Bad weather, hefty competition and a sluggish restaurant industry may have caught up with McDonald’s in the final months of 2016.
A small survey of franchisees by Nomura analyst Mark Kalinowski published this week suggests that McDonald’s same-store sales swung into the red in the fourth quarter. McDonald’s reports financial results for the period on Monday.
The Oak Brook-based burger giant has seen growth slow in the last six months, but its earnings and sales have been buoyed by promotions like all-day breakfast and the McPick 2, the chain’s replacement for the dollar menu.
Franchisees expect same-store sales, which only include restaurants that have been open for 13 months or more, to fall by 1.2 percent overall in the fourth quarter, and forecast a drop of 1.9 percent in the current quarter, which ends in March, according to the survey. The metric is a key gauge of a restaurant’s health, and could suggest that the benefits from successful promotions like all-day breakfast are starting to level off.
But cost cuts and other moves by the world’s largest burger chain may be enough to counter a slowdown in earnings. Analysts surveyed by FactSet, on average, predict that McDonald’s will earn a fourth-quarter profit of $1.41 per share, beating $1.31 per share in same quarter last year. Analysts predict sales will fall to $5.99 billion from $6.34 billion in the 2016 fourth quarter.
Despite seeing strong sales growth for the better part of the tenure of CEO Steve Easterbrook, who took the top job in 2015, customer traffic has not improved as the company had been hoping.
The sluggishness is not unique in the restaurant industry, especially over the last six months. Many eateries chose to raise prices last year for the first time since the recession, but the plan backfired for many restaurants, from fast food to fine dining. Americans, it turns out, weren’t feeling confident in their wallets, hurt by rising costs for things like health care and student loans. Consumers also had plenty of alternatives to visiting a restaurant. Meal kits, delivery services and rising competition from grocery store hot bars added to problems for the industry during the late fall and early winter. Many analysts think that trend will continue in 2017.
McDonald’s is expected to report earnings and sales for the fourth quarter on Monday before the market opens.
An earlier version of this story misstated the fourth-quarter profit forecast compiled by FactSet.
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