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McDonald’s Japan forecasts big 2014 loss after food safety scare

Would you like a tainted piece of Chinese chicken with that? YOSHIKAZU TSUNO/AFP--Getty Images

McDonald’s Holdings Co (Japan) Ltd forecast on Tuesday a net loss of 17 billion yen ($156.7 million) for 2014, its first loss in 11 years, after a food safety scandal hit sales already weakened by stiff competition from convenience stores.

The announcement brought further gloom for McDonald’s Corp (MCD) , which holds 49.9% of McDonald’s Japan, and has been struggling globally with falling sales.

“Customers have expressed a lack of confidence in our food quality, and I take responsibility for that,” McDonald’s Japan Chief Executive Sarah Casanova told a media briefing, at which
she also forecast an operating loss of 9.4 billion yen for the year to Dec. 31.

“It’s our intention to try to turn this business around as fast as we can.”

Facing tough competition from domestic convenience stores, McDonald’s Japan had been suffering from weak demand even before the food safety scare, in which a major Chinese supplier of chicken meat was found to be in breach of safety standards.

The company withdrew its annual earnings forecast after the food scare in July, but prior to that, it had forecast an operating profit of 11.7 billion yen ($107 million) and net profit of 6 billion yen for the year.

Last year, McDonald’s Japan reported a 60% plunge in net profit to 5.14 billion yen.

The food scare, which also affected other global food companies such as KFC owner Yum Brands Inc (YUM), led to a 25% drop in McDonald’s Japan’s sales in August, the sharpest fall since the company became public in 2001. Sales fell a further 17% in September for the eighth straight month of year-on-year declines.

Shares in McDonald’s Japan closed 2.5% lower, reversing earlier gains and lagging a 0.7% drop in the benchmark Nikkei index.

McDonald’s Corp said last month worldwide sales fell 3.7% in August. Battling internal missteps, competition and shifting consumer tastes, the company warned in September that
the food safety scandal would likely hit its profits.

The company is also under pressure from regulators in Russia, who have closed down a number of its busiest restaurants citing violations of food safety regulations. Critics say the actions are a politically-motivated response to U.S. and E.U. sanctions on Russia for its role in stoking the crisis in Ukraine.