The Wall Street Journal-20080129-Earnings Digest -- Restaurants- McDonald-s Flat Sales Stir Concern- Shares Fall Despite Rise In Net as Price Increases- Economy Are Challenges
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McDonald's Corp. must prove to investors this year that it can weather an economic downturn after reporting a disappointing December sales figure yesterday.
Shares of McDonald's fell 5.6% after the world's largest restaurant chain by sales reported a 2.6% rise in fourth-quarter net income but said same-store sales -- defined as sales at stores open at least 13 months -- were flat. That is the lowest number since March 2003, before the Oak Brook, Ill., company staged a turnaround that has resulted in five years of strong earnings and stock growth.
McDonald's restaurants in Europe and Asia posted strong same-store sales growth last month, and the company's quarterly profit was higher than investors had anticipated. But the weak December sales in the U.S. suggest the Golden Arches could be challenged to increase sales this year if the economy remains weak.
"While we generate better results in a booming economy, like everyone else, we've navigated through tough times before and we're confident we can do it again," McDonald's Chief Executive Jim Skinner told analysts on a conference call.
McDonald's shares fell $3.03, or 5.6%, to $51.07 in 4 p.m. New York Stock Exchange composite trading.
Executives said the Golden Arches will continue to rely on McDonald's Dollar Menu to draw cost-conscious customers in the U.S. and will avoid getting into a pricing war with competitors on its core sandwiches. They attributed the weak December sales in part to bad weather.
The company expects U.S. same-store sales will increase 1.5% in January.
McDonald's faces a number of challenges. In the U.S., it predicts the cost of several major ingredients will increase, with chicken rising 4% to 5% and cheese increasing 8% to 9% while beef costs stay about flat. Unlike supermarkets, which have been passing much of that cost on to consumers, most restaurant chains have been absorbing more of those increases out of concern that higher prices will scare off customers who are trying to cut back on extras. Mr. Skinner said the company doesn't intend to pass on the full amount of its cost increases to customers or franchisees this year.
Mr. Skinner said the company is seeing "robust" results from its tests of an expanded beverage offering that will include espresso drinks. The company also plans this spring to start selling what it calls a Southern-style chicken-biscuit sandwich at breakfast as well as a Southern-style chicken sandwich for the remainder of the day.
