McDonald's weak sales can help the new CEO

A McDonald's restaurant sign is seen at a McDonald's restaurant in Del Mar, California April 16, 2013. McDonald's Corp will announce its earnings on April 19. REUTERS/Mike Blake·Yahoo Finance

Although McDonald's (MCD) posted weak global sales again in January, the latest monthly report from the restaurant owner provided at least some reason to be hopeful about 2015. It might only be a glimmer, but it's good news for the new CEO.

Overall, comparable sales fell 1.8% in January, with the Asia-Pacific, Middle East and Africa region primarily responsible. There, sales were down 12.6%. In U.S. stores, same-store sales rose 0.4%, and in Europe, comparable sales were up 0.5%.

According to Consensus Metrix, analysts were anticipating a 1.2% decline in total same-store sales. Sales in the U.S., with more than 14,000 of McDonald's 36,000 locations, were estimated to be the strongest last month, up 0.3%. In Europe, a 0.5% decrease was projected, so the company surpassed both of those. In APMEA, a drop of 8.4% had been forecast, though the actual number clearly was even worse.

[Get the Latest Market Data and News with the Yahoo Finance App]

The news from McDonald's was the last monthly sales report with Don Thompson as CEO. Thompson, who is being replaced March 1 by Steve Easterbrook, decided in late January to retire after a difficult two-and-a-half years running the world's largest restaurant operator, measured by system sales. Because of McDonald's revenue stagnation and a flat stock price during his time as CEO, it's been speculated that Thompson was under pressure to step away from the company. He made his announcement days after McDonald's reported its 2014 results, detailing one of its worst years in two decades.

Without question, there are ample worries about the company's ability to retain customers, and bring in new ones, amid incredible competition and ongoing negative headlines at home and overseas. There's also an argument for optimism. That's because in the U.S., it was the second monthly increase in a row. That's a notable development, even though both January and December were going against weak comparisons from the previous year. In December, monthly comps were positive for the first time in more than a year.

This is a small step forward, not a reversal of a trend that's been going against the company. Still, for the new CEO, sales of the recent past have been so unimpressive that it has the potential to make his first few months slightly brighter. When any month or quarter is compared against a poor showing from the prior year in retail, improvements are more likely. That doesn't last forever, but it may provide Easterbrook with the opportunity to begin his turnaround ideas amid calmer times. Of course, if weakness remains, it's another story, since investors want to see revenue growth resume earlier rather than later. What McDonald's needs is positive momentum. It's had none at all. The U.S. results could change that.

McDonald's has been trying to restore its system by implementing, or at least planning, store remodels, new ordering systems, customized burgers and regional menu specialties. While McDonald's still has millions of customers every month, traffic counts fell in 2014 in all of its major regions, the second year in a row that's happened. In the press release on its January sales, McDonald's said its goal "over the coming year is to accelerate the pace of change and elevate the overall McDonald's experience in the eyes of its customers."

U.S. sales were helped by breakfast, though strong competition, a continuing theme for McDonald's, limited the gains. In Europe, the U.K. and Germany were strong, while France and Russia were weak. McDonald's APMEA results were slowed by reports of foreign objects in food in Japan and a supply investigation in China last summer, both of which kept diners away. The setbacks the company has faced are significant. And they're not over. Shares of McDonald's were down 1% Monday to $93.07.

Believers in McDonald's will rightly note that the restaurant group has $90 billion in total sales, billions in annual earnings and an enviable dividend. Yet the company does have serious problems to solve if it wants revenue and guest counts to climb again. Many large restaurant operators are increasing their customer traffic at the same time McDonald's sees the number fall. And even as rising menu prices are regular in restaurants, the fact that McDonald's is getting costlier mitigates what's long been one of its key advantages -- being cheap.

Easterbrook will get time to work on this. But it's going to be considerable work, global work. He's gotten a bit of help to start.

Related Video:

Advertisement