McDonald's franchisees brace for sales slowdown


Despite cheap gas padding Americans' wallets, McDonald's U.S. franchisees surveyed by Janney Capital Markets forecast negative trends to continue.

This month, respondents expect a 1.7 percent drop in their domestic same-store sales.

In light of its lowered same-store sales assumptions and potential currency effects for the company, Janney slashed its U.S. first-quarter same-store sales forecast by 350 basis points to a 1.5 percent drop. It's also lowering its full-year earnings estimates for fiscal years 2015 and 2016 as the fast food giant faces macroeconomic challenges in Europe and food safety concerns in China.

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"McDonald's not seeming to participate in the industry's overall lift," said Janney analyst Mark Kalinowski.

Buoyed by favorable weather comparisons and cheap gas, December is shaping up to be the "best month in years for U.S. chain restaurants," he said.

"Those are factors that I would think McDonald's would benefit from, but the franchises that I talked to said they didn't get any meaningful benefit from those factors," he added.

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Same-store sales fell 2.1 percent in December for the 30 domestic franchisees surveyed, representing about 198 locations. This report is the 64th franchisee survey from Janney. The average difference between the survey's reported sales and the actual result from McDonald's is about 1 percent.

So what's pressuring McDonald's sales?

Several cited the need for more menu simplification even as the fast-food giant announced last month it planned to make some cuts to its expansive menu.

"Moving too slow, let's bite the bullet," said one.

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Others mentioned the headache that complicated Happy Meals create while some wanted to pare down or eliminate the McCafe line—McDonald's answer to the growth that brands like Starbucks has seen in coffee.

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Franchisees also expressed disappointment with "lackluster promotion" and a "lack of marketing." Janney wrote that recent changes—notable to advertising—by the chain do not seem "to be generating any meaningful near-term lift in sales trends."

Much of McDonald's advertising has centered around dispelling myths about the quality of its food, emphasizing its "I'm lovin' it" campaign and its popular Monopoly promotion.

Other franchisees expressed positivity about December and January with a couple mentioning better weather and one saying it "it feels like our sales decline is beginning to flatten out."

Overall, though, franchisees' six-month outlook for the domestic business reflected concern.

On a scale of 5 (excellent) to 1 (poor), the average response was 1.88 with no franchisees saying the outlook was "excellent" or "very good."