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Posted on Sat, Nov. 09, 2002 story:PUB_DESC McDonald’s to close 175 locations, cut jobs By Deborah Cohen Reuters

CHICAGO – Fast-food giant McDonald’s said Friday that it will shut down about 175 restaurants — its second major round of closings in two years — and slash as many as 600 worldwide corporate positions, as it struggles to turn around its U.S. performance and trim worldwide costs.

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

McDonald’s shares fell by as much as 13 percent Friday on the New York Stock Exchange. The news also pushed down the stock of competitors such as 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 Chief Executive 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.

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 as many as 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.

Shares of McDonald’s closed at $17.79, down $1.52, off an earlier low at $16.80. The stock had a delayed opening because of an imbalance of orders.