McDonald's Corp. reported a 3.5% decline in third-quarter earnings as sales slowed more dramatically than expected because of a sluggish economy and a disappointing marketing campaign.
McDonald's predicted its sales and earnings growth will "remain pressured" over the next few quarters by the weak economy, and conceded that it needs to be more aggressive in advertising low prices.
As the world's largest fast-food chain, McDonald's has touted its global scale and mix of both value-oriented and higher-priced menu items as key to enduring tough economic times. But the once-resilient restaurant operator isn't weathering the current market turbulence as well as it did the crisis of 2009 because the downturn is more widespread and competition is closing the gap.
"We face softening demand, heightened competition and rising costs in many of our markets," Chief Financial Officer Pete Bensen said. In a weaker economy, customers tend to stop getting extras like drinks and desserts and premium items like Angus burgers, which all offer higher profits to McDonald's. Plus, they may not go out to eat as frequently.
McDonald's shares were down 4.5% to $88.72 in 4 p.m. composite trading Friday on the New York Stock Exchange, as Wall Street analysts were expecting an increase in per-share profit for the quarter, not a decline.
Chief Executive Don Thompson said McDonald's move earlier this year to shift its marketing focus in the U.S. to the higher-priced and more profitable "Extra Value Menu" from the successful "Dollar Menu" didn't "resonate as strongly" with consumers.
"We're going back to talk of the Dollar Menu," Mr. Thompson said.
Saturday, October 20, 2012
At the Wall Street Journal: