McDonald’s profits fall on virus as consumer traffic shifts in upheaval

NEW YORK, USA – McDonald’s reported a drop in 1st quarter profits on Thursday, April 30, in the wake of coronavirus restrictions as it moved to fortify vulnerable franchisees amid shifting consumer behavior.

The fast-food giant enjoyed comparable sales growth in all 3 of its operating regions through the month of February, but suffered a 22.2% plunge in global comparable sales in March following shelter-in-place orders and other restrictions.

Executives said those trends were continuing in general through April, but the recovery would be dependent on the dynamics in individual markets, with the United States better situated than many foreign markets because of the wide availability of drive-through service.

The company has seen the biggest drops in breakfast consumption, due to the increase in at-home dining, and said weekend traffic has lagged workday visits when more consumers and essential workers are out and about.

“We’re encouraged by some of our early learnings that lead us to believe customers will be seeking known brands and familiar routines,” McDonald’s chief executive Chris Kempczinksi said during a conference call with analysts.

“We’re also seeing a heightened focus on value and convenience.”

Profit fell 17% to $1.1 billion compared with the year-ago period as revenues declined 6% to $4.7 billion.

McDonald’s has slashed its capital spending by $1 billion from $2.4 billion as it puts off investments such as restaurant makeovers.

At the same time, McDonald’s moved to relieve franchisee companies from rent and royalty payments in March and April, providing the enterprises with $1 billion in liquidity assistance, executives said.

Slow Chinese recovery

The company said 99% of its US restaurants are open, with most operating as drive-through, delivery, and take-away. Drive-through now accounts for 90% of US sales.

Several leading markets, including France, Italy, Spain, and the United Kingdom, closed essentially all restaurants during the 1st quarter, but in some cases have reopened a portion of venues in the last week or two, executives said.

The chain has resumed operations in 99% of its Chinese locations, but demand has not fully returned.

“We’re not seeing a V-shaped recovery in China,” Kempczinksi said. “The business trends are improving. But they’re still running negative to where we were a year ago.”

Compared with the US, McDonald’s Chinese operations have fewer drive-through venues and had many more restaurants completely shut during the outbreak, which slows the ramp-up compared with cases where restaurants maintain drive-through and delivery options.

Executives said sales in the US improved in the latter half of April, attributing the bounce in part to the benefit of US stimulus checks reaching consumers.

Neil Saunders, an analyst at GlobalData Retail, cautioned that maintaining sales could be a challenge in the US. 

“We expect the next quarter to be painful as the virus will impact the whole period rather than just part of it,” Saunders said.

“As has been seen in China, while consumers do come back when the lockdown is lifted, they do so slowly and gradually. Within the US, this cautiousness will be augmented by extreme financial distress among some households, which will limit their ability to spend, even on relatively inexpensive dining options.”

The chain’s shares price lost 0.1% to end at $187.56. – Rappler.com