McDonald’s Sales Slow From First Quarter

McDonald’s (NYSE:MCD) domestic sales grew just 1.8 percent in the latest quarter. The company has increased U.S. sales for four straight quarters. However, in the first quarter of the year, the company reported 5.4 percent growth. The first quarter was the chain’s best quarterly performance in more than four years. Same-store sales grew 3.1 percent globally. Analysts expected a 3.6 percent increase on average, according to Consensus Metrix. The company’s shares fell 4 percent after the earnings announcement.

Americans continued to gobble up items on the popular all-day breakfast menu, rolled out in October. McDonald’s plans to add more breakfast sandwiches to the all-day menu this fall. The McPick 2 promotion, which allows customers to choose two items for $5, has also proven popular. The problem is that customers aren’t having enough of the other items on the menu.

Customers are increasingly using the promotions to trade down to cheaper breakfast menu items during lunch and dinner. The pricing differential between breakfast items and lunch and dinner items is fairly pronounced in most markets. Average transaction values for lunch and dinner have fallen as a consequence. Franchisee operators have also complained about the impact of McPick 2 on their profit margins.

Several American brands reported a slowdown in the sales in the period. Earlier this month, KFC owner Yum! Brands said that its sales declined for a third straight quarter. Last week, Starbucks reported that its sales decelerated amid rising global uncertainty. The results have increased concerns that the U.S. fast-food industry is heading into a recession. McDonald’s is currently the world’s biggest restaurant chain.

Some Americans are probably choosing to stay at home because grocery store prices haven’t risen as fast as restaurant menu prices. Concerns about financial security may have also had an effect. McDonald’s CEO Steve Easterbrook said during a conference call with analysts, “When families are uncertain, caution prevails.”

McDonald’s is turning its focus to boosting customer traffic. McDonald’s Japan started a partnership with Pokemon Go last week that makes its restaurants a destination for players of the popular Pokemon Go augmented reality game. It is unknown whether McDonald’s will seek similar deals in other countries.

Easterbrook, CEO since January 2015, has made a lot of changes in his attempts to rejuvenate the chain. Under his watch, the company has added customized sandwiches and healthier ingredients like kale. It has also been experimenting with using fresh beef for its burgers instead of using frozen patties.



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