McDonald's sees plummeting August sales due to food scare

A McDonald's restaurant is pictured in Encinitas, California September 9, 2014. McDonald's Corp on Tuesday reported declining sales at established restaurants across all regions in August, the fifth monthly drop since CEO Don Thompson took the helm in July 2012, and warned a China supplier scandal would cut into profits. [Photo/Agencies]

US burger seller steps up supplier audits, names safety chief for China

McDonald's Corp, the world's largest restaurant chain, posted its worst same-store sales decline in more than a decade, hurt by sluggish demand in the United States and a health scare involving a Chinese supplier.

Sales at stores open at least 13 months fell 3.7 percent in August, the Oak Brook, Illinois-based company said on Wednesday. Analysts had predicted a 3.1 percent drop. McDonald's also said supplier problems in China will reduce third-quarter earnings per share by 15 to 20 cents.

The fast-food chain, which has more than 14,200 US locations, is facing challenges at home and abroad. Domestically, it has been relying on discounts, limited-time offers and remodeled stores in a failed attempt to reignite growth.

In China, meanwhile, the company's meat supplier OSI Group LLC was investigated for changing the expiration dates on food, triggering shortages and a sales slump.

Food scandal hurt McDonald's results

Scandal hurting McDonald's Asia earnings

"There isn't a lot of good news here," Peter Saleh, a New York-based analyst at Telsey Advisory Group, said in an interview. "China business is going to be under pressure for a while; their traffic is down in the US."

Share price declined 1.5 percent to $91.09 at the close in New York. The Big Mac seller has slumped 6.1 percent this year, while the Standard & Poor's 500 Restaurants Index lost 2.4 percent.

US same-store sales dropped for the fourth straight month in August, falling 2.8 percent. Analysts had projected a 2 percent decrease, the average of projections from Consensus Metrix.

Weak sales may pressure US margin in the third quarter, the company also said on Wednesday.

In the US, the chain has been trying to lure diners with $2 jalapeno burgers and 20-piece Chicken McNuggets for $5. There has also been steeper competition, as rivals, including Burger King Worldwide Inc and Yum Brands' Taco Bell, advertise value meals and cheap breakfast fare.

In August, the company said Mike Andres would take over as president of US operations when Jeff Stratton retires next month.

Same-store sales in the company's Asia Pacific, Middle East and Africa division dropped 14.5 percent last month. Analysts projected a 10.1 percent drop. Same-store sales in Japan tumbled 25 percent in August following the food safety scare.

Earlier this month, the company said it has appointed a China food safety chief and is stepping up audits of suppliers after it had to pull products.

Same- or comparable-store sales are considered an indicator of a retailer's performance because they include only older, established units.

McDonald's is scheduled to release its third-quarter earnings on Oct 21. Analysts estimate profit of $1.51 a share, on average.

Sales fell 0.7 percent in Europe, where McDonald's gets about 40 percent of its revenue. Analysts had estimated a 2.1 percent decrease, according to Consensus Metrix, owned by Kaul Advisory Group in Wayne, New Jersey.

The restaurant chain is also facing pressure in Russia, where consumer-safety regulators recently ordered restaurants to temporarily close because of violations of sanitary rules. More than 100 McDonald's stores are being inspected and could be under threat of closure.