Junk Food Giant McDonald's
To Close 175 Restaurants

McDonald's to close 175 restaurants, miss earnings

OAK BROOK, Ill. (Reuters) - Fast-food giant McDonald's (MCD) said Friday
that it would close about 175 restaurants worldwide and slash up to 600
jobs, forecasting a shortfall in 2002 earnings as it struggles to turn
around its U.S. performance and trim worldwide costs.

The Oak Brook, Ill.-based company said the actions will reduce
fourth-quarter earnings by $350 million to $425 million, forcing its to
miss its 2002 earnings forecast. The shortfall stems from the combined
effect of the cost of closing stores and losing their revenues, a
spokeswoman said.

McDonald's shares fell by as much as 13% on the New York Stock Exchange
Friday, and the news also pushed down the stock of competitors such as
hamburger rival Wendy's International and Taco Bell parent Yum! Brands.

The restructuring includes a planned exit from three undisclosed
countries where McDonald's already has operations. The overhaul is the
latest attempt by McDonald's CEO Jack Greenberg, who has been at the
helm for four years, to take costs out of an operation that has
struggled with weak sales in the United States, with troubled economies
in major markets such as Latin America, and the impact of mad cow
disease outbreaks in Europe and Japan.

Wall Street questioned whether the actions, which come on the heels of
seven earnings shortfalls in the last eight quarters, go far enough.

"Clearly, they should have done this sooner, but it's better late than
never," said Victory Capital Management analyst David Kolpak, whose firm
held 3.6 million McDonald's shares through June.

"Investors have been saying for some time that some of the developing
market businesses need to be trimmed back, that McDonald's ... on the
basis of over-optimistic forecasts, invested too quickly in some Latin
American and Middle Eastern markets, ahead of those economies' ability
to support demand," he said.

A period of retrenchment

With a history of driving growth through rapid expansion, McDonald's,
which operates nearly 30,000 restaurants worldwide, has been retrenching
on store openings. In 2003, the company plans to open about 600
hamburger outlets worldwide, down from a high of 2,000 in 1996 and a
planned 1,300 this year. Last year it closed 163 underperforming stores.

The worldwide job cuts of 400 to 600 positions, including up to 250 in
the United States, mark the company's third major round of layoffs in
five years. Worldwide, McDonald's employs about 395,000 people,
including store-level jobs.

Shares of McDonald's fell $1.52 or 7.9% to $17.79 Friday, off an earlier
low at $16.80. The stock had a delayed opening due to an imbalance of
orders.

Of late, McDonald's has returned to price-discounting in the United
States, an oft-criticized strategy in its largest market. Competition
intensified after the company in September introduced a menu of $1
items, prompting a similar reaction from Burger King, the No. 2
hamburger chain.

The effect of price cutting has been blamed for weakening the value of
the sale of Burger King by its parent, British drink conglomerate
Diageo.

"McDonald's may become even more aggressive in throwing its marketing
muscle around in 2003 than originally planned, as it tries to do
whatever it can to reverse the negative U.S. comps (comparable store
sales)," wrote Salomon Smith Barney analyst Mark Kalinowski.

In addition to the planned 2002 restaurant closures, McDonald's is also
changing its real estate structure in four Middle East and Latin
American countries, eliminating an ownership stake and any invested
capital to cut costs.

October systemwide sales at McDonald's totaled $3.5 billion, up 3%
before the impact of foreign currency. Comparable U.S. sales were down
0.6%, while those in Europe were off 2.2%.

The company first trimmed jobs at its headquarters operations in 1998.
Last year, it shed about 700 employees in Oak Brook and in its regional
offices as part of a domestic restructuring.

Wall Street had expected McDonald's to earn $1.40 to $1.43 a share in
2002, with an average estimate at $1.43 a share, according to Thomson
First Call.


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