McDonald’s US sales fall amid concerns over home market strategy(467 words)
By Lindsay Whipp in Chicago
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McDonald’s US sales dropped 1.3 per cent in the fourth quarter, raising concerns about the sustainability of chief executive Steve Easterbrook’s turnround strategy in the home market of the world’s largest fast-food chain.
US same-store sales, a key metric of growth, dropped for the first time in one-and-a-half years as the company faced its first full year-on-year comparison of its all-day breakfast — the most important menu change since Mr Easterbrook took over as CEO in early 2015.
Shares erased initial gains after the announcement on Monday and were down 0.8 per cent at $121.25 in morning trading in New York.
McDonald’s has been transforming its menu in an attempt to become more relevant to changing consumer tastes in the US and woo a younger crowd.
While analysts have praised the company for its introduction of the all-day breakfast, the fourth-quarter sales decline highlights how much more needs to be done to win new customers and retain them over the long term instead of 2 temporary lifts in sales.
“McDonald’s ends its fiscal year on a sombre note with figures that put pay to the early optimism which surrounded its turnround programme,” said Neil Saunders, an analyst at Conlumino, the research firm.
“Widening the audience in a sustainable way is the key issue for McDonald’s as it enters its new fiscal year. The menu changes made so far have not completely reinvigorated the brand with younger and more discerning consumer segments, many of whom still shun the chain in favour of what they see as more premium offerings from other players.”
Mr Saunders said the all-day breakfast had given consumers a cheaper option for lunch and dinner, resulting in lower spending per visit for those meals instead of markedly increasing traffic.
Group-wide global revenue dropped 5 per cent to $6.03bn in the fourth quarter, dragged down by the weak performance in the US and the impact of the strong dollar, which generated 2 percentage points of the fall, and as it carried out its plan to sell restaurants. However, the decline was not as steep as analysts had forecast.
Its international business outperformed the US, with global comparable store sales rising 3.8 per cent, also ahead of analysts’ expectations for a 1.5 per cent rise.
Earnings increased 10 per cent to $1.44 a share, or 12 per cent excluding the impact of the strong dollar. Profit was bolstered by one-time gains from restaurant sales.
“2016 was a year of purposeful change as we focused on the key elements of our turnround plan,” Mr Easterbrook said in a statement.
“As we begin the first quarter of 2017, we are mindful of the comparison we face against first-quarter 2016 results, which benefited from leap year, favourable weather and continued momentum from all-day breakfast in the US.”