Mcdonald’s U.S. Sales In Slump A Matter Of Fallen Arches?

The more than $100 million McDonald’s Corp. spent to introduce the Arch Deluxe cheeseburger hasn’t stopped a slide in its U.S. restaurant business.

The company reported Friday its third-quarter profits rose 10 percent, but U.S. operations performed sluggishly for the sixth consecutive quarter.

With sales at competitor Wendy’s continuing to improve, despite a general slowdown in the American quick-service restaurant industry, McDonald’s has a tough road ahead, analysts said.

“You have to scratch your head when the Arch Deluxe was launched with the biggest marketing pushes ever done and their sales fall while one of their competitors is sailing along,” said analyst G. Michael Kennedy at American Express Financial Corp. in Minneapolis. “It would suggest that these products are not hitting their stated objectives.”

In an unusually long statement, McDonald’s chairman and chief executive admitted company executives are disappointed with domestic results, although he made no specific mention of the Deluxe line.

“Our U.S. restaurants are operating in a complex, dynamic and difficult marketplace and recent operating performance has fallen short of our goals,” Michael Quinlan said. “Yet, we are very optimistic about our long-term opportunities to grow in the domestic marketplace.”

Earlier this year, McDonald’s introduced the Arch Deluxe, and three weeks ago added the Crispy Chicken Deluxe, Grilled Chicken Deluxe and Fish Filet Deluxe.

But many analysts have said the Deluxe line will do little to reduce the fast-food leader’s domestic sales slide.

“Any good restaurateur is going to add new menu items just to maintain sales,” Kennedy said.

Company spokesman Chuck Ebeling again said the line is exceeding expectations. But he added: “Those products alone don’t totally change the momentum of our U.S. business.”

The nation’s largest fast-food restaurant operator, based in the Chicago suburb of Oak Brook, had no good news on the domestic front.

The company said domestic sales grew 2 percent, but the increase was down 3 percentage points from a year ago. Operating income fell 7 percent. Sales at U.S. stores open at least a year, a widely used measure of performance, were down for the sixth consecutive quarter, according to the company. It did not provide exact figures.

Earnings for the three months ended Sept. 30 rose to a record $440.6 million, or 62 cents a share, from $400.1 million, or 56 cents a share, a year ago.

The results were in line with analysts’ expectations. McDonald’s stock fell 12-1/2 cents a share at $46.12-1/2 on the New York Stock Exchange.

Revenue rose 8 percent to a record $2.77 billion from $2.56 billion a year ago. Systemwide sales rose 5 percent for the quarter.

Quinlan called overseas sales impressive despite weak economies in several major countries. But the company is facing growing U.S. franchisee dissatisfaction amid rapid store openings, stringent quality and service standards and slipping profits.

McDonald’s last week shook up its U.S. operations in a bid to reverse the problem.

Jack Greenberg, the company’s vice chairman and chief financial officer, is now chairman of the chain’s domestic restaurants. Edward H. Rensi, McDonald’s U.S.A. president and chief executive, previously headed U.S. restaurants and now reports directly to Greenberg.

Earnings for the nine months ended Sept. 30 rose 10 percent, to $1.16 billion, or $1.63 a share, from $1.06 billion, or $1.46 a share, the comparable period a year ago.