McDonald’s is having a rough year, as shown in another dismal quarterly earnings report – but there are signs of recent improvement.
Total sales sank 30% in the second quarter compared to a year ago, McDonald’s announced Tuesday, falling to $3.77 billion. Net income plummeted 68% to $483.8 million. The figures reflect the April to June period, the first full quarter of coronavirus effects in the United States.
“In many markets around the world, most of notably in the US, the public health situation appears to be worsening,” McDonald’s CEO Chris Kempczinski said in its earnings call. “Nonetheless, I believe that Q2 represents the trough in our performance as McDonald’s has learned to adjust our operations to this new environment.”
Beneath the dismal numbers, some numbers indicated improvement as the quarter went on.
For example, US same-store sales were down 19.2% in April compared to last year. But that loss narrowed rapidly, to down 5.1% in May and just a 2.3% decrease in June. Sales in July “trended up”, according to Chief Financial Officer Kevin Ozan, and he expects it them to be “slightly positive” for the month.
But same-store sales outside the US fell even more and their recovery has been slower, dragging down total global same-store sales. That global figure was down 39% in April compared to last year, almost 21% in May and more than 12% in June.
Breakfast, which was previously a troublesome part of the day for McDonald’s prior to Covid-19, continues to be a drag on its sales. In addition to rising competition, such as from Wendy’s, the meal also “continues to be disproportionately impacted by disruptions to commuting routines,” Kempczinski said. A marketing push for breakfast will roll out later this year.
McDonald’s (MCD) said its drive-thru, delivery and digital options are helping to bolster its business. Kempczinski said the company has seen “significant increases” in drive-thru sales across its restaurants as many locations were forced to shutter their dining rooms. That said, the company has slowed the reopening of dining rooms in states where the number of virus cases are still rising.
The virus, however, has prompted McDonald’s to accelerate the closures of restaurants originally planned to shut down in years anead. The company will close 200 locations this year, with more than half of them being in “low-volume” Walmart locations.
The company also announced plans to divest part of its stake in its Japan business, and will reduce its ownership there from about 49% to at least 35%.
The move is intended to help give the company more “financial flexibility” as it looks to save cash and preserve its liquidity throughout the pandemic, according to Ozan.
Japan has been a bright spot for McDonald’s in recent years. Same-store sales there grew last quarter, “partly thanks to our brand’s reputation for cleanliness and convenience with Japanese customers,” Kempczinski said.
The decision to dial back in the market signals “our confidence in the local management team,” Ozan added.
Kempczinski also said that internal surveys of McDonald’s customers about the year ahead are gloomy.
“I’m certainly not qualified to make any predictions around whether we’re going to be in recession or not, but I’d certainly say there’s a lot of warning signs out there that would suggest that the consumer sentiment and consumer concerns about the economy is negative and going in the wrong direction,” he said.
Shares closed down 2.5% on Tuesday.
— Michelle Toh contributed to this report.