July 29, 2009

McDonald's proved that it is not immune from the world's economic problems, as its second quarter income declined year-on-year and same-store sales were not up to analysts' expectations.

 

McDonald's earned US$1.09 billion in the second quarter, down eight percent on-year, while revenue also dropped seven percent to US$5.65 billion, with unfavourable currency trends seen to have played a hand in the results.

 

The fast food giant's shares fell US$2.73 or 4.6 percent to US$56.09, the biggest one-day decline in nine months.

 

Same-store sales in June were up 2.6 percent on-year worldwide, short of the five-percent increase expected by analysts.

 

Stock analyst Jack Russo said the June same-store sales had been shocking because investors had expected much more from McDonald's.

 

The slowdown was most pronounced in the US and Asia. US same-store sales in June rose 1.8 percent compared to Wall Street's expected three percent. For the first half of 2009, US same-store sales rose 3.6 percent.

 

McDonald's executives and stock analysts blamed the weak economy for the slowdown, saying that even fast-food restaurants are not immune to it. Still, chief operating officer Ralph Alvarez said McDonald's did posted sales growth in the second quarter while the US fast-food industry as a whole has seen sales decline, and the healthy sales front has allowed the company to pick up US market share.

In Asia and the Middle East, McDonald's same-store sales in June were up only 0.3 percent on-year. Business was particularly weak in China and Japan, with the former seeing a drop in same-store sales in June and in the entire second quarter.

 

About 40 percent of McDonald's business in China is concentrated in the southern factory belt, which has been hit hard by the global economic downturn. As thousands of factories closed down, workers have migrated back to their home provinces, sharply reducing demand for US fast food, said Alvarez.

 

Because of that, McDonald's have decided to scale back its planned 2009 restaurant openings in China to between 140 and 150 from 175.

 

However, Alvarez said he thought the problems in China are temporary, and the situation will improve.