McDonald’s says rough ride to continue into 2015

Reuters — McDonald’s Corp. warned Friday that business will be weak in the first half of 2015 and it is cutting its annual construction budget to the lowest in more than five years as it opens fewer restaurants in struggling markets.

The world’s largest fast-food chain, with more than 36,000 restaurants around the globe, just finished one of its toughest years in decades.

It struggled to recover from a food scare in China that battered Asian sales and wrestled with economic weakness and political upheaval in Europe, its top revenue market. The company also lost market share to rivals in the U.S., where its image has been dented by frequent protests from workers seeking higher wages.

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Sales at established restaurants, a closely watched gauge of performance also known as comparable sales, fell during the fourth quarter and for all of 2014. Revenue and net income suffered the same fates.

CEO Don Thompson, who took the helm in July 2012 and is under pressure to turn the business around, said he expected the trend to continue as McDonald’s works to make the business to be more nimble and responsive to customers.

“January comparable sales are expected to be negative and results are expected to remain pressured, particularly in the first half of the year,” Thompson said in a statement.

The company, trying to find the right recipe for diners’ growing appetite for healthier and fresher food, is trimming complicated menus, giving more control back to restaurant operators and testing customized burgers and sandwiches to compete with popular restaurants such as Chipotle Mexican Grill and Subway.

Fourth-quarter net income dropped 21 per cent to $1.1 billion, or $1.13 per share, while revenue fell more than seven per cent to $6.57 billion (all figures US$). Global sales at established restaurants were down 0.9 per cent.

U.S. comparable sales in December offered a glimmer of hope, rising 0.4 per cent and marking the first increase since October 2013.

McDonald’s set a 2015 capital spending target of around $2 billion, down from about $2.7 billion last year.

Company shares, which have underperformed rivals, the Dow and the S+P 500, dipped 0.4 per cent to $90.62.

— Reporting for Reuters by Lisa Baertlein in Los Angeles and Yashaswini Swamynathan in Bengaluru.


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