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E.coli outbreak impacts McDonald's US sales

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Analysts warn of franchise margin pressure due to heavy

discount

reliance

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International sales rise, driven by Middle East and Japan

By Savyata Mishra

Feb 10 (Reuters) - McDonald's posted a

steeper-than-expected drop in quarterly U.S. comparable sales on

Monday, as demand took a hit from a brief E.coli outbreak while

diners remained watchful of their spending.

Comparable sales in the U.S., McDonald's biggest market,

fell 1.4% in the fourth quarter, its steepest drop since the

height of the COVID-19 pandemic almost five years ago when

restaurants limited operations to drive-thru and delivery.

Analysts on average had estimated a 0.4% decline, according

to data compiled by LSEG.

The burger giant saw customer visits weaken following an

E.coli outbreak that started on October 22 and forced McDonald's

to temporarily suspend sales of its Quarter Pounder hamburgers

in a fifth of its 14,000 U.S. restaurants.

The U.S. Centers for Disease Control and Prevention on

December 3 ended its investigation of the incident, which

sickened hundreds and killed at least one person.

Similar to fast-food rivals such as Yum Brands ( YUM ) and

Wendy's, McDonald's also ramped up its limited-time

offers and meal deals throughout 2024 in an attempt to spur

spending among customers preferring to eat meals at home.

The company extended its $5 meal deal launched in June into

December and introduced Chicken Big Mac in October, along with

other special releases.

Customer traffic ticked up slightly in the quarter from last

year, McDonald's reported, but that increase was offset by a

smaller average amount spent per customer per visit.

Analysts have warned that the company's overreliance on

discounts, which now account for over a third of sales,

according to BTIG analyst Peter Saleh, could pressure franchise

margins in the future.

"In our view, the challenge McDonald's faces in the months

and quarters ahead will be weaning customers off these deep

discounts," Saleh said.

Comparable sales in the company's International

Developmental Licensed Markets segment rose 4.1% in the quarter

ended December 31, beating estimates of a 0.43% drop. The

improvement was led by Middle East and Japan markets.

Sales in international markets rose 0.1%, saddled by

weakness in Britain.

Global same-store sales increased 0.4% in the quarter, a

surprise rise compared with analysts' expectations of a 0.63%

decline.

McDonald's posted a 5% drop in net income to $2.04 billion

on an adjusted basis, compared to estimates of $2.07 billion.