McDonald's sales dip in US, underscoring comeback challenges

AP News
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Posted: Jan 23, 2017 1:14 PM
McDonald's sales dip in US, underscoring comeback challenges

NEW YORK (AP) — McDonald's is trying stage a comeback, and offering Egg McMuffins all day won't be enough to get more people in its restaurants.

The world's biggest burger chain said U.S. sales dipped 1.3 percent at established locations for the final three months of the year. Customer traffic also continued to slide for all of 2016 despite the rollout of an all-day breakfast menu, marking the fourth straight year of declines domestically.

Since the start of 2013, customer counts are down 10 percent at established U.S. locations.

Overseas, the company's quarterly performance was better, and sales rose globally.

The Oak Brook, Illinois-based company attributed the sales decline at home to a tough comparison from the year-ago period, when it introduced the all-day breakfast menu that generated enormous buzz online.

The results underscore the hurdles for McDonald's as it pushes to revitalize its image while facing broader challenges, including convenience stores selling more foods and cheaper groceries encouraging people to eat at home. The NPD Group said this month it expects customer traffic for the overall restaurant industry to remain "stalled" this year, as it was in 2016.

McDonald's CEO Steve Easterbrook said the company expects to start drawing more customers with compelling value deals and convenient ways to order. It also recently introduced its Big Mac in different sizes, and has been testing fresh beef for some of its burgers.

The company isn't alone in struggling to attract more customers. Starbucks CEO Howard Schultz has said the retail landscape would undergo a "seismic" change as people do more of their shopping online, leading to less foot traffic in general. The coffee chain has delivered consistent growth in recent years, but saw its transactions at established U.S. locations slip by 1 percent in the previous quarter. Starbucks reports its results for last three months of 2016 later this week.

McDonald's, meanwhile, has conceded that it failed to keep up with changing tastes and it's speeding up efforts to transform into a "modern, progressive burger company."

Easterbrook said the issue of customer counts in the U.S. "dominates our conversations as we plan our business." He noted that the modest expectations for the industry mean that increasing customer traffic may require taking market share from competitors.

The U.S. sales decline for the last three months of 2016 snaps a streak of five quarterly increases. Those increases could have been driven by higher prices or people ordering pricier or extra menu items. For all of 2016, McDonald's saw customer counts decline 2.1 percent at established locations, according to a regulatory filing.

The company only discloses changes in customer counts with year-end results, and not on a quarterly basis.

McDonald's also trimmed its base of U.S. stores for the second year in a row, ending the year with 14,155 locations.

David Palmer, an RBC Capital Markets analyst, said U.S. sales trends may improve for McDonald's this year as it rolls out more changes like the different Big Mac sizes and value deals.

Globally, McDonald's expanded its footprint and had 36,899 locations at year's end.

The company said the international unit that includes the United Kingdom saw sales rise 2.8 percent at established locations. The growth unit that includes China saw sales increase 4.7 percent. The segment that includes Japan rose 11.1 percent.

McDonald's has been slashing costs as part of its turnaround efforts, which helped boost operating income. Easterbrook said the company spent the last year laying the groundwork for transformation by stripping away bureaucracy and installing new leaders in key positions.

For the quarter, McDonald's Corp. said it earned $1.44 per share, topping the $1.41 per share that Wall Street expected, according to FactSet.

Total revenue was $6.03 billion, above the $6 billion analysts expected.

Its shares were down 1 percent at $120.85 in afternoon trading.

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