McD's sales stall as rivals, economy take bite

AP News
Posted: Aug 08, 2012 10:56 AM
McD's sales stall as rivals, economy take bite

NEW YORK (AP) — The Golden Arches are starting to lose some of their shine.

McDonald's Corp. says a key revenue figure came in flat in July as diners pulled back amid a persistently weak economy. After years of outperforming rivals by emphasizing value and rolling out popular new items, the stall is also a sign that competition is intensifying for the world's biggest hamburger chain.

The last time the global sales figure dipped for McDonald's was in April of 2003; the figure has grown every month since then.

"McDonald's may be underperforming the industry, which is not typical for them," said Sara Senatore, a Bernstein analyst. She noted that Taco Bell is performing well, with parent company Yum Brands Inc. reporting last month that the chain saw double-digit revenue growth at restaurants open at least a year, helped by its new Doritos-flavored tacos.

Burger King, which revamped its menu and launched a new ad campaign in April, said last week that revenue at established restaurants rose 4.4 percent in the second quarter.

Wendy's Co., which reports its quarterly results Thursday, has also been working to reinvent itself as a higher-end hamburger chain.

In the U.S., McDonald's said its promotions failed to drive growth in July, and revenue at restaurants open at least 13 months dipped 0.1 percent. The Oak Brook, Ill.-based company also says it faced a tough comparison from a year ago, when it launched the mango pineapple smoothie.

The figure dipped 0.6 percent in Europe because of weakness in Germany and several Southern European markets. It fell 1.5 percent in the Asia Pacific, Middle East and Africa region — a key growth area for McDonald's.

Sales in Latin America and Canada, which are not reported separately, helped pull overall results even with last year.

Overall, analysts polled by Thomson Reuters had expected growth of 2.8 percent in July.

Revenue in restaurants open at least 13 months is a key measure of a restaurant chain's performance because it excludes the impact of recently opened or closed stores. The figures are a snapshot of money spent on food at both company-owned and franchised restaurants. They do not reflect corporate revenue.

In economically hard-hit regions, McDonald's has been working to emphasize the value of its meals to entice penny-pinching consumers to eat out more often. The company noted last month that in Europe, which accounts for 40 percent of its business, guest traffic was down in several regions.

With more than 33,500 restaurants around the world, McDonald's is often seen as a bellwether for the industry.

The fast food chain has exceeded expectations in recent years in large part by emphasizing value and continually evolving its menu to keep up with changing tastes. Some of its most successful new offerings in recent years — such as snack wraps and specialty coffees — give customers a way to treat themselves for just a few bucks. They also happen to have high profit margins.

Now McDonald's will likely struggle to match the growth it enjoyed from the new items in recent years, said Bernstein analyst Senatore.

"And I don't expect the competition to pull back," she said. Making matters worse, she noted that there are no signs that the economic climate will improve soon, either.

McDonald's said last month said its net income fell 4 percent in the second quarter as unfavorable currency exchange rates and high costs ate into profits. The company said Tuesday that it plans draw customers in the U.S. by continuing to offer variety and innovation.

Shares of McDonald's fell $2.64, or 3 percent, to $86.37.