McDonald's (MCD) had another depressed quarter to close out 2014, a year that was memorable often for the wrong reasons.
Now its goal is to start seeing whether some of its many initiatives, from greater customization to technology enhancements, get the business turned around this year. So far, investors aren't full of confidence, with the stock trading down after an earlier gain. And company management is noting yet more worries from the outset.
On Friday, the world's largest restaurant operator measured by market value and total sales said it earned $1.13 a share in the fourth quarter, including a deduction calculated at 9 cents for a supply problem in China that lowered Asia's sales last year. That fell from $1.40 in the 2013 fourth quarter. Revenue was right under $6.6 billion, down 7%, and global comparable sales fell 0.9%, as guest traffic counts dropped in all major regions. Not especially compelling, yet in some ways it could have been worse.
According to FactSet, analysts were planning for earnings of $1.22 a share, revenue of $6.7 billion and a same-store sales decline of 1.6% -- the comp sales number actually had worsened in the past few days.
In the U.S., fourth-quarter same-store sales were off by 1.7%, and operating income was lower by 15%, with the number of checkouts continuing to fall. However, the sales result in fact was better than the 2.1% decrease that had been expected, according to Consensus Metrix. Another positive was that, in December, United States comps were up 0.4%, the first monthly increase since October 2013.
Still, same-store sales overall were down 1% for the year, with traffic to McDonald's locations in reverse for the second year in a row. This time, it was worse by 3.6%, after a 1.9% loss in 2013, though the Asia-Pacific setbacks factored in here. Full-year revenue fell 2% to $27.4 billion, about $100 million below estimates and a year-over-year downturn for only the second time in 20 years.
"Our business continues to face meaningful headwinds," CEO Don Thompson said. "Over the next 12 months, our charge is to ensure that we are adapting to the changing marketplace and maximizing the potential of our global growth priorities to serve our customers' favorite food and drink, create memorable experiences, offer unparalleled convenience and become an even more trusted brand."
Not the best start
That won't be simple for a company that, despite its tremendous reach, regularly has difficulty convincing diners of its merits. This year is starting out with issues both new -- a lawsuit was filed this week by a group of former employees -- and ongoing, as January same-store sales are forecast to be negative and "results are expected to remain pressured, particularly in the first half of the year." Even so, Thompson said he was "confident that we can regain our momentum and build value for shareholders over the long term."
Recently, the stock was down 1.2% at $89.76. McDonald's has traded in a range of $87.62 to $103.78, an all-time high, in the past year. It has held up well considering a run of bad news around the company, showing that its long-time investors aren't ready to quit on a stock with $90 billion in worldwide revenue, billions in cash flow and a solid dividend. Regardless, activist talk has been mentioned around McDonald's stock, with at least two of these firms building their positions in the second half of 2014.
McDonald's said its U.S. business "begins 2015 evolving to a more nimble, customer-led organization with a strategic roadmap focused on menu simplification and local customer tastes and preferences." The burger giant has been working on a broad plan to improve its operations by removing some menu items, allowing for more regional fare at its domestic stores and incorporating new ordering capabilities, as well as trying sandwiches built to order.
It's also going to put less money toward new restaurants. McDonald's has a $2 billion capital spending budget planned, what it said was its lowest in more than five years. That's because it likely will open fewer stores in certain of its weakest markets, including Russia, Germany and the U.S. It will still probably have a net addition of 600 to 800 stores, CFO Peter Bensen said on a conference call. For a few years already, openings in its home market have been slow, keeping the restaurant count nationwide at about 14,000.
The Oak Brook, Ill., company has more than 35,000 locations around the world. Some 80% of the stores are operated by franchise owners.