Article

McDonald's top execs to cut salaries as March sales drop 22%

McDonald's executives are slashing salaries amid a sharp drop in same-store sales due to the COVID-19 pandemic.

McDonald's issued a profit warning due to the impact of COVID-19. (Photo: File)

April 8, 2020 by S.A. Whitehead — Food Editor, Net World Media Group

McDonald's CEO Chris Kempczinski has offered to take a 50% pay cut and the company withdrew its 2020 earnings outlook after March sales fell 22% due amid the COVID-19 pandemic, in a filing with federal regulators.

McDonald's said other top executives will take a 25% pay cut that will run from April 15th through September 30 and the company will reduce capital expenditures by $1 billion in 2020.

The company said U.S. same-store sales rose 8.1% for the first two months of 2020, compared with year ago figures. But the coronavirus rapidly spread nationwide in March, causing same-store sales to fall by 13%. The brand said, as a result, it expect Q1 growth of just 0.1% in the U.S. 

Internationally, the effects were even more exaggerated, with that segment recording a same-store sales plummet of 34.7% in March. Same-store sales companywide fell 3.4% during the quarter, according to the filing. 

The Chicago-based QSR said that globally its operations continue to be significantly affected through limited hours, purchase venue points and even closures in some markets. Kempczinski said in the release that the company is closely working with franchisees to continually evaluate operational feasibility, while working with its supply chain network to ensure it has the goods needed to meet its current demand.

Thus far, the company reports no breaks in supply for any food, packaging, toys or equipment globally. And, though January and February global comp sales were strong in most nations worldwide, the company first saw significant declines beginning in mid-March across its market, that it said largely reflect different levels of consumer behavior and government response. 

"Approximately 75% of our restaurants around the world are operational, the majority of which have adapted to focus on drive-thru, delivery and/or take-away. …" Kempczinski said in the filing. "We have taken important steps to preserve our financial flexibility, including suspending our share repurchase program and increasing our cash position by raising $6.5 billion in the debt markets during the first quarter. In addition, we will reduce capital expenditures this year as a result of fewer 'Experience of the Future' projects across the U.S. and a reduced number of new restaurant openings in most markets around the world."

Since the company was forced by the pandemic to cancel its worldwide owner/operator convention this month in Tampa, Florida, it incurred approximately $40 million of selling, general and administrative costs, which is higher than was previously estimated it said, largely due to refunding participant and supplier registration fees.

It withdrew its annual and long-term outlooks that were issued in late Feburary, saying it will provide updates and financial results on an April 30 earnings call. Previously, McDonald's had anticipated systemwide sales growth in a range of 3% to 5%.

The company has granted the deferral of cash collection for certain rent and royalties earned from franchisees in substantially all markets. The extent of the deferrals may differ in length by market. Although the company may be deferring cash collection, revenue is continuing to be recognized as sales are incurred. Additionally, the company is working with suppliers and lenders to extend franchisee payment terms when possible.

The Company will provide an update on its business and financial results on its first quarter earnings call planned for April 30, 2020.

About S.A. Whitehead

---

Pizza Marketplace and QSRweb editor Shelly Whitehead is a former newspaper and TV reporter with an affinity for telling stories about the people and innovative thinking behind great brands.