McDonald's Corp. posted its first-ever quarterly loss as the company that popularised fast food absorbed the costs of closing hundreds of restaurants and scaled back its profit growth targets.
The world's largest restaurant company, facing a fierce price war and changing consumer tastes in the United States, said it would close an additional 517 weak-performing restaurants there and in Japan.
"Many of their markets have been super-sized for too long," said US Bancorp Piper Jaffray analyst Allan Hickok. "They're going to skinny them down."
McDonald's posted a fourth-quarter net loss of $343.8 million, or 27 cents a share, more than four times greater than it had forecast just five weeks ago.
Shares of the Oak Brook, Illinois-based maker of Big Macs, Quarter Pounders and Big 'N Tasty hamburgers fell 36 cents to close at $15 on the New York Stock Exchange. Earlier, the shares touched $14.65, their lowest level in eight years.
In December, Chief Executive Jack Greenberg left under pressure after two years of earnings declines and global sales pressure from factors ranging from mad cow disease in Europe and Japan to weak economies in Asia.
"Considering the size and nature of our business, a 10-15 per cent earnings per share growth target is not realistic," Jim Cantalupo, the company's new chairman and chief executive, said in a statement, pulling back from a goal set in November 2001.
Cantalupo, who made his debut address as CEO to Wall Street last week, surprised investors by presiding over a conference call to discuss the quarterly earnings on Thursday. He declined to set a new earnings target. Last week McDonald's said it would no longer provide quarterly earnings forecasts.
McDonald's retrenchment signals a reversal for the company that launched something of a cultural revolution in the 1950s, when founder Ray Kroc began offering hamburgers and french fries at his signature Golden Arches restaurants all over the United States, and later the world. At one point the company was adding one store every four hours.
But customer service in recent years has suffered in the wake of heady growth. Meanwhile, competitors like Burger King Corp. copied McDonald's fast-food formula, leading to increased competition. The company also became an icon of global capitalism, blamed for everything from the destruction of the environment to obesity in America.
McDonald's said it plans to open about 450 of its traditional stand-alone hamburger outlets this year, 40 per cent fewer than in 2002.
The company took charges of $656.9 million after taxes in the fourth quarter, mainly to cover the cost of closing 719 restaurants, exiting the markets of Bolivia, Paraguay and Trinidad, restructuring in the Middle East, cutting some 600 jobs and ending a multiyear technology project.
About 200 of the stores were closed in 2002 and the others will be closed this year. Most of the restaurants have negative cash flows and low yearly sales volumes, McDonald's said.
The magnitude of the closings and the fourth-quarter writedowns are higher than McDonald's initial forecast in mid-December, when it said it would take about $435 million in charges to shutter some 175 stores.
"They're throwing in the kitchen sink here, which is not unusual for new management to do," said Tim Ghriskey, who heads Ghriskey Capital Partners LLC, which owns McDonald's as a core holding. "It really helps clear the boards and provides a very solid operating base going forward."
McDonald's said worldwide sales, including both company-owned and franchised restaurants, rose four per cent to $10.5 billion in the quarter. Before the effect of foreign currency, sales were up two per cent. Sales at comparable restaurants in the United States and Europe, McDonald's two largest markets, were down in the quarter.
In a sign McDonald's is becoming increasingly stringent toward US operations, it said that 68 US franchisees operating 160 stores were forced out of the system last year, on the basis of weak store performance ratings.
McDonald's reiterated its plans to stick with a discount "Dollar Menu," which offers drinks, sandwiches and fries each for a dollar. The menu has boosted restaurant traffic, but has been criticised for shrinking profit margins and igniting a costly price war with rival Burger King, the No. 2 hamburger chain.