McDonald’s comparable sales growth misses estimates

Yum Brands, for instance, posted a revenue drop in the latest quarter, with sales at established Taco Bell locations falling by 1 percent from the year before. Stifel restaurant analyst Paul Westra on Tuesday called it the start of a US restaurant recession.

“The overall industry got weaker, and clearly McDonald’s felt some of that”, said Peter Saleh, an analyst at BTIG LLC in NY.

“If history is a guide, we warn investors that restaurant industry sales tend to be the ‘Canary that Lays the Recessionary Egg, ‘” he said. However, the reported EPS was less than analysts’ expectation of $1.38 EPS. Analysts expected $1.39 per share, not including one-time items.

“We’re making steady progress on transforming our business to satisfy the needs of our customers around the world, despite a challenging environment in several key markets”, said chief executive Steve Easterbrook, who was promoted to revive the flagging fast food chain in March 2015. But franchisees also have expressed concern about the company’s ability to pull it off without posing food safety risks and adding too much complexity to a system created to store frozen food.

McDonald’s also is facing additional costs as part of its comeback plan.

But net earnings continued to suffer from the costs of selling off company-owned restaurants to franchisees in a multi-year strategy to trim overhead costs.

The chain said earlier this month that it’s planning to expand all-day breakfast options, adding McGriddles and more sandwiches to the menu.

Total revenue declined 3.5 percent to $6.27 billion, in line with the average analyst estimate, according to Thomson Reuters I/B/E/S.

The company cited softening growth in the restaurant industry as a reason for its results.

The weaker than expected sales follows some of the best growth McDonald’s has seen in recent years.

McDonald’s noted that it was still the fourth straight quarter in which comparable-store sales rose in the USA, despite “softening industry growth”.

It’s a pretty telling admission from the world’s largest fast-food chain, but a realistic one.

McDonald’s surprising performance in the US overshadowed several positive areas.

McDonald’s also is coping with about $230 million in refranchising and moving expenses. USA comparable store sales fell far short of estimates, coming in at 1.8%, against the expectation of a 3.2% increase.

In giant hamburger chain’s high growth segment, it witnessed 1.6% increase in the same-store sales, driven by positive growth in Russian Federation and China. Consumers have been pulling back as a result of economic uncertainties.

“I am confident in our system’s ability to stay the course and execute our turnaround plan to achieve our goals”, Easterbrook said in the statement.