McDonald's Frosty Sales Should Chill Investors

Four straight months of falling domestic comps should put its stock in a deep freeze.

Mar 11, 2014 at 6:00PM

There's that pesky "snow in winter" problem cropping up for McDonald's (NYSE:MCD) as it tries to explain why monthly comps fell for four months in a row here in the U.S, but since they're also down globally for two of those four months as well, I'm not sure that's a valid excuse any longer.

Images

Source: facebook.com/McDonalds/.

Retailers of all stripes have been falling back on blaming the weather for lackluster sales. Yet, as I noted when Darden Restaurants (NYSE:DRI) used that as its fallback rationale for comps falling by triple-digit basis points in December, Janaury, and February, it really depends on location. According to the National Oceanic and Atmospheric Administration, many areas of the country actually saw above-average temperatures with some regions having among their warmest winters ever.

While the weather did turn frigid at times these past few months, Burger King Worldwide(NYSE:BKW) reported comps at its restaurants here in the U.S. were up 0.2% for the three months ending December 31 while globally they were 1.7% higher. Wendy's (NASDAQ:WEN) saw a 3.1% rise for the three-month period in its North American company-operated stores and a 2.8% increase for franchised operations. In fact, the word "weather" never even cropped up in their announcement.

At once, McDonald's is faced with the prospect of having given its customer base too many menu options to choose from at the same time they're confronted with more dining options from rivals. In addition to the usual competitors changing up their menus, other fast-food restaurants are wooing customers away as well. Yum! Brands (NYSE:YUM) Taco Bell unit, for example, is launching a breakfast menu and convenience stores are stocking fresh foods and quick, grab-and-go items that are stealing business from the fast-food chains. More than a third of diners recently surveyed said they got a bite to eat at their local 7-Eleven, Wawa, or QuickChek instead of at a fast-food place.

Just last month, I was asking if McDonald's would be able to weather the storm after it had used the winter weather excuse once again. At that time, I noted how higher menu prices and healthier fare hadn't stemmed the losses then and it's apparent they still haven't done so now. There's now a fairly large disconnect between how its U.S. operations are performing against those of its international business.

Screen Shot

Source: McDonald's SEC filings.

The flagging economy is dragging McDonald's down and one has to ask just how many burger palaces we need before we've reached the saturation point. The burger flipper says it's planning on opening another 1,500 to 1,600 restaurants this year and though a good portion may be international those markets aren't exactly healthy either.

China, for example, which together with Australia and Japan, accounts for 54% of its revenues, reported trade data over the weekend that signaled a substantial decline in the economy. Exports collapsed more than 18% in February from the year ago period compared to analyst expectations of a 7.5% increase and down from the double-digit growth it achieved in January. Yum still hasn't recovered from its chicken woes in the country and McDonald's own fourth quarter performance saw regional revenues drop 2.4% with its performance in China flat.

In essence, I think McDonald's can no longer be thought of as a growth company and investors should probably start valuing it like the mature business it has become. The fast-food chain isn't going away, but the outsized performance they became accustomed to is not something they'll be able to flip over any further.

Hungry for something more?
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide. It recommends and owns shares of 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