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McDonald's to open fewer stores
NEW YORK (Reuters) -- McDonald's Corp., the world's largest restaurant company, said on Monday it will trim some $700 million from its planned 2003 budget for restaurant refurbishments and store openings, sending its shares up 8.6 percent. The hamburger maker also promised to shell out more cash to investors by increasing its stock dividend by an undisclosed amount later this year and returning to share repurchases, which have been temporarily suspended. The moves are part of Chief Executive Jim Cantalupo's plans to revive the struggling fast-food company, which reported its first quarterly loss in January and has seen comparable sales decline for 12 straight months. Besides cost cuts, McDonald's emphasized improving food and simplifying operations at the company, whose profits have suffered from increased competition, changing consumer tastes and a costly U.S. price war with big rivals like Burger King. "We've cleared the decks of a lot of things that don't relate to our customers and our restaurants,'' Cantalupo said during his second address to Wall Street since taking the helm at McDonald's at the end of 2002. "We were probably too unfocused and scatter-gun in our approach,'' Cantalupo told reporters after the meeting. Oak Brook, Illinois-based McDonald's plans capital spending of $1.2 billion in 2003, down from its original projection of $1.9 billion. The company had $2 billion of capital spending last year. This year it will refurbish only 1,000 of its existing restaurants. It had previously planned a much broader overhaul to update roofs, improve drive-throughs and fix up older stores. The company will open a net 360 new restaurants worldwide in 2003, after accounting for store closures, down from more than 1,000 last year. The United States, China, Canada and France are slated for the bulk of the growth, McDonald's said. McDonald's plans to reduce debt by $300 million to $700 million this year. It is saving money in other ways, rolling out a computerized training program that is expected to trim annual training costs by 15 percent. Getting more customers in fewer storesCantalupo said McDonald's erred by focusing too much on heady growth rather than building sales at existing stores. The company operates 30,000 stores in some 120 countries. "We haven't fully leveraged this opportunity, because we were focused on the next location instead of the next customers,'' he told investors at the meeting, held in New York. The company, which declined to give near-term financial projections, is targeting systemwide annual sales growth of 3 percent to 5 percent in 2005 and beyond. Two percent will come from new restaurants and 1 percent to 3 percent will come from existing stores. Operating income is forecast to grow 6 percent to 7 percent yearly in 2005 and beyond. To meet those goals, McDonald's will focus on customer service and food quality, two areas that analysts have cited as needing improvement. It is changing the seasoning in its hamburgers and improving its hamburger buns and other staples like Chicken McNuggets, which are switching to an all-white meat version nationally this summer. In the United States, it is offering more healthy menu choices, such as a new line of new entree-sized salads featuring Newman's Own salad dressing, aimed at drawing more women to its 13,000 domestic stores. To speed up operations, McDonald's is putting premium sandwiches back in boxes, instead of paper wrappers, Chief Operating Officer Charlie Bell told investors. It is also tweaking its production system, reducing the number of keystrokes required to enter items on the menu. And the company is testing self-serve ordering kiosks, another idea that could improve service. "The tone of this meeting was more people, not more restaurants,'' said U.S. Bancorp Piper Jaffray analyst Allan Hickok. To broaden choices for consumers, McDonald's plans to introduce its McCafe coffeehouses, which have been successful in Europe, into the U.S. market sometime this year. It plans to wire several hundred U.S. stores for Internet access in major cities like Chicago and New York, a move to keep up with young customers that make up McDonald's core market. Cantalupo said the company had not decided the fate of the company's non-hamburger brands, including the Chipotle Mexican food chain, Donatos pizzerias and the Boston Market chicken chain. The units are reportedly for sale. Shares of McDonald's closed up $1.25 at $15.80. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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