Can McDonald's Weather the Storm?

The burger joint's business hasn't thawed out enough to say it's ready for a recovery

Feb 12, 2014 at 5:20PM

The nor'easter that just paralyzed Atlanta and is now barreling up the East Coast promising to dump a foot or more of snow in some areas will provide the perfect foil for retailers, builders, and manufacturers looking for something to pin blame on for lousy sales and earnings.

McDonald's (NYSE:MCD), after all, just used last month's winter weather as an excuse for yet another month of disappointing sales at its burger joints -- but blaming cold and snow is nothing new, as companies have used it as a crutch to deflect attention from their poor numbers for the past few months.

Images

December's cold snap, for example, was alleged to be the cause for the collapse in pending home sales, which tumbled almost 9% from the month before, according to the National Association of Realtors, while Wal-Mart said "eight named winter storms resulted in store closures" that hurt its results last quarter. That was followed earlier this month by Ford and General Motors witnessing a 7% and 12% decline in monthly sales, respectively, well below expectations, because of January's "extreme weather" patterns.

But heck, even the Bureau of Labor Statistics says a lot of people were affected, too, and decided not to go to work because of the weather.

Weather

Source: Bureau of Labor Statistics. 

Yet not everyone got the memo that they were supposed to blame the weather. Chrysler and Mercedes seemed to have avoided the same pitfalls as their U.S. rivals, and Wendy's (NASDAQ:WEN) reported solid fourth-quarter preliminary results last month that had nary a mention of cold, snow, or all the other attributes that typically come with winter. North American same-store sales rose more than 3% versus a 2% decline the year before (when we also had winter), and though total sales were lower than last year, that was due to having fewer stores, as it optimized them by selling them to franchisees.

Burger King Worldwide (NYSE:BKW) is set to report its end-of-year results tomorrow, when we'll get to see whether its customers wore snowshoes or chose to ride out winter at home.

The problem for McDonald's and much of the rest of American business and industry isn't necessarily of their own making, but comes as the U.S. consumer is under tremendous pressure from rising costs, higher taxes, lower economic expectations, and a business climate wary of the impact government policies will have on the future. It was just such concerns that lead President Obama to delay once again implementing key provisions of his signature health care law.

Yet McDonald's has also stumbled over its own feet, too. Its "Dollar Menu & More" option providing choices for $1, $2, and $5 was seen as key to boosting profits without completely alienating customers who've come to rely on the discount menu for cheap meals. That apparently isn't gaining the traction the company hoped it would, nor has the healthier fare it's been substituting, such as side salads, fruit, and vegetables. With store traffic falling 1.6% at existing restaurants, the burger chain should have known from its failed dalliance with its "Extra Value Menu" that menu (and price points) expansion was a dicey proposition.

However, both Wendy's and Burger King also sampled new menus and new products, with the former especially hitting it big with its Pretzel Pub Chicken Sandwich (though not so much with the Flatbread Grilled Chicken Sandwich). They've also introduced healthier menu items, but I think that's a fad that will wither once again, just as it did the last time burger palaces tried it.

It all points to intense competition for limited discretionary spending, and by and large the restaurant industry is finding customers are flocking to the fast-casual dining space that's seemingly achieved the perfect balance of pricing, quality, and ambience. Even convenience stores are nibbling away at fast food's quickly declining dominance.

No doubt the snow and cold that have gripped much of the country this winter have had an impact on sales, but if Chrysler can still sell cars and Wendy's can still flip burgers, then it means there are problems facing the other companies that go beyond mere weather. So even though Wendy's trades at twice the valuation of McDonald's based on estimated earnings, it may still be the better investment until McDonald's proves its business is no longer in a deep freeze.

Can McDonald's ever be an "invest and forget" stock?
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide, Ford, General Motors, and McDonald's. The Motley Fool owns shares of Ford and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers