McDonald's Japan slashes year forecast

November 11, 2001 Financial Times (London) by Ken Hijino
McDonald's Japan yesterday slashed its full-year earnings forecast, blaming slower sales following the discovery in September of the country's first case of BSE, or 'mad-cow' disease.

McDonald's Japan, a unit of the US hamburger group and the country's largest restaurant chain, cut its forecast operating profits for the calendar year by 26 per cent to Y20bn (Dollars 164m), against a prediction in August of Y26.9bn.

The revision casts a doubt on whether the chain will be able to generate profits to keep pace with its rapid expansion plans. However, McDonald's yesterday said it did not intend to change its plans - its long-term goal is to triple the number of outlets to 10,000 with annual sales of Y10,000bn within 10 years.

The weak forecast will also disappoint investors who subscribed to the restaurateur's shares in a highly publicised listing in July. McDonald's shares fell 3.3 per cent yesterday to Y3,250, or 24 per cent lower than its debut price.

The group yesterday blamed the downturn on 'mad-cow' disease, revealing that October same-stores sales figures had plunged 17.6 per cent during October.

"Although our company uses Australian beef, which is proved to be safe, we are still being hit by widespread fears among consumers about 'mad-cow' disease," McDonald's said.

The company said it would spend Y550m on advertising to try to reassure consumers that its burgers were safe.

But even before the first case of disease was discovered in Japan, McDonald's sales across its store network had begun to fall.

In the three months prior to September, existing store sales fell on average more than 6.5 per cent month on month.

Analysts have been concerned for a while that McDonald's, which has a 65 per cent share of Japan's burger market, has little room for growth.

Kana Sasaki, analyst for Tsubasa Securities, said: "Even without the scare, we expected a slowdown in profit growth."

The company estimates its total sales for the full year will fall from a forecast of Y378.8bn to Y358.7bn.

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