McDonald’s profit is little changed as U.S. store sales drop

April 19, 2013 04:55 AM

McDonald’s Corp., the world’s largest restaurant chain by sales, posted first-quarter profit that was little changed as same-store sales dropped in the U.S. for the first time since 2003 amid soft global demand.

Net income was about $1.27 billion, or $1.26 share, compared with $1.27 billion, or $1.23, a year earlier, the Oak Brook, Illinois-based company said in a statement today. Analysts projected $1.26, the average of 29 estimates compiled by Bloomberg.

While Chief Executive Officer Don Thompson has tried to lure diners from competitors by advertising its dollar menu in the U.S., its domestic comparable-store sales fell for the first time in 10 years. Global sales at locations open at least 13 months fell 1% in the quarter, driven by a 1.2% U.S. decline. Analysts projected a 1.1% drop for both worldwide and in the U.S., the average of 25 estimates compiled by Consensus Metrix.

“They need more new product news,” Jack Russo, a St. Louis-based analyst at Edward Jones & Co., said in a phone interview. “Wendy’s is a better competitor than they used to be, Burger King is a better competitor than it has been, and Taco Bell is back -- you’ve got some good competition here in the states.”

McDonald’s fell 1.6% to $100.30 at 8:49 a.m. in New York. The shares rose 16% this year through yesterday, while the Standard & Poor’s 500 Index gained 8.1%.

New Menus

U.S. restaurant chains, including McDonald’s, are vying to attract diners with the most exciting new menu item as consumer confidence wanes. The Big Mac seller this year began selling Fish McBites and sweet-chili chicken wraps. On April 22, it will introduce a 250-calorie egg-white breakfast sandwich. Burger King Worldwide Inc. last month started selling turkey and veggie burgers, while Wendy’s Co. rolled out flatbread grilled-chicken sandwiches.

Confidence among U.S. consumers fell in April to a nine- month low as Americans grew more pessimistic about the economy following the higher payroll tax. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment dropped to 72.3 this month, from 78.6 in March.

“For the month of April, global comparable sales are expected to be slightly negative,” Thompson said in the statement. “The challenging global environment and bottom-line pressures are expected to persist.’

China Scrutiny

Even as McDonald’s faces declining confidence among Americans, it’s also vulnerable to increased scrutiny from Chinese consumers about the quality of fast-food chicken.

Yum! Brands Inc., owner of KFC and Pizza Hut, said earlier this month that same-store sales dropped 13% in China in March. The company is trying to win back consumers after a former supplier was investigated for supplying chicken with too much antibiotics. Publicity associated with the deadly bird-flu outbreak in China is also negatively affecting sales at KFC stores, it said in a regulatory filing on April 10.

McDonald’s, which has more than 34,400 restaurants worldwide, said currency translation negatively afffected first- quarter earnings by 1 cent a share.

Revenue climbed 1% to $6.61 billion in the quarter. Analysts estimated $6.59 billion, on average.

Bloomberg News

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