McDonald's Profit Slips in Chilly First Quarter. Will Yum Brands Fare Better?
McDonald's announced today that its first quarter profit came in at $1.2 billion – a 5.2 percent drop from 2013, and short of analysts' predictions.
Same-store sales in the U.S. decreased 1.7 percent in the first quarter, while global comparable sales increased 0.5 percent.
Why wasn't America craving Big Macs this winter? McDonald's blames the low traffic on the winter weather and "challenging industry dynamics."
Every fast food franchise had to deal with a frigid winter in early 2014, but some weathered the challenging industry dynamics better than others. While the "breakfast battles" between fast food giants didn't fully heat up until the tail end of the first quarter, McDonald's spent much of early 2014 hyping its McCafe offerings, just as Taco Bell launched its breakfast menu and Starbucks continued to edge into the food market.
Both Starbucks and Taco Bell's parent company, Yum Brands, report earnings this week. In contrast to McDonald's slump, analysts are predicting that Yum Brands – which delivered better-than-expected fourth quarter earnings in February -- to report revenue growth of 11 percent to $2.8 billion. Meanwhile, analysts predict Starbucks will report another record quarter for revenue when the company announces second quarter results on Thursday.
McDonald's says the increased breakfast competition doesn't concern the chain. In the earnings call, McDonald's reported it has been focusing on breakfast and coffee, with McCafe promotions serving as both a chance to reintroduce customers to McDonald's coffee and to support breakfast menu items. Representatives argued that the freshness of their breakfast and speed of delivery set the chain apart from the competition.
"Our breakfast is strong," said CEO Don Thompson in the call. "There are entrants into the marketplace that don't have the strengths that we have. So we're going to alert customers… to why we have become America's favorite place to eat breakfast. And we don't plan on giving that up."
McDonald's recent efforts to maintain dominance in the breakfast market that currently accounts for about 25 percent of its U.S. sales have included offering free coffee in the first half of April and launching a marketing push for the McGriddle last week. While these events launched after the first quarter ended, if Yum Brands and Starbucks meet analysts' expectations, consumers can expect to see McDonald's continue to play catch-up in the second quarter.