It seems McDonald's Corp. (MCD) is reeling from the after-effects of a shocking year gone by. According to Reuters, the company will lay off 63 workers at its corporate headquarters in Illinois. The retrenchment — a part of the restaurant’s initiatives to reduce costs by $100 million — will begin from Feb 16. Through this strategy the quick service restaurant targets to increase revenues and turn the declining traffic trends around across some of its key markets.
McDonald's plans to use around $100 million in cost savings to improve digital and other restaurant platforms to support its long-term growth. The new restaurant platforms reportedly includes "Create Your Taste", which are likely to be implemented in around 2,000 McDonald's restaurants in 2015.
McDonald's is also looking to counter competition from fast casual restaurants by initiating a customized burger and chicken sandwich platform, allowing guests to customize burgers and sandwiches using digital kiosks.
McDonald’s decision to save costs come as the company has been facing one food safety issue after another since Jul 2014 after its supplier Shanghai Husi Food Co – unit of U.S.-based OSI Group LLC – was accused of reusing meat that had fallen on the factory floor as well as mixing fresh and expired meat. Last week, a piece of vinyl was reportedly found in a Chicken McNugget at one of the company’s outlets in Aomori, Japan.
Sales of McDonald’s, especially its Chinese business, have been declining continuously, since the abovementioned food safety scandal. Third-quarter comps declined 9.9% year over year in the Asia/Pacific, Middle East and Africa (APMEA) region which includes China, Japan and certain other markets. Also, comps in the region declined 4.2% and 2.3% in Oct and Nov 2014, respectively.
Moreover, the company is already experiencing dwindling sales at its other major operating regions. Europe posted weak comps over the past few quarters owing to the temporary closure of restaurants as a result of tension between Moscow and Washington.
Meanwhile, the domestic market has not been able to post positive comps since Oct 2013 due to heightened competition and a few unwise decisions that have slowed down service.
One cannot deny the fact that this Zacks Rank #3 (Hold) company is consistently trying to regain consumer confidence and revive sales in all its served markets through menu innovation and promotions. However, per a few analysts, McDonald's’ situation is not expected to improve in the near term due to various demographic and economic factors. We remain concerned that if any other adversity occurs, it might slow the company’s sales further.
Stocks to Consider
Some better-ranked stocks in the restaurant industry include Bob Evans Farms, Inc. (BOBE), BJ's Restaurants, Inc. (BJRI) and Brinker International, Inc. (EAT). All these stocks carry a Zacks Rank #2 (Buy).
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