February 5, 2015 / 11:06 AM / 5 years ago

McDonald's Japan pushed into loss by food safety woes

TOKYO (Reuters) - The Japanese unit of McDonald’s Corp (MCD.N) booked its first annual operating loss since going public in 2001 and its January sales plunged by a record 39 percent as food safety scandals drove customers away.

McDonald's Holdings Co (Japan) President and Chief Executive Officer (CEO) Sarah Casanova speaks during a news conference at Tokyo Stock Exchange (TSE) in Tokyo February 5, 2015. REUTERS/Yuya Shino

The earnings pain, made worse by a shortage of french fries late last year, is likely to continue with analysts saying they do not expect a quick turnaround in a country where consumers are highly attuned to food quality issues.

McDonald’s Holdings Co (Japan) (2702.T), which operates the fast food chain’s second-largest restaurant network after the United States, did not give its customary earnings guidance but said it hoped to issue full-year forecasts by end-March.

The unit booked an operating loss of 6.7 billion yen ($57 million) in 2014, compared with an operating profit of 11.5 billion yen a year earlier.

Revenue tumbled 14 percent, the seventh straight year of decline.

The problems are an added distraction for McDonald’s Corp, the world’s largest restaurant chain by sales, which last month replaced its CEO with Chief Brand Officer Steve Easterbrook following one of its worst financial years in decades.

The Japan unit, 49.9 percent owned by McDonald’s Corp, was hit last year after a major Chinese supplier of chicken was found to have been in breach of food safety standards. It was then forced to temporarily ration fries due to labor disputes at U.S. West Coast ports and take the costly step of shipping some by air.

Quality issues arose again last month with the news that customers had found foreign objects, including a tooth, in their food. January figures showed customer numbers down 29 percent from a year earlier.

McDonald’s Japan Chief Executive Sarah Casanova said the company was determined to restore its reputation.

“We serve billions of menu items every year and in the food industry we understand these kind of issues should never happen. It’s our responsibility to do everything we can to obtain as close to zero as possible,” she told an earnings briefing.

The problems prompted Casanova last month to shift oversight of the supply chain to the chief financial officer.

The company has also announced plans for third-party inspections of its kitchens, fresh training for staff and sharing of information about suppliers on its website.

Shares in McDonald’s Japan fell 1 percent prior to the earnings release. They have lost around 12 percent since last year’s peak in June.

($1 = 117.1100 yen)

Additional reporting by Chris Gallagher and Ritsuko Shimizu; Editing by Edwina Gibbs and Edmund Klamann

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