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Monday, November 24, 2014         

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McDonald's barely increases its earnings amid lower sales

By Candice Choi

Associated Press

POSTED:

<br />associated press / may 2<br />@Caption1:McDonald's saw its first quarterly sales decline in a decade. A sign advertises job openings outside <br />a McDonald's restaurant in Chesterland, Ohio.<br />

NEW YORK » McDonald's managed to eke out a higher profit for its first quarter even as the world's biggest hamburger chain failed to lift sales with its Dollar Menu.

The company said Friday that an important sales measurement fell 1 percent during the period and warned that it's expected to dip again in April.

That marked the first quarterly decline in a decade in sales at restaurants open at least 13 months and underscored the troubles the company has been facing.

For the quarter, McDonald's earned $1.27 billion, or $1.26 per share. That compares with $1.267 billion, or $1.23 per share, a year ago.

Revenue edged up 1 percent to $6.6 billion.

Analysts expected a profit of $1.26 per share on revenue of $6.59 billion, according to FactSet.

As Burger King and Wendy's have stepped up their marketing over the past year or so, McDonald's has responded by aggressively touting its Dollar Menu and other value deals to hold on to customers in an industry where imitation is rampant.

The strategy has caused concern among analysts who worry that it could eat into profit margins. It's also rankled some McDonald's franchisees, who operate the vast majority of its restaurants in the U.S.

But in a conference call with analysts Friday, McDonald's executives insisted that offering cheaper prices was necessary in the current climate. Since the restaurant industry is barely growing, they said McDonald's needs to steal customers away from rivals to grow.

"That battle for market share has become so critical for the long-term health of business, we're willing to sacrifice that margin," said Peter Bensen, the company's chief financial officer.

Although profit margins declined during the first quarter, McDonald's noted that it picked off market share in many parts of the world, including the U.S.

But there are signs such deals aren't sitting well with the independent franchisees who operate restaurants.

A survey by Janney Capital Markets released this week found that a sampling of 25 U.S. franchisees who collectively operate 180 McDonald's restaurants on average rated their relations with the company below their historic levels. Janney said some complained about excessive coupons and discounts.

Meanwhile, McDonald's emphasis on the Dollar Menu, which began last year, has had a ripple effect in the industry. Burger King recently said it's retooling its strategy and is now touting a deal for a $1.29 Junior Whopper, among others. Wendy's also revamped its value menu last year, saying it wants to offer customers more options.






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