Mcdonald’s Hopes Campaign 55 Can Help Earnings

McDonald’s Corp. said unit sales of its Big Macs have more than doubled since it reduced the price of the sandwich to 55 cents with the purchase of french fries and a drink two weeks ago.

“We’re selling more than double the number of Big Macs we were selling prior to the campaign and we’ve seen a significant increase in sales of breakfast combination meals,” said Anna Rozenich, a McDonald’s spokeswoman.

The Oak Brook, Illinois-based fast food chain is offering 55-cent sandwiches with the purchase of a soft drink and side order as part of a promotion designed to boost U.S. sales and market share amid intense competition.

“What we’re beginning to see is incremental profits and increased cash flow as more customers buy meal combinations throughout the day,” Rozenich said.

Rozenich said the price cuts helped give McDonald’s its strongest comparable-store April sales in years.

McDonald’s shares closed down $1.12-1/2 at $53.12-1/2 and traded as low as $52.50 after the Wall Street Journal said sales fell as much as 6 percent from a year ago in the days following the start of the Big Mac promotion. The story cited a McDonald’s survey of 3,000 restaurants.

Analysts said it is too early to say whether the so-called Campaign 55 will help McDonald’s earnings.

“The focus right now is for McDonald’s to make it as difficult as possible for anyone to compete with them,” said Bruce Raabe, an analyst at Collins & Co. “The campaign is very good for store traffic but it will be a little while yet before we find out whether it is profitable or not.”

McDonald’s began Campaign 55 by offering breakfast sandwiches for 55 cents with the purchase of hash browns and a drink on April 4. The campaign expanded to include Big Macs on April 25.

The promotion will last indefinitely, with sandwiches being discounted on a rotating basis. Quarter-pound burgers will be reduced to 55 cents with a drink and fries in June.

“Campaign 55 is not a short-term promotion,” Rozenich said. “It’s designed to increase restaurant profit and cash flow over a long period of time.”

Mitchell Speiser, an analyst at Lehman Brothers, said that although McDonald’s comparable sales in May are running “slightly negative” compared to the same period last year, the promotions give McDonald’s the opportunity to gain market share and boost sales over the long term.

“There’s a bigger picture to Campaign 55 than just looking at one or two days’ sales,” he said.

Dick Adams, chairman of an independent association of about 100 McDonald’s franchisees, took issue with the company’s bullish assessment. He said his anecdotal evidence suggests restaurants aren’t selling more Big Macs now than when the promotion started.

“I think its because the offer is confusing,” he said. “Customers come in expecting to buy a 55-cent Big Mac and they have to buy a conventional meal package.”

Some stocks that moved substantially or traded heavily Friday:

NYSE

ICN Pharmaceuticals, down $2.12-1/2 at $21

The Costa Mesa, Calif.-based company reported first-quarter earnings that were below Wall Street estimates.

NASDAQ

Centigram Communications, down $1 at $9.50 The San Jose, Calif.-based telecommunications products maker said late Thursday that it expected second-quarter earnings to fall shy of Wall Street expectations.

Cephalon, down 7 at 13

Chiron, down $.87-1/2 at $19.12-1/2

A Food and Drug Administration panel recommended against approval of Myotrophin, the companies’ experimental drug for Lou Gehrig’s disease, formally known as amyotrophic lateral sclerosis or ALS. The FDA is not bound by advisory committee decisions, but typically follows them.