap between food away from home and food at home...so that's a small part of it. I think generally there is just a broader level of uncertainty in consumers' minds at the moment, both trying to gauge their financial security going forward," Mr. Easterbrook said. "Whether through elections or through local events, people are slightly mindful of an unsettled world. When people aren't certain, when families are uncertain, caution starts to prevail and they start to hold back on spend."

The company also has struggled to find a value menu that resonates with budget-conscious customers while not eating into franchisees' profits. McDonald's has moved away from its dollar menu and experimented with other offers, including recent deals of two items for $2 or two items for $5. RBC Capital Markets analyst David Palmer said "the chain continues to wrestle with 'Dollar Menu hangover' as prices for its premium items are perhaps too high for their perceived quality."

Sales at existing stores rose 3.1% in the period, just below the consensus estimate of 3.6% growth in a survey of analysts by Consensus Metrix. But in the U.S., comparable sales rose 1.8% in the U.S., far below the 3.2% growth expected by analysts. International sales rose 2.6%, meeting analysts' views.

McDonald's posted a profit of $1.09 billion, or $1.25 a share, for the three months ended in June, compared with $1.2 billion, or $1.26 a share, a year earlier. Excluding items, the company earned $1.45 a share. Analysts had projected $1.38 in per-share earnings.

Joshua Jamerson contributed to this article.

Write to Julie Jargon at julie.jargon@wsj.com

 

(END) Dow Jones Newswires

July 27, 2016 02:49 ET (06:49 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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