McDonald's is considering whether to close 250 poorly performing restaurants, the fast food chain said on Tuesday, as it confirmed that the European beef safety crisis and adverse currency movements reduced profits by 16 per cent in the second quarter.

The group, which had warned about earnings in June, saw net income fall from $526 to $441m in the quarter, as earnings per share dropped from 39 cents to 34 cents.

Sales across its own restaurants and those controlled by franchisees were flat at $10.2bn - "the worst showing in recent memory" according to Mark Kalinowski of Salomon Smith Barney.

Jack Greenberg, chairman and chief executive, said, however, that he was encouraged by improved performances in several European markets over the quarter. "We are hopeful that the worst is behind us and Europe's results will continue to improve," he said.

Mr Greenberg said: "Clearly 2001 has been a difficult year for us, and I am not pleased with the results." He added, however, that the group's recently-reorganised management structure will be "more capable of dramatic change and innovation."

Matthew Paull, the group's newly-appointed chief financial officer, reiterated guidance that full year earnings would be "relatively flat" in constant currencies.

Any closures from its review of underperforming properties may result in charges for the second half of the year, he said.

In addition, McDonald's expects to record a gain of about $130m in the third quarter from the initial public offering later this week of McDonald's Japan, its largest overseas business. The IPO was priced at the top of the initial range.

US sales were flat, as the group faced tough comparisons with a successful Beanie Babies promotion a year before. Higher payroll costs resulted in a 1 per cent fall in US operating income.

Despite growth of 4 per cent in constant currencies, driven by a recovery in France, reported European sales were down 2 per cent. Currency movements and continued concerns about beef safety resulted in an 11 per cent fall in reported European operating income.  
 
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