McD says exchange rates hurt 2Q profits

Nation's Restaurant News, August 4, 1997 by Richard L. Papiernik

OAK BROOK. Ill. -- Socked by unfavorable foreign-currency exchange rates and declining same-store sales in the United States, second-quarter profits at McDonald's Corp. grew by just 4 percent over results from the year-ago quarter, to $438.2 million. The company said earnings would have grown 8 percent if exchange rates had remained at 1996 levels.

International operations generated 56 percent of consolidated operating income, and "nearly 90 percent" of the 761 restaurants opened year-to-date were outside the United States. Exchange rates in Japan -- the chain's largest overseas market -- and Germany were particularly detrimental to earnings.

Revenues for the most recent quarter increased 6 percent, to $2.83 billion, vs. revenues of $2.76 billion in the year-ago quarter. Profits in the 1996 second quarter were $420.4 million. Year-over-year systemwide sales increased 7 percent, to $8.48 billion, from $7.93 billion.

McDonald's 12,178-unit domestic operations experienced "slightly negative" same-store sales for the quarter. Operating income from U.S. units declined 2 percent, to $340.2 million, from results a year earlier.

Through six months McDonald's posted profits of $782.7 million on revenues of $5.5 billion, gains of 8 percent and 7 percent, respectively, over year-ago results. Domestic same-store sales were "slightly positive" for the six-month period, the company said, because of the success of first-quarter Chicken McNuggets promotion and a Monopoly tie-in.

McDonald's also revised its expansion plans, saying it would open a total of 2,400 restaurants in fiscal 1997, about 80 percent of which--nearly 2,000--will be located outside the United States. The company previously had said it would open 2,400 to 2,800 restaurants in 1997, with 70 percent of those to be outside the United States. As of June 30 McDonald's had 21,783 restaurants systemwide, including 9,605 outside the United States.