McDonald’s Profit Rises, but Year-Over-Year Sales Fall

In announcing its results, the company said that comparable sales worldwide fell 1 percent during the period and warned that comparable sales were expected to dip again in April. It was the first quarterly decline in a decade in sales at restaurants open at least 13 months.

As Burger King and Wendy’s have stepped up their marketing, McDonald’s has responded by promoting its Dollar Menu and other value deals.

The strategy has caused concern among analysts who worry that it could affect profit margins. It has also rankled some McDonald’s franchisees.

But in a conference call with analysts on Friday, McDonald’s executives insisted that offering cheaper prices was necessary because the restaurant industry was barely growing. The executives said McDonald’s needed to steal customers from its rivals.

“That battle for market share has become so critical for the long-term health of business, we’re willing to sacrifice that margin,” said Peter J. Bensen, the company’s chief financial officer.

Although profit margins declined in the first quarter, McDonald’s noted that it picked up market share in many parts of the world, including the United States. But there are signs that such deals are upsetting the independent franchisees.

Janney Capital Markets reported this week that 25 United States franchisees who collectively operate 180 McDonald’s restaurants on average rated their relations with the company below historical levels. Janney said some complained about excessive coupons and discounts.

For the quarter, global sales dropped 1.2 percent in the United States and 1.1 percent in Europe, the company’s biggest region by sales. Sales fell 3.3 percent in the region encompassing Asia, the Middle East and Africa, reflecting weakness in Japan and in China.

For the quarter, McDonald’s earned $1.27 billion, or $1.26 a share, compared with $1.267 billion, or $1.23, a year ago. Revenue edged up 1 percent, to $6.6 billion.

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

Shares of McDonald’s fell 2 percent, to $99.92.

Article source: http://www.nytimes.com/2013/04/20/business/mcdonalds-profit-rises-but-year-over-year-sales-fall.html?partner=rss&emc=rss