McDonald's has outperformed rivals for years, but now the company is struggling with poor economic conditions and intensifying competition
McDonald’s Corporation (NYSE:MCD), the world’s largest hamburger chain, said Friday that its same store sales in Asia Pacific region plummeted 9.5 percent in January due to slow demand in Japan and China. Analysts were expecting a 5.8 percent drop in Asia Pacific, Middle East and Africa.
The Oak Brook, Illinois-based company posted a 1.9 percent decline in global sales, compared to analysts’ estimate of a 1.1 percent drop. January sales of the company declined for the first time since 2003. McDonald’s has outperformed rivals for years, but now the company is struggling with poor economic conditions and intensifying competition.
McDonald’s Corporation (NYSE:MCD) said its same store sales for January in Japan fell 17 percent. The world’s third largest economy is the biggest Asian market for the company where it has 3200 stores. McDonald’s is aggressively promoting breakfast foods and value items as consumer spending continues to decline in Japan. In 2006, the Big Mac seller had over 3800 stores in Japan. But the company has reduced the number of locations to 3200 as sales have been declining for 10 straight months.
In China, January sales were hurt due to consumer sensitivity around the chicken industry. Yum! Brands, Inc. (NYSE:YUM) posted a heavy decline in its fourth quarter China sales after its poultry supplier was found supplying chicken with dangerous levels of antibiotics. Though McDonald’s reportedly served detergent instead of soda to customers, it didn’t affect the company’s sales.
Sales in Europe declined 2.1 percent, and jumped 0.9 percent in the United States. Analysts were expecting U.S. sales to decline 0.3 percent and Europe sales to increase 0.1 percent.
The Buckingham Research Group said in a research report that it remains cautious on the company due to sluggish industry sales and margin pressures. At 16.4x, McDonald’s Corporation (NYSE:MCD) is trading at a -3 percent discount to its 3-year average. The Buckingham Research Group has a Neutral rating on McDonald’s with a $96 price target. Analysts remain neutral because of weak industry conditions. BRG said that the company’s recent focus on value foods will hurt margins.
McDonald’s Corporation (NYSE:MCD) shares initially plunged 0.3 percent, but later gained 0.75 percent to $95.33 in New York trading. Its shares declined 12 percent in 2012, the worst performance of McDonald’s Corporation (NYSE:MCD) in a decade.