Is McDonald's Witnessing a Thaw at Last?

Industry trends suggest winter's weather is behind us, but that doesn't mean the fast-food joint is showing green shoots.

May 13, 2014 at 9:36AM


Despite the restaurant industry compiling its first back-to-back growth in monthly comps since last November, don't expect that to herald a major turnaround for McDonald's (NYSE:MCD). The fast-food chain is seeing improvement, but not so much that investors ought to warm up to it just yet.

According to the latest Black Box Intelligence and People Report, restaurants recorded same-store sales growth of 0.6%, a decline of 0.1% from the comps growth reported for March, but marking the first time in five months the industry has been able to string together two straight months of growth. Even if that is a noteworthy achievement, restaurants are still unable to get customers in the door, as traffic fell 1.1%, just slightly better than the 1.2% drop in March. That means that every single month since March 2012, comp traffic has fallen.

The industry wants to spin this news as meaning the second quarter is off to a good start. Comps are up and traffic is at least moving in the right direction. Since restaurants have recorded three consecutive quarters of negative comps, this at least presents hope that they'll be able to notch one quarter that's finally in positive territory. I'm not sure the story is all that good.

Since traffic is down, the higher same-store sales restaurants are experiencing is coming from higher pricing and a certain level of cost-cutting, not actually having more people come out to dine. That's not a healthy environment. Moreover, the industry wants to believe the positive comps are a result of the country thawing out from a particularly cold winter, but as the Black Box Intelligence report shows, the best improvement seen in the country last month was the west -- the second time in as many months -- not exactly a region prone to crippling snows.

I've disparaged those chains like McDonald's that relied on the "snow in winter" excuse rather than the broader economy to explain away their poor performance. The chain only just got back to even in terms of same-store sales in April, but it should be remembered that it sponsored a free coffee giveaway to blunt the impact caused by Taco Bell and White Castle targeting the breakfast daypart.

Screen Shot

Source: McDonald's SEC filings.

McDonald's dominates breakfast with a 31% market share, according to the market researchers at Technomic, and the daypart accounts for 20% of its $28.1 billion in annual worldwide revenues. Investors need to see what it does next month when it doesn't have that limited-time offer running.

Last month, the fast-food giant reported that revenues in the first quarter rose just 1% systemwide to $6.7 billion (3% after removing currency fluctuations) while profits tumbled to $1.2 billion from $1.27 billion in the year-ago period. On a quarterly basis, McDonald's comps are still on a downward trajectory -- three straight quarters in a row, just like the broader industry. As its coffee business is one of the key reasons for its morning preeminence, absent a promotional environment I'm not certain it can maintain that improvement.

The restaurant industry sees this period as one of slow, steady gains, and one can say McDonald's is following suit. With its stock having bounced 10% off its recent lows, it's going to take at least another month before investors can determine whether this is a real recovery.

While this report may mean the worst is over, the spring has often been the peak of its performance. As its subsequent highs never reach the same level they did before, I'll need to see more proof that McDonald's winter freeze has really thawed and the current gains are not just some warmed-over head fake like those it's given before.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

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.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

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. The show is also heard weekly on dozens of 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. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers