McDonald’s posted its worst quarterly restaurant sales growth performance in nine years, reflecting the tough competition in the U.S. and the weakening economy abroad.
The world's biggest fast-food chain is battling more than the gloomy global economy that is curbing appetites for purchases of its hamburgers, salads and smoothies. Resurgent chains like Burger King Worldwide Inc and Yum Brand Inc's Taco Bell now are challenging McDonald's in the United States with revamped menus, celebrity endorsers and a renewed focus on low-priced food.
McDonald's domestic market falls just behind Europe as the company's top region for sales.
Easing food cost inflation has allowed U.S. restaurants to step up their menu price wars. "It's led to a very cutthroat restaurant environment," Morningstar analyst R.J. Hottovy said.
"You have a scenario where the overall pie is shrinking, and companies are competing aggressively to take their piece of it," Bernstein Research analyst Sara Senatore said.
When asked by Reuters to explain why the third quarter's results lagged even those put up during the height of the financial crisis, McDonald's Chief Executive Officer Don Thompson attributed the results to the tougher battle for stomachs and economic challenges in each of the company's major regions.
That confluence of factors forced McDonald's to miss Wall Street's earnings estimates for the second quarter in a row. It also warned that sales at established restaurants - a closely watched gauge of restaurant performance - are down so far this month.
"When the economic crisis began in 2008, few people thought the environment would still be as uncertain and fragile as it is today," Thompson said. "It is clear, however, that this operating environment is the new normal," said the CEO, who added that the company's marketshare is flat or up in all major markets.
Thompson said revenue in stores open at least 13 months, a key restaurant metric, is trending negative so far in October.
Income at McDonald's fell 3.5 percent to $1.46 billion, or $1.43 per share, in the third quarter. Analysts, on average, expected McDonald's to earn $1.47 per share, according to Thomson Reuters I/B/E/S.
The impact of the stronger dollar, which decreases the value of sales overseas for U.S. companies, trimmed earnings by 8 cents per share.
Total sales slipped 0.2 percent to $7.15 billion.
That news sent shares down $4.14, or 4.5 percent, to close at $88.72 Friday. The stock had been down 7 percent since the beginning of the year.
