/FIRST ADD -- CGTU049 -- McDonald's Corporation/
Jul 25, 2000
Systemwide Sales and Revenues
Systemwide sales represent sales by Company-operated, franchised and affiliated restaurants. Total revenues include sales by Company- operated restaurants and fees from restaurants operated by franchisees and affiliates. These fees include rent, service fees and royalties that are based on a percent of sales with specified minimum payments along with initial fees.
On a global basis, the increases in sales and revenues for both periods were partly due to expansion, and for the six months, also due to positive comparable sales. Foreign currency translation had a negative effect on the growth rates for both Systemwide sales and revenues for the quarter and six months. The stronger Japanese Yen had a greater positive currency translation effect on sales compared to revenues. This is due to our affiliate structure in Japan. Under this structure, we record a royalty in revenues based on a percentage of Japan's sales, whereas all of Japan's sales are included in Systemwide sales. For this reason, sales were less negatively affected by foreign currency translation than were revenues.
On a constant currency basis, revenues increased at a higher rate than sales in both periods due to the higher unit growth rate of Company- operated McDonald's restaurants relative to Systemwide restaurants, the addition of Other Brands and the consolidation of Argentina and Indonesia, for financial reporting purposes, in the first quarter 2000.
Systemwide sales Dollars in millions 2000 1999 Increase/(Decrease) As In Constant Reported Currencies* Quarters ended June 30 U.S. $ 5,192.5 $ 5,169.9 - n/a Europe 2,326.8 2,387.3 (3)% 7% Asia/Pacific 1,696.3 1,502.3 13 7 Latin America 429.5 402.1 7 10 Other 592.5 458.8 29 30 Total Systemwide sales $10,237.6 $ 9,920.4 3% 5% Six months ended June 30 U.S. $ 9,697.5 $ 9,453.1 3% n/a Europe 4,632.5 4,649.1 - 10% Asia/Pacific 3,481.9 3,013.6 16 10 Latin America 863.6 795.7 9 11 Other 1,068.8 831.7 29 28 Total Systemwide sales $19,744.3 $18,743.2 5% 7% * Excluding the effect of foreign currency translation on reported results n/a Not applicable
U.S. sales were flat for the quarter as expansion was offset by negative comparable sales. If Teenie Beanie Babies sales had equaled last year's level, U.S. sales would have increased about five percent for the quarter. For the six months, U.S. sales increased three percent, due to restaurant expansion and positive comparable sales.
In Europe, expansion, partly offset by negative comparable sales, drove the constant currency sales increase for the quarter, while expansion and positive comparable sales drove the increase for the six months. Strong performances in Italy, the Netherlands and Spain drove the increases in both periods. France and the United Kingdom also contributed significantly to the increases for both periods. The segment's sales growth rate was negatively impacted by difficult sales comparisons in Germany as a result of successful non-food promotions in 1999, unusually hot weather and high television viewership of the Euro 2000 Soccer Championship, which reduced eating out activity.
In Asia/Pacific, the constant currency sales increase for the quarter was driven by expansion, partly offset by negative comparable sales, while the sales growth for the six months was driven by expansion and positive comparable sales. Positive comparable sales in several markets, including double-digit comparable sales growth in China, and expansion in Japan drove the segment's sales increases in both periods.
In Latin America, constant currency sales increases for the quarter and six months were driven by expansion, partly offset by negative comparable sales. Contributing to the increases were expansion for both periods and positive comparable sales in Brazil for the six months, and double-digit comparable sales in Mexico for both periods.
In the Other segment, positive comparable sales and expansion in Canada and South Africa contributed to the increases for both periods. The sales increases for the quarter and six months included $106.1 million and $149.3 million, respectively, related to the addition of Other Brands.
Combined Operating Margins
The following combined operating margin information represents margins for McDonald's restaurant business only.
Combined operating margins Quarters ended Six months ended June 30 June 30 2000 1999 2000 1999 Dollars in millions Company-operated $ 428.2 $ 448.9 $ 831.5 $ 810.0 Franchised 783.6 792.6 1,493.3 1,469.8 Combined operating margins $1,211.8 $1,241.5 $2,324.8 $2,279.8 Percent of sales/revenues Company-operated 17.3% 18.4% 17.0% 17.6% Franchised 80.1 81.5 79.4 80.4
Combined operating margin dollars decreased $29.7 million, or two percent, for the quarter, and increased $45.0 million, or two percent, for the six months. In constant currencies, combined operating margin dollars increased by $12.3 million, or one percent for the quarter and $120.7 million, or five percent for the six months. The U.S. and Europe segments accounted for over 80 percent of the combined margin dollars in both periods.
As a percent of sales, Company-operated margins decreased for both periods. Food & paper costs as a percent of sales decreased for the quarter and increased for the six months, while payroll costs as a percent of sales increased for the quarter and decreased for the six months. Occupancy and other operating expenses increased as a percent of sales for both periods.
In the U.S. and Europe, Company-operated margins decreased as a percent of sales for the quarter and six months. As a percent of sales in both segments, food & paper costs decreased, while payroll costs and occupancy & other operating expenses increased for both periods. In the U.S., approximately one-half of the second quarter's margin percent decline was due to the comparison to last year's Teenie Beanie Babies promotion. Germany, which also faced challenging comparisons due to strong promotions last year, accounted for half of Europe's margin percent decline for the quarter.
As a percent of sales, Asia/Pacific's Company-operated margins decreased for the quarter and increased for the six months. Latin America's Company-operated margins decreased as a percent of sales for both periods, primarily due to difficult economic conditions experienced by most markets, partly offset by the consolidation of Argentina.
Franchised margins as a percent of applicable revenues decreased for the quarter and six months. The decrease in the margin as a percent of revenues was primarily due to higher occupancy costs as a result of our strategy to lease more sites. By leasing a higher proportion of new sites, we have reduced initial capital requirements. However, as anticipated, this practice reduces franchised margins since the financing costs implicit in the lease are included in occupancy expense, whereas for owned sites, financing costs are reflected in interest expense.
For all segments, excluding Other, franchised margins as a percent of revenues declined for the quarter and the six months primarily due to increased occupancy costs. In addition, the consolidation of Argentina and Indonesia contributed to the decline in margins as a percent of revenues in Latin America and Asia/Pacific, respectively, for both periods.
PRNewswire -- July 25
SECOND ADD -- TABULAR MATERIAL -- TO FOLLOW
SOURCE: McDonald's Corporation