NEW YORK ( TheStreet) -- Fast food fans may be smiling today at the prospect of getting a free McDonald's(MCD) - Get Report Egg McMuffin on National Breakfast Day, but execs at the chain likely have heartburn after very disappointing U.S. sales in February.
McDonald's, which on Monday is giving away free Egg McMuffins globally to celebrate the company-created holiday, saw a 4% sales decline in the U.S. in February. Analysts were expecting a 0.7% drop after two months of gains that stoked optimism that a simpler menu and the burger chain's new "Lovin It" marketing campaign were helping the company reconnect with disenchanted customers. McDonald's shares declined 1.6% in pre-market trading.
One bright spot for McDonald's continued to be breakfast, which accounts for about 25% of McDonald's U.S. sales. "Breakfast continues to be our strongest daypart, and [sales] were flat in February", said McDonald's spokeswoman Becca Hary via email, in part because of the severe winter weather. U.S. sales during breakfast hours had increased in January due to marketing support for the Egg McMuffin.
Given the lackluster U.S. sales in February, which can be traced to a combination of fierce competitive activity and inclement weather, McDonald's is on track to fall short of analysts' EPS estimates for the first quarter.
Investors may have forgotten the colossal mountain McDonald's is climbing to reverse the public's perception of it as a purveyor of unhealthy food and less savory items than those found on the menus of competitors like Shake Shack(SHAK) - Get Report and Chipotle(CMG) - Get Report. "The recent launch of the new Lovin' campaign is engaging customers in new ways, and creating energy around our brand -- however, turning our business around in the U.S. will take time," said McDonald's CFO Kevin Orzan at the Mar. 3 UBS Global Consumer Conference. "So we expect results will remain volatile, especially through the first half of this year."
McDonald's performance internationally also continued to underwhelm. While same-restaurant sales in the Eurozone rose 0.7% compared to the consensus expectation of a gain of 0.2%, the Asia-Pacific region experienced a 4.4% sales decline, worse than the expected fall of 3.1%. McDonald's continues to grapple with food safety concerns in Asia.
In the end, McDonald's may not demonstrate much in the way of a turnaround in the U.S. under new CEO Steve Easterbrook until later this year, if at all.
The burger chain is currently localizing its menu and marketing efforts to be more relevant to customers in individual countries and regions. That is a significant move away from McDonald's notorious focus on national product rollouts and marketing, in the drive to keep operations simple. The drive-thru menu is likely to be decluttered as well this year, showcasing the top 80% of the menu in order to improve line speeds and prep times in the kitchen.
Furthermore, McDonald's new Create Your Own Taste ordering platform, in which consumers build their own burgers, is only currently being tested in 15 U.S. restaurants. More locations in the U.S., as well as Australia, will receive the platform as the year progresses, just as McDonald's unveils its global mobile app. A loyalty program for McCafe coffee on the app is also rumored to be in the works.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.