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McDonald's shares hit by flat US same-store sales

The cold blast of the US economic downturn has blown into McDonald's. The world's biggest fast-food chain surprised Wall Street on Monday with a warning that consumers were cutting back on Big Macs and fries.

Widely seen as relatively immune to recession because of its rock-bottom prices, McDonald's delivered a 22 percent increase in profits to US$1.35 billion for the final quarter of the year.

It boasted of strong momentum in Britain and elsewhere in Europe. But to the alarm of investors, McDonald's said that while sales at US restaurants open at least a year were up 3.3 percent during the quarter, they slowed to zero last month.

Chief executive Jim Skinner blamed the slowdown partly on harsh winter weather putting off "convenience" customers. But he said a weakening in the economy was depressing comparable sales by 1 to 2 percentage points.

"We acknowledge that the general retail industry here seems to have been impacted by the economic environment," said Skinner, who pointed out that McDonald's has traditionally been robust in downturns. "We've navigated through tough times before and we're confident that we can do so again."

McDonald's shares dived 5.3 percent to US$51.21 during early trading on Monday on the New York stock exchange -- a rare setback for a firm that has seen its stock price quadruple over five years.

Analysts said the company's predominantly blue-collar customers were feeling the pinch from the subprime mortgage crisis.

"Virtually across the board, every retailer saw a significant deterioration in business in December and I have every reason to think that's continuing," said Bob Goldin, vice president of Technomic, a food consultancy.

"McDonald's has been on such a roll that eventually the laws of gravity do kick in," he said.

McDonald's has 30,000 restaurants globally, serving food to an average of 52 million people every day. Last year, it made profits of US$2.39 billion from sales of US$22.7 billion.

In Britain, McDonald's has been redesigning outlets with a more contemporary look, removing strip lighting and immobile seats. Skinner said 140 British outlets had been refurbished, with a further 200 to be changed this year.

He said that earlier opening times were proving popular with British customers -- illustrated by a 22 percent jump in sales of coffee.

"We have not seen a slowdown," Skinner said. "Our UK business momentum continues this month and we're confident about our prospects."
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