Guess those ads featuring a silent Grimace hangin' with The Donald and Cedric the Entertainer aren't bringing home much beef for McDonald's
The company announced today that it'll shutter around 175 locations and cut 400 to 600 jobs worldwide. It will also give up capital investments in four markets and completely leave three markets, all located in the Middle East and Latin America.
It will take a mostly non-cash charge of $325 million to $450 million in its fourth quarter, thanks to the moves, and will therefore miss Q4 earnings estimates. Of course, the market hates that, and the stock's been off 10% today. Shares continue to trade at five-year lows, or at a Price-to-Big Mac (PBM) ratio of around 5.
The Dow component released the news alongside bland October sales numbers. Same-store sales within the U.S. were off 0.6%. "Brand McDonald's," the restaurant's broadest measure of global presence, saw comps drop 1.3%. For the first 10 months of the year, comps are off 2%. Maybe the new Hello Kitty Happy Meals will help make November stronger. (Hello Kitty can make anything better!)
Today's news doesn't affect a huge number of stores. Only 375 locations will be either closed or returned to licensees. Remember, McDonald's operates more than 30,000 restaurants worldwide. The Happy Meal king will still get a royalty based on sales in the restaurants transferred to developmental licensees.
We've written recently about the burger slinger's indigestion. That's why we're neither shocked nor dismayed about today's news. Yes, short term, the company will miss Q4 numbers. So what? The company's looking to cut costs, focus, and turn this baby around. It'll take restructurings, eliminations, and other short-term ugliness to do it. But if you know this going in, today's announcement shouldn't be a big deal.