Are McDonald’s Sales Becoming as Unpredictable as the Weather?

McDonald’s February sales may catch you by surprise.

Mar 19, 2014 at 2:00PM

As the cold and storms finally begin to thaw, this winter will quickly become little more than a period filled with bone-chilling memories. However, those memories will now come back to haunt us as financial results beginning with McDonald's (NYSE:MCD) and its February sales. If you were to refer to Mickey D's February sales as being all over the map, that statement might be more literal than you think.

Mcdonalds Sydney Domestic Airport
Source: McDonald's

First, January
Recall the month-ago announcement when McDonald's reported same-store sales for January. Global sales in total rose a not-bad 1.2%. Europe came in at 2%, and Asia/Pacific, Middle East and Africa rocketed 5.4%. It was the domestic same-store sales that were a bust, tumbling by 3.3%.

The company's domestic same-store sales followed a disturbing trend. Same-store sales in the third quarter increased by 0.7%. For October, there was only a rise of 0.2%. For November, it fell by 0.8%. In December it went from bad to worse with the overall quarter dropping by 1.4%, and in January the dive ballooned to down 3.3%.

Mcdonalds Deagu Korea Interior

Source: McDonald's

Given the ugly trend in domestic same-store sales and the skyrocketing same-store sales in the rest of the world for January, you probably would have expected more of the same for February. If you did, you were wrong on all accounts.

February's about-face
On March 10, McDonald's reported same-store sales for February. Domestic sales were down 1.4% which isn't great, but it's a remarkable improvement from 3.3% the month before. Europe sales were only up 0.6%, not nearly as good as the 2% from last month. The Asian and Pacific region saw the biggest swing. Sales plunged 2.6% reversing from a 5.4% gain last month. Each of the three regions swung in opposite directions compared to the prior month.

Overall, McDonald's posted a 0.3% decline in global same-store sales.

On the domestic side, McDonald's blamed the usual "challenging industry dynamics and severe winter weather." It plans to respond "through improved restaurant operations and customer service, relevant menu news, and strong consistent value offerings to regain momentum."

Elsewhere in the world, all sorts of country-by-country reasons were blamed: weakness in Germany, weakness in Australia, weakness in Japan. The shift in the Chinese New Year. CFO Pete Bensen tried to reassure investors, saying, "Looking ahead, we believe that we are taking the right actions to more clearly align with our customers' needs and build momentum to drive long-term profitable growth."

More pressure mounting
Meanwhile, McDonald's should be worried going forward from all the new competition coming online. Burger King Worldwide (NYSE:BKW) lately has been mimicking all sorts of menu items from McDonald's, the most notable being the Big King as a beefier but very similar version to the Big Mac. Regionally, it plans to enter one of McDonald's strongest regions in Europe – France – with the goal of taking 20% market share fast.

25% of McDonald's business is during the breakfast hours for which it claims a 30% market share. This is under renewed threat as well. Starbucks (NASDAQ:SBUX) plans to expand its hot morning offerings during the year. Starbucks CEO Howard Shultz recently stated, "I'll tell you we've got some great new innovations coming both in that morning category around the savory items and warm items, as well as in lunch."


Source: Yum! Brands

Meanwhile, Taco Bell of Yum! Brands (NYSE:YUM) is launching breakfast nationally at the end of this month. On its plate is the Waffle Taco which seems like a direct attack on Mickey D's McGriddle. Crunchwraps, Breakfast Burritos, and a host of rarely seen breakfast ideas threaten to pique the curiosity of morning diners away from McDonald's and over to Yum! Brands.

Foolish final thoughts
McDonald's has its work cut out for it if it truly is going to get its momentum back and get same-store sales rocking upwards again. Maybe it needs a late night snack menu. Who knows, though. Watch how these wannabe morning competitors perform. Maybe the idea of breakfast at a coffee or taco chain will turn off the morning crowd enough over time that it actually helps McDonald's. We'll know more as the Golden Arches reports its same-store sales results each month.

Imagine if you could invest in McDonald's decades ago all over again
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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide, McDonald's, and Starbucks. The Motley Fool owns shares of McDonald's and Starbucks. 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.

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