McDonald’s July Sales Drop as U.S. Slumps for Third Month

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McDonald’s Corp. (MCD) said sales at stores open at least 13 months fell 2.5 percent in July, matching the largest decline in a decade, as the U.S. slumped for the third straight month and a food scare in Asia hurt results.

Analysts estimated a 1.1 percent global decline, the average of 12 projections from Consensus Metrix. Sales fell 3.2 percent in the U.S. and 7.3 percent in Asia Pacific, the Middle East and Africa, the Oak Brook, Illinois-based company said in a statement today. Both drops were bigger than analysts estimated.

The world’s biggest restaurant chain, which gets about 32 percent of revenue from domestic locations, has struggled to attract Americans this year as new chains lure away customers and established rivals introduce cheaper food deals. McDonald’s also has recently faced sales trouble in China, where one of its suppliers was investigated for altering expiration dates on food.

“The U.S. is struggling and Asia Pacific is struggling,” Peter Saleh, a New York-based analyst at Telsey Advisory Group, said in an interview. “They’re just feeling a lot of pressure from competitors” in the U.S.

Analysts projected a 2.6 percent decline for U.S. sales last month. Domestic same-store sales dropped 3.5 percent in June and 1 percent in May. Worldwide, sales also slumped 2.5 percent in June, the worst since March 2003, when they declined 3.7 percent.

Photographer: Yuriko Nakao/Bloomberg

McDonald’s said that sales in China and Japan are being hurt after supplier OSI Group LLC was accused of repackaging expired meat. Close

McDonald’s said that sales in China and Japan are being hurt after supplier OSI Group... Read More

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Photographer: Yuriko Nakao/Bloomberg

McDonald’s said that sales in China and Japan are being hurt after supplier OSI Group LLC was accused of repackaging expired meat.

The shares rose 0.3 percent to $93.55 at the close in New York. They have lost 3.6 percent this year, while the Standard & Poor’s 500 Restaurants Index decreased 1.5 percent.

Profit Trails

Last month, McDonald’s posted second-quarter profit that trailed analysts’ estimates as a U.S. slump lingered and rivals offered more new items. Taco Bell earlier this year introduced breakfast fare nationwide, and Burger King Worldwide Inc. (BKW) is selling $1 sandwiches as a part of its King Deals menu. McDonald’s recently set up a learning lab in the U.S. to help it better understand what customers want.

McDonald’s said earlier this month that sales in China and Japan are being hurt after supplier OSI Group LLC was accused of repackaging expired meat. The situation caused McDonald’s to temporarily pull beef, pork and chicken items from its restaurants in China.

While it can’t yet estimate the full effect on 2014 earnings, the areas at issue make up about 10 percent of consolidated revenue and the company’s global same-store sales forecast for the year is “at risk,” the company said in a regulatory filing on Aug. 4.

“McDonald’s is undertaking recovery strategies to restore customers’ trust and confidence,” the company said in today’s statement.

Asia Sales

Japan same-store sales fell 17 percent in July after the supplier probe, McDonald’s said earlier this month. The 7.3 percent drop in McDonald’s Asia Pacific region was steeper than the 0.5 percent slide analysts’ estimated. More than 7 percentage points of the decline was due to the supplier issue, McDonald’s said.

“The magnitude is very severe in Asia Pacific and it’s obviously translating to Japan,” Saleh said. “They’re just not going to recover overnight.”

Same-store sales rose 0.5 percent last month in Europe, where McDonald’s gets about 40 percent of revenue. Analysts estimated a 0.7 percent drop, according to Consensus Metrix, a researcher owned by Wayne, New Jersey-based Kaul Advisory Group. Comparable-store sales are considered an indicator of a retailer’s performance because they include only older, established locations.

McDonald’s has more than 35,600 restaurants worldwide and about 19 percent are owned by the company. By 2016, the chain is seeking to franchise as many as 1,500 of its company-owned stores, primarily overseas, it said in a statement in May.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editors responsible for this story: Kevin Orland at korland@bloomberg.net Stephen West

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