McDonald's fails to boost sales with Dollar Menu

Published: Friday, April 19, 2013 1:10 p.m. CDT • Updated: Friday, April 19, 2013 3:13 p.m. CDT
Caption
(AP file)
This May 2012 file photo shows a sign advertising job openings outside a McDonalds restaurant in Chesterland, Ohio. The company said Friday that an important sales measurement fell 1 percent during the period and warned that it's expected to dip again in April.

NEW YORK – McDonald’s managed to eke out a higher profit for its first quarter even as the world’s biggest hamburger chain failed to lift sales with its Dollar Menu.

The company said Friday that an important sales measurement fell 1 percent during the period and warned that it’s expected to dip again in April.

That marked the first quarterly decline in a decade in sales at restaurants open at least 13 months and underscored the troubles the company has been facing.

As Burger King and Wendy’s have stepped up their marketing over the past year or so, McDonald’s has responded by aggressively touting its Dollar Menu and other value deals to hold onto customers in an industry where imitation is rampant.

The strategy has caused concern among analysts who worry that it could eat into profit margins. It’s also rankled some McDonald’s franchisees, who operate the vast majority of its restaurants in the U.S.

Although profit margins declined during the first quarter, McDonald’s noted that it picked off market share in many parts of the world, including the U.S.

But there are signs such deals aren’t sitting well with the independent franchisees who operate restaurants.

A survey by Janney Capital Markets released this week found that a sampling of 25 U.S. franchisees who collectively operate 180 McDonald’s restaurants on average rated their relations with the company below their historic levels. Janney said some complained about excessive coupons and discounts.

Such items are generally more expensive, and CEO Don Thompson noted that they could help improve margins in coming quarters.

For the three months ended March 31, the global sales drop included a 1.2 percent decline in the U.S. The sales figure fell 1.1 percent in Europe, the company’s biggest region by sales.

It fell 3.3 percent in the region encompassing Asia, the Middle East and Africa, reflecting weakness in Japan and a 4.6 percent drop in China. The company blamed the decline partly on the aftereffects of the recent scare of the chicken supply for KFC, which is owned by Yum Brands Inc.

McDonald’s Corp., based in Oak Brook, has more than 34,000 locations worldwide, about 14,000 of those in the U.S.

For the quarter, it earned $1.27 billion, or $1.26 per share. That compares with $1.267 billion, or $1.23 per share, a year ago.

Revenue edged up 1 percent to $6.6 billion.

Analysts expected a profit of $1.26 per share on revenue of $6.59 billion, according to FactSet.

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