McDonald's to close hundreds of restaurants this year

The fast-food chain says revenue fell by 30% over the past three months.
McDonald's Same Store Sales Up 7.1 Percent In January
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/ Source: CNBC
By Amelia Lucas, CNBC

McDonald’s on Tuesday reported that its quarterly revenue was slashed by nearly a third as coronavirus lockdown measures outside the U.S. weighed on sales for its french fries and cheeseburgers.

While recovery in the U.S. has been comparably stronger, recent surges in COVID-19 cases have forced some states and cities to reimplement restrictions aimed at controlling the spread of the virus. As a result, McDonald’s didn’t offer any forecast for its future performance.

“In many markets around the world, most of notably in the U.S., the public health situation appears to be worsening,” CEO Chris Kempczinski told analysts. “Nonetheless, I believe that Q2 represents the trough in our performance as McDonald’s has learned to adjust our operations to this new environment.”

Still, McDonald’s said it expects to accelerate U.S. restaurant closures this year and permanently shutter about 200 locations. More than half of those are lower sales volume locations inside Walmart stores. However, the company is expecting a total of 350 net new locations in 2020.

The fast-food chain reported second-quarter net income of $483.8 million, or 65 cents per share, down from $1.52 billion, or $1.97 per share, a year earlier. Expenses related to the coronavirus, including $200 million on marketing support in the U.S. and international operated markets, hurt profits.

Net sales dropped 30% to $3.77 billion, topping expectations of $3.68 billion. Global same-store sales declined by 23.9%, helped by larger orders.

Sequentially, the company’s global same-store sales improved. In its home market, same-store sales shrank by 19.2% in April but were down just 2.3% by June. About 2,000 of its U.S. restaurants have reopened their dining rooms, but the company halted those reopenings in early July as coronavirus cases surged again.

CFO Kevin Ozan said that the company expects U.S. same-store sales to be slightly positive in July. Breakfast continues to be the most challenged meal, but the company is stealing market share from its competitors.

Outside the U.S., restaurant closures hampered sales, but 94% of locations had reopened to partial operations by the end of the quarter. Ozan said that markets with a higher percentage of drive-thrus are showing faster recovery.

McDonald's in France and the United Kingdom saw same-store sales slashed by two-thirds in April. By June, the unit’s same-store sales declined 18.4%.

In the international developmental-licensed-markets segment, which includes China and Brazil, same-store sales fell 32.3% in April, 20% in May and 20.3% in June.

One bright spot was Japan, which reported same-store sales growth for the quarter. Executives said that the company will gradually divest some of its 49% stake in McDonald’s Japan, thanks to its success over the last few years.

McDonald’s includes locations that were temporarily shuttered in its same-store sales calculations.

Kempczinski said that the company will be thinking about affordability and value as consumer sentiment trends negative. The U.S. entered a recession in February, according to the National Bureau of Economic Research.

This story originally appeared on CNBC.