McDonald's Revenue Falls as Company Sells Restaurants to Franchisees -- Update
July 26 2018 - 2:21PM
Dow Jones News
By Heather Haddon
McDonald's Corp.'s revenue fell as the fast-food giant sold
company-owned stores to franchisees and operating income decreased
as it restructured its operations.
The burger giant's revamped value menu and switch to
higher-priced fresh beef contributed to higher average customer
checks during the second quarter. Meal delivery also fueled
sales.
But executives said that breakfast sales continued to
underperform expectations and that competitors were wooing
budget-minded customers with deals in response to McDonald's own
lower-priced offers.
"We're not intending to lead any race to the bottom," Chief
Executive Steve Easterbrook told investors Thursday. "We just want
to be competitive on value."
Revenue of $5.35 billion in the quarter was down from $6.05
billion a year earlier, but above the $5.32 billion analysts
expected. Operating income also decreased as a result of the
company's restructuring.
Shares were off 2.3% at $155.29 in afternoon trading.
McDonald's executives said they are pushing ahead with
renovations at more than a third of the company-owned restaurants
in the U.S., while also introducing fresh beef and rolling out more
menu deals. But they acknowledged that more needs to be done to
drive traffic.
"We're not yet where we need to be but we're gaining," Mr.
Easterbrook said.
McDonald's has been eliminating layers of management to trim
costs and become more nimble. The plan involves providing more
support for franchisees, helping them manage expenses and figuring
out ways to boost sales. Previously, franchisees were graded by
metrics such as restaurant cleanliness and service.
The Oakbrook, Ill.-based company said selling restaurants to its
franchisees hurt second-quarter revenue, which fell 12% from a year
earlier. McDonald's said it recorded a pretax charge of $92 million
in the quarter because of employee severance costs and other costs
associated with closing field offices.
McDonald's reported net income of $1.5 billion, or $1.90 a
share, including charges related to the restructuring, up from $1.4
billion, or $1.70 a share, a year earlier. Analysts were expecting
earnings per share of $1.92.
Same-store sales grew 4% globally and 2.6% in the U.S. during
the quarter. U.S. sales, which the company said were partially
driven by price increases, missed analyst expectations of 3% growth
for stores open more than a year
McDonald's said in the first quarter that rising commodity costs
around the globe were pressuring the company to raise prices, and
it said some food and labor costs continued to rise in the second
quarter.
The chain said it would roll out a two-for-$5 offer on some
sandwiches next month, and continue to tweak the value menu.
Competition in the breakfast business, which represents
approximately 25% of McDonald's sales, has also been a challenge
for the company. McDonald's in March began offering two breakfast
sandwiches for $4.
McDonald's said sales growth resumed for its breakfast offerings
in the second quarter, but that the chain would continue to
introduce deals to compete at that meal.
Meal delivery was a bright spot for McDonald's, with growth in
sales fueled by its partnership with Uber Eats.
A new challenge for the company was finding a new supplier for
its salads at some 3,000 restaurants mostly in the Midwest, where
federal and state health officials are investigating a cyclospora
outbreak tied to McDonald's. The chain pulled all of its salads
from those restaurants.
McDonald's said that it its new supplier is now serving all the
impacted restaurants, and it didn't expect the outbreak to
materially impact sales.
The company said it didn't expect the outbreak to materially
impact earnings, and that it was responding to the food-safety
scare.
McDonald's said Thursday it gave $2.5 billion to shareholders
through share repurchases and dividends. The federal tax law
changes have given companies new sources of cash to boost its stock
through share repurchases.
--Julie Jargon contributed to this article.
Write to Heather Haddon at heather.haddon@wsj.com
(END) Dow Jones Newswires
July 26, 2018 14:06 ET (18:06 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
McDonalds (NYSE:MCD)
Historical Stock Chart
From Apr 2024 to May 2024
McDonalds (NYSE:MCD)
Historical Stock Chart
From May 2023 to May 2024