McDonald’s Posts Sales Decline as New CEO Takes Helm

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Why Isn’t Anything Working at McDonald’s?

Steve Easterbrook, the man charged with pulling McDonald’s Corp. out of its worst sales slump in more than a decade, is now seeing what he’s up against.

As Easterbrook started his second week as chief executive officer Monday, McDonald’s reported its ninth straight month of shrinking same-store sales. The numbers were particularly bleak in the U.S., where the fast-food chain saw a 4 percent decline.

The weak performance suggests the new CEO won’t get much of a honeymoon as he works on a comeback plan, said Will Slabaugh, an analyst at Stephens Inc. in Little Rock, Arkansas. The company is scrambling to revamp its menu and operations after an exodus of customers to fast-casual chains like Chipotle Mexican Grill Inc. and Panera Bread Co.

“This likely ups the urgency in terms of this new management team putting a plan out there to turn around the business,” Slabaugh said. “We’re seeing that these negative results are continuing and investors need to see a viable alternative.”

In Easterbrook’s first week on the job, McDonald’s announced plans to stop serving chicken raised with some antibiotics in its U.S. restaurants. McDonald’s also had posted modest sales gain in the U.S. the previous two months, raising hopes that a recovery was under way. Instead, sales came crashing back down in February.

Though the results were worse than analysts had estimated, the stock rose on Monday -- a sign investors are counting on Easterbrook to reinvigorate the company. McDonald’s climbed 0.6 percent to $97.71 at the close in New York. The shares have gained 4.3 percent this year.

Asia Woes

In addition to suffering a slump in the U.S., McDonald’s continues to struggle in Asia. Same-store sales, which track locations open at least 13 months, dropped 4.4 percent in the region last month. That followed a decrease of almost 13 percent during January, when results were dragged down by a health scare and supply problems.

The company has been dealt a series of setbacks in Asia, including the rationing of french fries in Japan and a scandal involving a meat supplier. The vendor, Shanghai Husi Food Co., was accused of repackaging old meat in July, prompting McDonald’s to take products off its menus in the region.

The woes have taken a heavy toll in Japan, where McDonald’s lost $186 million in 2014. The company’s sales plunged 29 percent in that country during February.

Recovery Sputters

U.S. sales, meanwhile, had been showing signs of a rebound. They climbed 0.4 percent in January and posted a similar gain in December. That followed a streak of 13 straight months without growth in its home market.

Though analysts had been bracing for a decline in February, they didn’t expect it to be so steep. They’d estimated a decrease of 0.7 percent, according to Consensus Metrix.

Easterbrook, who is British, became only the second non-American to run the fast-food chain after Don Thompson announced plans in January to step down. Easterbrook joined the company in 1993 in London and eventually managed divisions in Europe from 2006 to 2011.

McDonald’s is retooling its U.S. operations in a bid to speed up service and draw customers back to its roughly 14,000 domestic restaurants. As part of the effort, the Oak Brook, Illinois-based company plans to expand its Create Your Taste program, a customizable sandwich system, to more U.S. restaurants this year.

Changing Tastes

“Consumer needs and preferences have changed,” the company said in Monday’s statement. “McDonald’s current performance reflects the urgent need to evolve with today’s consumers, reset strategic priorities and restore business momentum.”

McDonald’s attributed the U.S. slump to “ongoing aggressive competitive activity.” But cutting prices won’t be enough for McDonald’s to restore its domestic business, said Asit Sharma, an analyst at the Motley Fool in Raleigh, North Carolina. To win customers back, Easterbrook needs to restore the company’s reputation, he said.

“Easterbrook and his team will have to provide consumers with new, persuasive reasons to increase their visits,” he said. “And the first order of business is to improve the quality perception around McDonald’s menu.”

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