McDonald’s Warns of Profit-Forecast Cut After Weak Monthly Sales

On Tuesday, McDonald’s Corp. posted its weakest monthly performance at long-standing stores since March 2003 and said its supplier issue in China is likely to reduce its third-quarter profit.

Sales at McDonald’s restaurants open at least 13 months fell 3.7 percent in August. Same-store sales fell 2.8 percent in the United States, fell 0.7 percent in Europe and plunged 14.5 percent in its Asia/Pacific, Middle East and Africa region.

Analysts had expected McDonald’s to report a global comparable-sales decline of 3.1 percent, according to Consensus Metrix. They had predicted a decline of 2 percent in the United States, a decline of 2.1 percent in Europe and a drop of 10.1 percent in the APMEA region.

Janney analyst Mark Kalinowski summarized his take on the sales in a note issued Tuesday titled “MCD: That’s Not Ketchup … It’s Blood.”

Asian restaurants were hit with supply shortages starting in July, after safety issues at a key supplier in China, OSI Group, forced the company to look elsewhere for ingredients.

August’s global same-store sales decline was the third consecutive monthly drop for the world’s largest restaurant company. The last time McDonald’s monthly comparable sales fell 3.7 percent was in March 2003. August also marked the ninth month out of 10 in which U.S. comparable sales have fallen.

McDonald’s said it will update its full-year forecast when it reports its third-quarter results in October. The company said in August that its 2014 sales forecast was “now at risk” of being reduced further.

Oppenheimer analyst Brian Bittner said third-quarter comparable sales are likely to be the worst since the first quarter of 2003.

“During August, McDonald’s global business faced several headwinds that impacted sales performance,” Chief Executive Officer Don Thompson said in a statement. “As a system, we are diligently working to effectively navigate the current market conditions to regain momentum.”

McDonald’s is dealing with a variety of issues around the globe. Its Asian restaurants were hit with supply shortages after a Chinese media report showed safety issues at OSI Group’s Shanghai Husi plant, which was then shut down. In Russia, some McDonald’s locations were forced to close temporarily after mass unscheduled inspections by Russia’s food-safety watchdog.

The company has already laid out a variety of plans to try to improve its image, including new preparation stations in its kitchens, increased digital efforts and an updated Ronald McDonald.

Issues in Russia overshadowed growth in the United Kingdom. The company said that it expects weak consumer sentiment in Europe to pressure sales and profitability in the third quarter, particularly in certain markets where McDonald’s operates locations, rather than franchisees.

And in the United States, hundreds of workers have been taking part in nationwide protests, hoping to push the company and its rivals to raise wages to $15 per hour.

McDonald’s said it expects “soft” U.S. sales results to pressure its margins in the third quarter.

The company’s comparable sales have fallen 0.7 percent this year through August. And system-wide sales, which include newer locations, are up just 0.2 percent so far this year. They fell 2.9 percent in August.

This article appeared in print in the September 10th, 2014 edition of Hamodia.