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07/11/01 . Miki Shimogori . Reuters . n/a
McDonald's Japan Cuts Profit Forecast
TOKYO (Reuters) - McDonald's Co. (Japan) Ltd., the nation's top restaurant chain, became the latest corporate victim of Japan's first outbreak of mad cow disease, slashing its profit estimate on Wednesday by about 26 percent for this year.
McDonald's Japan, half-owned by McDonald's Corp, has faced mounting consumer anxiety since September 10 when Japan revealed Asia's first case of the brain-wasting disease had been discovered at a dairy farm near Tokyo.
The leading hamburger chain operator said that although it uses Australian beef, which has proved safe, sales were still suffering because of public concerns over mad-cow disease.
The Japanese unit lowered its forecast for 2001 parent recurring profit, which is pre-tax and excludes extraordinary items, to 20 billion yen ($165.1 million) from its August estimate of 26.96 billion yen. This compares with an actual 29.30 billion yen profit a year earlier.
"To our regret, it seems that there is still no end to consumers' worries about beef and mad cow disease, which prompted us to lower our earnings estimates," Yasuyuki Yagi, vice president of the company, told reporters. "We've been operating for 30 years and this is our biggest crisis ever in our history.''
BIGGEST-EVER SALES DROP McDonald's Japan also cut its sales estimate for this year by 5.3 percent to 358.7 billion yen -- roughly flat from last year's actual 357.89 billion yen.
It said it was concerned about the magnitude of a drop in monthly sales after a 17 percent slide last month, its biggest ever on a year-on-year same-store basis.
Yagi forecast same-store sales would fall 6.6 percent for the full year, a far bigger margin than the company's initial estimate for a 1.5 percent year-on-year drop.
Before the announcement, shares in McDonald's Japan, which went public in July, ended the day down 2.4 percent at 3,250 yen, slightly outperforming a 3.3 percent slide in the benchmark Nikkei 225 average It has fallen by 24 percent from its initial public offering price of 4,300 yen.
"The revision looks to be too large for the firm to maintain the current share value," said Naoki Samizo, an analyst at Shinko Securities. He said the reduced profit estimate would make the share overvalued with a recalculated price-to-earnings ratio (PER) of about 40 -- the pricey level its shares experienced right after its debut on the market.
The PER could in theory fall back to around 30, bringing the shares to around 2,500 yen, he said. ``But there is no guarantee that the shares could find a floor at that level."
GROWING LIST OF VICTIMS McDonald's Japan vowed to ease consumers' anxiety by launching an advertisement campaign worth some 500 million yen about the safety of its mainstay hamburgers.
From Thursday, it would launch television commercials, in addition to recent newspaper advertisements, store posters and other methods to help calm fears about beef after the discovery of bovine spongiform encephalopathy (BSE (news - web sites)) in September.
The company has also said it would be increasing non-beef choices on its menu for about two months.
McDonald's Japan is not be the only victim of the outbreak of mad cow disease that has slashed sales of home-bred and foreign beef by about 70 percent and shaken the farming and food industries, with consumers ignoring government assurances that beef is safe to eat.
Sales at Japanese restaurant chains slipped 1.2 percent on a same-store basis in September from a year earlier, with those at yakiniku (broiled beef) restaurants alone dropping 12.1 percent, the largest monthly decline since such data was made available in January 2000, recent industry data showed.
Shares in Japan meat processors as well as restaurant chains have
fallen victim to the mad cow saga that prompted sales in their shares. Among the list are major meat processor Nippon Meet Packers Inc, Japanese beef bowl fast-food chain operator Yoshinoyya D&C Co. Ltd., and major Japanese yakiniku restaurant chain operator Reins International Inc