U.S. consumer spending hit a high of $98 in December, as compared to $95 in the month of November. Consumers did splurge during the peak holiday season, which should have worked in favor of the retailers in the region. However, there are some who were still unable to match up with its industry peers and failed to meet the expectations.
McDonald’s (MCD, Financial), the burger food joint, did not witness such merriment in its fourth quarter. The fourth-quarter results were below the Street’s estimates, making its shares fall.
The numbers in a nutshell
Revenue for the quarter dropped to $6.57 billion from $7.09 billion in the previous year. This decline was mainly due to weaker store traffic, which resulted in a same store sales decrease of 0.9%. In fact, demand was weak in the U.S. market also, where the comp sales registered a decline of 1.7% due to lower customer visits and tough competition from other industry players. Same store sales in Europe also fell 1.1%, primarily because of softness in Germany and France.
A key reason why McDonald’s had a tough time in attracting enough customers was the food safety scandal in China, wherein leaked video footage showed that the retailer’s supplier use expired meat. This affected sales in the Asia-Pacific region as well as the Middle East, resulting in a drop of 4.8% in the comp sales.
The bottom line of the company too was affected. Earnings fell to $1.13 per share from $1.40 per share in the prior year. The retailer is investing heavily in opening new stores. But it is now trying to control costs. Hence, it plans to slow down its pace of opening new stores, thereby reducing its capital expenditures.
Host of efforts for the future
Firstly, the burger giant is trying to simplify its menu, which has now become pretty elaborate and confusing for the customers. Moreover, it has started with a new concept at its stores, called “Create Your Taste.” This new concept enables customers to customize their orders by selecting the items they want in their burgers at the kiosk. This program is being expanded in most of the stores in America. However, expanding this new program will take time.
Further, it has introduced multiple ways to order to make it convenient for the customers. Along with a self-service kiosk, its customers can place their order through their mobile devices also. Moreover, it has come up with a new marketing campaign, which should help in gaining customer attention.
McDonald’s has entered into a deal to sell coffee at some of the grocery stores. This will help in attracting customers at the busiest places such as the grocery stores. Additionally, it has opened a new sandwich and a salad shop in Australia, expanding its wings into new things.
Summarizing
Factors such as change in customers’ tastes, a shocking food safety scandal and economic headwinds, affected the results of the burger giant. Nonetheless, it is making a number of efforts to overcome it. It plans to expand its business, attract more customers as well as control costs. Its plans to ramp up promotions and decrease the capex by slowing the pace of new store opening should prove to be beneficial. However, investors should be cautious and wait for the right time to invest.
