McDonald's Sales Stuck in Deep Winter Freeze

Yeah, didn't think so. While everyone else was talking up how restaurants were finally enjoying the spring thaw, I suspected McDonald's (NYSE: MCD  )  first-quarter earnings would show sales still stuck in a deep freeze. Unfortunately, they were.

The burger giant reported that revenues rose just 1% systemwide to $6.7 billion (3% after removing currency fluctuations), but same-store sales fell 1.7% in the U.S for its third straight quarterly decline. They only managed to inch just 0.5% higher globally.

Source: McDonald's SEC filings.

Profits fell to $1.2 billion, or $1.21 per share, from $1.27 billion, or $1.26 per share last year, a situation McDonald's CEO, Don Thompson, says calls for a "reset initiative" but is one that won't be solved with a "silver bullet." The company serves 70 million customers every day at 35,000 restaurants around the globe, which most would agree is a strong base upon which to grow, but customers are increasingly looking less to McDonald's and more to its rivals for their dining options.

To counteract the decline, the burgermeister says it will continue building on its core menu components, including the Egg McMuffin and the Big Mac, which are responsible for about 40% of total sales, and will do so with a marketing push to better resonate with customers. Where it doesn't think it needs to improve is the breakfast daypart.

While some restaurants have suddenly discovered the waffle as a menu choice to attract customers, McDonald's says eggs, sausage, biscuits, and coffee are sufficient to keep it ahead of the competition. Because it does it fresh -- "We grab fresh eggs, we grill sausage and bake it, we bake biscuits and we toast muffins," said Thompson on the earnings call -- it's not worried about any encroachment others might try to make. Indeed, the researchers at Technomic estimate McDonald's has a 31% market share of the breakfast meal, which generates 20% of its $28 billion in annual worldwide revenue; it's just the rest of the day that it needs to shake up.

While I agree that the newfound emphasis on breakfast by rivals isn't likely to have much impact on McDonald's, I believe the burger chain is going to find difficulty in connecting with customers for the rest of its menu. Consumers are increasingly looking for healthier dining choices, something a burger with fries doesn't connote. It's why the leading fast-casual chains have been so successful: They're adding fresh, natural, higher-quality ingredients in a pleasing dining environment.

And it's not going to be as simple as making cosmetic changes to its restaurants or menu for McDonald's to close the gap. It's gone down this healthy-eating trend before with poor results, likely because the Big Mac remains a central component of its marketing. With greater competition, rising commodity costs, and higher expenses related to store remodelings, investors won't see much if any recovery in same-store sales and its financial performance will likely remain stuck in the same deep freeze regardless of what the weather is like outside.

Is McDonald's as irrelevant as your credit card is about to become?
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2928449, ~/Articles/ArticleHandler.aspx, 9/5/2015 6:46:14 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


Today's Market

updated 9 hours ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 4:00 PM
MCD $94.85 Down -1.16 -1.21%
McDonald's CAPS Rating: ***