Why poor comps affected McDonald’s revenues

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Revenues decline

With disappointing same-store sales performance across all four segments, it isn’t surprising that McDonald’s reported revenues of $6,987 million. This was a 4.5% decline compared to revenues of $7,323 million in the same quarter last year.

MCD Revenues by Segment 2014-10-27

Revenues by segment

From top to bottom, revenues in the Asia Pacific, Middle East, Africa (or APMEA) region dropped the most from $1,683 million in 3Q13 to $1,531 million. It was a 9% decline as of 3Q14. The company-owned revenues in the APMEA region declined 10% to $1,278 million—from $1,421 million in 3Q13.

To avoid company specific events, you can consider the Consumer Discretionary Select Sector SPDR Fund (XLY). XLY also includes restaurant stocks like McDonald’s (MCD), Yum! Brands (YUM), Darden Restaurants (DRI), and Chipotle Mexican Grill (CMG).

Other Countries (or OCC) followed with a 6% decline in revenues from $396 million to $370 million in 3Q14. Company-owned restaurants were hit the most with a 9% decline in revenues to $197 million—from $217 million in 3Q13.

The U.S. segment experienced a decline in revenues by 4% year-over-year (YoY)—from $2,289 million to $2,202 million in 3Q14. U.S. company-owned restaurants declined 6% YoY to $1,097 million—from $1,162 million in 3Q13.

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Finally, the Europe segment revenues declined 2% YoY to $2,884 million—from $2,995 million in 3Q13. Company-owned revenues in Europe declined 5% to $2,024 million—from $2,124 million YoY. The Europe franchise was the only segment with a 3% revenue growth. It increased to $861 million—from $832 million in 3Q13.

McDonald’s also faced commodity cost pressures. The pressures increased due to shortages—like beef supply. A restaurant can pass these costs to the customer by increasing menu prices. However, this is a challenge for McDonald’s because it targets price sensitive customers. We’ll discuss this more in the next part of the series.

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