Is McDonald's on the Verge of Faltering?

Last week, McDonald's (NYSE: MCD  ) reported another hearty, filling helping of quarterly results. Still, there's one big reason why investors might want to think twice about McDonald's future: It's losing one of its major advantages.

Can the good times last forever?
McDonald's first-quarter net income rose 5% to $1.27 billion, or $1.23 per share. Total revenue increased 7% to $6.55 billion in the quarter. The fast-food behemoth attributed its top-line surge to its classic core offerings as well as new treats such as Chicken McBites.

Even better, Mickey D's global same-store sales continued their amazing trajectory that's been par for the course for years now. Comps surged 7.3% on a global basis (helped a bit by leap year's extra day), even generating admirable gains in markets such as Europe (up 5%) and right here in the U.S. (up 8.9%).

As always, McDonald's can expect more aggressive attacks from rivals, but so far their attacks haven't taken the wind out of Mickey D's sails.

Granted, Wendy's (NYSE: WEN  ) has gotten stronger since ditching the lackluster albatross that was Arby's. Wendy's recently stole the ranking for second-biggest hamburger chain by sales volume in the U.S. from Burger King.

Speaking of which, Burger King is planning to go public again shortly after it was taken private and has vowed it's going to try to emulate McDonald's secret sauce more closely.

For a less formidable rival, look at Sonic (Nasdaq: SONC  ) , which peddles burgers and other fare through drive-thru restaurants. Its recent cautious outlook for the rest of the year laid its stock price low.

McDonald's hasn't had to deal with questionable competitive strength; for a long, long while, McDonald's has made most of its rivals look like chopped liver by comparison. It's even held its own in the coffee and specialty drinks category against companies such as Starbucks (Nasdaq: SBUX  ) ; note its plan to launch a "Cherry Berry Chiller" just in time for summer.

Beware the no-brainers
McDonald's stock has been on a tear for years now because of its amazing operational successes, quarter after quarter. The stock has come to seem like a bit of a no-brainer for investors' portfolios.

Of course, past performance is no guarantee of future success. The coming months may be difficult for McDonald's and its rivals; commodity prices are seen rising, and labor and rent costs are increasing internationally.

To my way of thinking though, the big, disturbing elephant in the room is that CEO Jim Skinner is retiring this summer. His successor, Don Thompson, has one heck of a tough act to follow.

Rewind the years and recall when investors had left the tarnished Golden Arches for dead. In 2003, well-known TV personality and stock commentator Jim Cramer had even said McDonald's couldn't be saved. Fortunately for McDonald's (and its shareholders), the late Jim Cantalupo came and saved the day. Jim Skinner proved himself an admirable successor to that legacy, having carried the torch for eight years, helping McDonald's shed its previously sullied image and convincing investors and customers alike to keep on "lovin' it."

At that time, anyone could have been forgiven for wondering whether Skinner could pull it off. Now that Skinner's leaving, whether his successor can keep the success coming is another reasonable question. Look at Best Buy's tenure under Brad Anderson's recently resigned successor, Brian Dunn.

What's next, McDonald's?
I recently removed my outperform call on McDonald's in Motley Fool CAPS (you can see my overall CAPS track record here). I felt the stock may have finally gotten ahead of itself particularly in this uncertain economic environment, and Jim Skinner's pending resignation fuels my personal uncertainty even more.

What do you think? Will McDonald's be the same sans Skinner? Leave your McCommentary in the comments box below.

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Alyce Lomax owns shares of Starbucks. The Motley Fool owns shares of Starbucks and Best Buy. Motley Fool newsletter services have recommended buying shares of McDonald's and Starbucks. Motley Fool newsletter services have recommended writing covered calls on Starbucks. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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  • Report this Comment On April 24, 2012, at 10:37 AM, rathbateman wrote:

    I closed out my position in MCD last month actually. It proved to be a great investment for me the past couple years but I'm thinking there are better places for my $ given the huge run-up in MCD's share price, as well as the impending leadership change.

  • Report this Comment On April 24, 2012, at 12:34 PM, sinkstor wrote:

    I will still consider McD my forever stock having owned it for about 30 years and reinvesting dividends until 3 years they give me a hefty check quarterly. I have purchased it anywhere from $20 to $70. The new CEO will continue in Skinner's footsteps because that's the way they do it

    I'm lovin' it!

  • Report this Comment On April 24, 2012, at 10:03 PM, rd80 wrote:

    While there's always risk in a CEO change, I think you're overstating it in this case.

    Mr. Thompson does have a tough act to follow, but from what I've read, I can't imagine a better choice to take over. If I were on the search committee, I'd want someone who:

    Understood MCD and the keys to its success - Thompson - check.

    Had been a key member of the C-level team at MCD or a comparable successful company - Thompson - check.

    Had a demonstrated track record of innovation and marketing success at MCD or a comparable company - Thompson - check.

    I'm sure there will be some changes with Mr. Thompson at the helm. And if his McCafe initiative is an example of what we can expect from the new CEO, bring 'em on.

    I'm keeping my CAPS green thumb on MCD and hanging on to my shares. In fact, I added some last week. Like sinkstor, I plan on collecting growing dividends for many years.

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