McDonald’s may close hundreds of restaurants

Bloomberg

may shut hundreds of outlets next year to boost profit margin after the power shortages following the March 11 earthquake crimped demand for fast food.

“We want to close a few hundred stores next year and we expect to increase sales the year after that,” Chief Executive Officer Eikoh Harada said Thursday.

Japan’s largest fast-food chain also intends to renovate larger stores as it increases profit relative to cash flow, Harada said, after eliminating more than 400 unprofitable outlets last year.

Revenue fell last year for the second year in a row and every month in 2011 as of July 31, according to Bloomberg data. Sales at stores open at least a year have started to increase in September following the end of limits on electric power usage set by utilities after the March 11 earthquake and tsunami crippled some power plants, Harada said.

McDonald’s Japan, 50 percent owned by the U.S. firm McDonald’s Corp., had 3,273 stores as of the end of June, compared with 3,484 a year earlier.

The company forecasts a 74 percent increase in net income this year to ¥13.7 billion. That would be the highest since McDonald’s Japan listed in 2001, as savings from closing unprofitable stores outpace a forecast 6 percent decline in revenue to ¥304.5 billion. “Profitability relative to cash flow is going up,” Harada said. The chain intends to accelerate the opening of new stores, he said last month.

The operating margin may widen almost one percentage point this fiscal year to 9.6 percent, according to Bloomberg calculations using McDonald’s Japan’s forecasts. That would be the sixth consecutive annual increase and more than double the average since 2002.