Yum's U.S. woes, other data, point to weakness at McDonald's

Thu Jul 17, 2014 2:52pm EDT
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By Lisa Baertlein

(Reuters) - Yum Brands Inc's disappointing Pizza Hut and Taco Bell results, along with other data, suggested the U.S. fast-food business remained weak in the second quarter and that industry leader McDonald's Corp continues to struggle.

The U.S. fast-food segment has lagged the broader restaurant sector, due to weak job growth and stagnant pay among the lower-wage diners who frequent such restaurants. The sector also is struggling to remain relevant as more consumers move away from decadent food like cheeseburgers and french fries to fresher, healthier fare.

"People want better food. Who loses? The fast-food guys are stuck," Investment Technology Group restaurant analyst Steve West said.

McDonald's, the world's biggest fast-food chain by revenue, has posted seven straight months of declines in U.S. sales at established restaurants.

The chain, which reports second-quarter results on Tuesday, recently transitioned from its "Dollar Menu" to the "Dollar and More" menu, effectively raising prices. That increased average checks but hurt traffic, West said.

Janney Capital Markets analyst Mark Kalinowski, who publishes a closely watched McDonald's franchisee survey, on Wednesday forecast a 2.6 percent drop in the chain's U.S. same-restaurant sales for June, the final month of the second quarter.

"Customers with jobs are not choosing McDonald's," said one of the 27 franchisees who participated in Kalinowski's survey. "When customers have money they choose others."

Kalinowski does not expect McDonald's woes to end in July. He forecast a 1.8 percent decline in July same-restaurant sales.   Continued...

A Pizza Hut logo is pictured outside its restaurant in Vienna, Virginia October 5, 2010. REUTERS/Larry Downing