McDonald's warns of lower sales over Chinese food scandal

Friday 08 August 2014 16.24
McDonald's like-for-like sales fell by 2.5% in July - a much larger fall than anticipated
McDonald's like-for-like sales fell by 2.5% in July - a much larger fall than anticipated

McDonald's has said that its global sales forecast for 2014 was at risk after a China food scandal drove away diners and forced the chain to scramble to find new suppliers.

The warning could portend the company's first full year of global sales declines at established restaurants since 2002, Janney Capital Markets analyst Mark Kalinowski said in a client note.

McDonald's global same-restaurant sales dropped a steeper-than-expected 2.5% in July, which Mr Kalinowski said was the company's worst monthly performance in a decade.

The trouble in China hit as the world's biggest hamburger chain was already scrambling to bolster its US business, where monthly sales at established restaurants have been down or flat since November.

But investors were braced for bad news, and McDonald's shares were down just 0.1% at $93.19 in morning trading.

McDonald's on Monday warned that sales in markets including China and Japan were experiencing a "significant negative impact" following a local Chinese TV report on 20 July that showed workers at a supplier using expired meat and doctoring food production dates.

"As a result of the China supplier issue, the company's global comparable sales forecast for 2014 is now at risk," McDonald's said in a statement today.

Last month, executives said they expected full-year worldwide sales at restaurants open at least 13 months to be "relatively flat" due to increased competition, pricing and other cost pressures.

McDonald's said same-restaurant sales in Asia-Pacific, Middle East and Africa, which includes China and Japan, fell 7.3% in July.

McDonald's had 35,683 restaurants in 119 countries around the world on 30 June. Roughly 2,000 of those were in China, and about another 3,100 were in Japan.

The company did not quantify the magnitude of the sales impact in China, where sales had just recovered from the double whammy of a separate food safety scandal and bird flu outbreak that crushed business there last year.

McDonald's Holdings, the long-struggling Japan unit, on 29 July withdrew its full-year earnings forecast after the China meat scare caused sales to drop 15% to 20% on a daily basis.

US same-restaurant sales fell 3.2% in July, more than the 2.6% decline expected by analysts polled by research firm Consensus Metrix.

McDonald's has been losing ground in its home market, hurt by tough competition from Wendy's and Burger King, sluggish job and wage growth, and consumer's diminishing appetite for processed food.

Same-restaurant sales were up 0.5% in Europe, where weakness in Germany and Russia were a drag on results.