April 22 (Bloomberg) -- McDonald’s Corp.’s free coffee may have slowed diners’ rush to check out Taco Bell’s waffle tacos.
While McDonald’s today posted falling sales at its established U.S. locations and first-quarter profit that trailed analysts’ estimates, the world’s largest restaurant chain is showing some encouraging signs. The March drop in U.S. sales was the smallest in five months, and the company today said global store sales may be “modestly positive” in April, which would be the second straight monthly gain.
Chief Executive Officer Don Thompson has struggled to attract diners in the past year as a complicated menu slowed service while rivals created new products and ramped up discounts. Burger King Worldwide Inc. has been introducing $1 sandwiches, while Taco Bell began selling breakfast fare, such as sausage burritos and Cinnabon bites. Starbucks Corp. also has been adding new bakery items and egg sandwiches.
“The U.S. has been difficult for them,” Jack Russo, an analyst at Edward Jones & Co. in St. Louis, said in an interview. “The weather has played a role, and I think the competition is a little bit sharper. We’ve seen better results out of Burger King and Wendy’s.”
To fight back, the Big Mac seller offered free McCafe coffee at its more than 14,200 domestic stores from late March into April and also introduced a new Clubhouse burger. While March same-store sales fell 0.6 percent in the U.S., the fifth straight monthly decline, it was the best result since a 0.2 percent gain in October and marked the third straight month that the drop shrank.
The improvement wasn’t enough to lift first-quarter results. Sales at McDonald’s U.S. locations open at least 13 months slid 1.7 percent, compared with a 1.4 percent decline estimated by analysts surveyed by Consensus Metrix.
Harsh winter weather and “challenging industry dynamics” weighed on U.S. results, McDonald’s said.
“The month of April is going to be slightly improved so there are some positives out there,” said Russo, who recommends buying the shares. Europe also continues to improve and be a bright spot for McDonald’s, he said.
Net income fell 5.1 percent to $1.2 billion, or $1.21 a share, from $1.27 billion, or $1.26, a year earlier. Analysts estimated $1.24 a share, the average of 24 projections compiled by Bloomberg. Revenue rose 1.4 percent to $6.7 billion, trailing analysts’ $6.72 billion average estimate.
McDonald’s, based in Oak Brook, Illinois, fell 0.4 percent to $99.32 at the close in New York. The shares have gained 2.4 percent this year, while the Standard & Poor’s 500 Restaurants Index has lost 1.7 percent.
Comparable-store sales advanced 1.4 percent in Europe and 0.8 percent in the company’s Asia Pacific, Middle East and Africa region in the quarter. Same-store sales are considered a measure of a retailer’s performance because they include only older, established locations.
McDonald’s European business is improving as it rolls out new items, such as blended ice drinks in the U.K., and advertises value deals in France. The company gets about 40 percent of its revenue from locations in Europe.
There are more than 35,000 McDonald’s restaurants worldwide and about 81 percent of those are franchised.
(McDonald’s hosted a conference call at 11 a.m. New York time to discuss earnings. To listen, visit MCD US Equity EVT <GO>.)
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