McDonald's July same-store sales flat, worst in 9 years

(Reuters) - McDonald's Corp reported flat sales in July at established restaurants around the world, its worst performance in more than nine years and a signal that a weakening global economy is taking a bite out of mainstream diners' discretionary spending.

The results came in far below Wall Street's expectation and marked the first time since April 2003 that sales at restaurants open at least 13 months did not rise.

Shares of the world's biggest hamburger chain were down 1.6 percent at $87.56 in midday trading. The stock has fallen more than 14 percent from its peak of $102.22 in January.

"We've grown used to seeing McDonald's weather bad economies, so this is a bit of a surprise," RBC Capital analyst Larry Miller said.

Just two weeks ago, McDonald's said it had expected worldwide July sales at restaurants open at least 13 months to rise, but not as much as the 3.7 percent gain reported in the second quarter.

Analysts polled by Consensus Metrix expected a gain of 2.3 percent and the flat result suggested that sales slowed in the days after McDonald's issued same-restaurant sales guidance on July 23.

"It's clear that the consumer is starting to cut back a little," Edward Jones analyst Jack Russo said.

After months of outpacing rivals, it appeared that McDonald's ceded a bit of market share in July.

Burger King Worldwide Inc is among the fast-food chains that have stepped up their game with new food and promotions. It has been blitzing diners with sexy ads starring the likes of football star David Beckham and silver screen siren Salma Hayek.

"Its competitors have more news and they're promoting more aggressively. There's no question that their competitors are getting better," Bernstein Research analyst Sara Senatore said.

McDonald's advertising sometimes missed the mark last month, when calendar shifts weighed on results.

July sales in the United States and Europe were down 0.1 percent and 0.6 percent, respectively.

Analysts, on average, expected a 2.2 percent gain in the United States and a rise of 2.4 percent in Europe.

Europe just edges out the United States as McDonald's top market for sales. Results in France and Germany - two top European markets for McDonald's - were weak amid ongoing belt-tightening and the company called out concerns about "several Southern European markets amidst an increasingly difficult environment."

U.S. promotions were not enough to "offset the effects of the sluggish economy," the company said.

Domestic sales of new chicken McBites slowed more than expected after McDonald's stopped pitching the item. The company also was up against a strong result from last July, when its extremely successful mango pineapple smoothie bolstered sales.

Same-restaurant sales from the Asia/Pacific, Middle East and Africa region were down 1.5 percent, while analysts expected a 1.4 percent gain.

Ongoing weakness in Japan, major flooding in China and a shift in the timing of Ramadan were among the factors weighing on sales in that region.

McDonald's has high hurdles ahead, Russo said, noting that it will need to post same-restaurant sales growth on top of gains last year, when many of its rivals were suffering same-restaurant sales losses.

McDonald's July results did not shake the confidence that portfolio manager Harvey Neiman has in the company, which is a holding in his Neiman Large Cap Value Fund .

"Their foot is still to the pedal," Neiman said. "If we see a six-month trend like this, then we'll wonder what's going on at the helm. We're not on the alert yet."

(Reporting By Lisa Baertlein in Los Angeles and Brad Dorfman in Chicago; Editing by Gerald E. McCormick, Jeffrey Benkoe, Dan Grebler and Bernard Orr)

Source: http://news.yahoo.com/mcdonalds-july-same-store-sales-flat-worst-9-172101280--sector.html

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