(© International Herald Tribune, November 9-10, 2002)
McDonald's to Close Outlets
CHICAGO: McDonald's Corp. on Friday reduced its 2002 earnings outlook and said it would close about 175 restaurants worldwide and eliminate to 600 jobs as the company struggles to improve its U.S. performance and trim worldwide costs.
The fast-food chain, based in Oak Brook, Illinois, said the actions, which include restaurant closures in 10 countries, would reduce quarter earnings by $350 million to $425 million. McDonald's shares fell $1.76, or 9.1 percent, to $17.55 late Friday on the New York Stock Exchange.
The worldwide job cuts of 400 to 600 positions, including up to 250 in the United States, mark the company's third major round of layoffs in five years. They are the latest attempt by the restaurant chain to take costs out of an operation that has struggled with lackluster sales in the United States, weak economies in major markets such as Latin America, and the impact of mad cow disease in Europe and Japan.
"They need to work on underperforming restaurants," said Ann Gurkin, an analyst at Davenport & Co. "They need to work on menus still; they need to work on management, and the management of their restaurant system. I think they have problems across their operations."
Sales at stores open at least a year fell 1.e percent last month, following three quarters of declines. The McDonald's chief executive, Jack Greenberg, who has headed the company since 1998, has been losing business to rivals such as Wendy's Interna-tional Inc. as customers complain of dirty restau-rants, bad food and slow service.
"McDonald's used to be the gold standard, with the cleanest restaurants and best locations," said Peter Sorrentino, of Bartlett & Co., which owns about 570,000 shares. "Service quality has dropped, and some locations aren't clean. Current management hasn't acted decisively."
In recent weeks, McDonald's has returned to price discounting in the United States, its largest market, sparking increased competition in the fast--food industry. The effect of price-cutting has been blamed for weakening the value of the sale of Bur-ger King Corp. by its British parent, Diageo PLC.
As part of its plan, McDonald's will also change its real estate structure in four countries in the Middle East and Latin America, eliminating an ownership stake and any invested capital.
McDonald's first trimmed jobs at its headquar-ters in 1998. Last year, it shed about 700 employees in Oak Brook and in its regional U.S. offices as part of a domestic restructuring.
McDonald's, which has more than 30,000 restau-rants in 121 countries, has reported net income growth of less than 1 percent a year over the past five years, even as sales have risen 6.8 percent a year.
Some investors say they do not believe Greenberg can turn operations
around. "They are not moving in the right direction" said James McGlynn
of Summit Investment Partners.