McDonald's Is Still Not Lovin' It

McDonald's may be closing in on another all-time high, but the fundamentals are going the wrong way.

Jun 9, 2014 at 6:20PM

There's still some rust to shake off the Golden Arches. McDonald's (NYSE:MCD) posted another disappointing performance report this morning. The world's largest burger chain saw global sales improve, but the scary nugget -- or McNugget -- is that we're eyeing more weakness closer to home. U.S. comps slipped 1% in May at McDonald's, and that's not going to silence the unrest that's brewing among shareholders, franchisees, and consumers.

McDonald's seemed to be on the right track a month earlier. It posted flat comps at its stateside restaurants for April. That may not seem like such a big deal. Flat sales means that it didn't even keep up with inflation! However, it was still the first time that the burger flipper hadn't posted negative same-store sales for a month since October of last year. It could have been a springboard to better things, but apparently someone's draining the pool of its water.

Mickey D's is in a pickle. It's gone through three straight quarters of negative comps domestically. We've gone through several excuses. Late last year, it was the admission that it had strayed from its value message, alienating loyalists looking for cheap eats. Then we had the cruel winter that smacked around a lot more chains than just McDonald's. Where's the new scapegoat now? 

This wouldn't be so bad if all of the burger chains were reeling, but they're not. Burger King Worldwide (NYSE:BKW) doesn't provide monthly metrics, but it has posted slightly positive comps in back-to-back quarters.

Burger King is usually the one chasing after McDonald's, copying its menu moves and hoping that it can keep up. However, at a time when McDonald's is struggling to keep its bargain seekers and its push for premium items isn't resonating at the register, Burger King has been worthy of its paper crown by comparison.

It's not too late for McDonald's. It has the financial fortitude to keep tweaking its menu to get things right, and customers know that fast-food chains never stand still. It won't seem desperate as it tries to drum up the perfect combination of price and food to win back the hungry. It will just be a burger chain being a burger chain until it gets it right. 

Investors may not see it that way. The stock is inexplicably trading near the all-time high it set last month. Shareholders are getting a healthy yield of 3.2% to sit through the lull, but it doesn't seem right that the stock is holding up so well at a time when the fundamentals -- at least domestically -- are going the wrong way. The market shouldn't be positive at a time when the comps are negative.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide 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.

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