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McDonald’s Might Defer Rent Payments for Franchisees Hurt by Coronavirus Closures

By Demitri Kalogeropoulos - Mar 17, 2020 at 11:28AM

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The fast food giant hopes to protect its base of partners as closings cascade through its global operations.

On Tuesday, McDonald's (MCD 2.46%) issued an update to investors on its operating trends related to the spread of COVID-19 and related restaurant closures.

The company said restaurants have been ordered temporarily closed by national or local governments in many of its markets, including Italy and Spain. Essentially all its fast-food stores in the U.S. are now operating on a "to-go" only offering that restricts seating capacity in order to maximize social distancing.

Four young adults share a fast food meal.

Image source: Getty Images.

The chain described major efforts under way aimed at protecting its franchisees and the supply chain. These include rent deferrals that might help franchisees navigate through a period of sharply reduced customer traffic. McDonald's says it is also "working closely with suppliers on contingency planning" to ensure continuous supply of key food ingredients.

The burger giant gets most of its earnings through royalty, rent, and franchise fee income, so these support efforts are likely to hurt profits over the short term. Management said it is too early to estimate the financial impact from the disruption or the broader path of consumer behavior. For more details on those issues, investors will be following McDonald's comments in its fiscal first-quarter earnings report in late April.

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