Weak U.S. Sales Hold Back McDonald's

The Dow Jones Industrial Average (DJINDICES: ^DJI  )  was still flirting with a new record high near the end of trading, up 24 points. As fellow Fool Dan Dzombak pointed out earlier today, Japan's estimated GDP growth of 6.7% in the first quarter and China's 7% increase in exports helped bolster a market that is grasping for any good news it can find.

But McDonald's (NYSE: MCD  ) has fallen 0.6% after another unimpressive sales report for May.

McDonald's has gone out of style
Comparable-store sales data is supposed to give investors an idea of the health of a company, as growth gives leveraged returns on each store's initial investment. Falling comparable-store sales can signal trouble because the same operating leverage works against the company when revenue drops.  

That's why McDonald's announcement that U.S. comparable sales were down 1% in May and 1.2% for the year is cause for worry. Management pointed to "broad-based challenges," which is concerning because there's nothing specific to fix.

Even a few less customers per day will hurt McDonald's sales trends.

The U.S. market is struggling, but Europe and Asia-Pacific, Middle East, and Africa (APMEA) are growing, even though the numbers aren't terribly impressive. Europe's comparable sales were up 0.4% in May and 1% year to date, while APMEA sales were up 2.5% in May and 1.6% year to date.

One of the McDonald's challenges is the growth in fast casual, which is stealing share from fast food. For some context, Chipotle's same-store sales were up 13.4% in the first quarter, compared to the decline at McDonald's.

Consumers are searching out healthier, arguably better-tasting, options. Despite its efforts to adjust, McDonald's is falling behind.

Given its sheer scale, McDonald's isn't in danger of going bankrupt, but returns could be hampered by falling sales. Investors should keep an eye on menu and advertising changes throughout 2014 that may turn the tide this year. Otherwise, this stock looks expensive at 18 times earnings.

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