McDonald's Heading Into a Deep Freeze Again?

The brief spring thaw in the burger king's monthly comps has disappeared.

Jun 10, 2014 at 1:10PM


And down we go again! After a brief respite from persistent negative same-store sales when McDonald's (NYSE:MCD) achieved parity with April's comps, the fast-food chain returned to form in May with sales at stores opened at least 14 months falling 1% from the year-ago period. The spring thaw seems to have frozen solid once more.

I pointed out last month that over the past few years spring has been the high point of the burger joint's comps, and that whatever gains it makes typically fall off again afterward. More troubling is that the highs it subsequently achieves the next spring never quite reach their prior peak, and the lows seem to go deeper. Now that McDonald's has remained true to form, with comps for April peaking well below last year's high and turning south once more in May, how far will they plunge on the backside of this annual apex?

Screen Shot

Source: McDonald's SEC filings.

The Golden Arches reported yesterday that global sales rose 0.9% in May on the strength of a strong recovery in China, but that was going up against the much easier comp from the prior year when sales were affected by a new outbreak of avian flu. Yum! Brands chicken palace KFC was also caught up by the devastating impact of the bird illness that had Chinese consumers shunning all poultry; it watched its comps plunge month after month. By the end of 2013, though, it had regained its footing and in first-quarter results reported in April, Yum! said KFC enjoyed an 11% surge in same-store sales in China.

Like McDonald's, it was being compared against extremely weak results. In the first quarter of 2013, quarterly comps plummeted 20% from the year-ago period, so having a relatively big gain this time around is not so startling. McDonald's as well can't reasonably compare its performance to an outlier to say business is booming.

Industry analysts indicate that restaurants generally aren't faring well now anyway, so there's little hope the fast-food king will recover from here. According to Black Box Intelligence and People Report, although restaurant comps rose 0.6% in May, the third consecutive month of growth, traffic tumbled another 1.5% for its seventh consecutive monthly decline. People are simply not dining out as much, but they're paying more at checkout when they do, which is fueling the rise in same-store sales.

Screen Shot

Source: Black Box Intelligence and People Report, and Nation's Restaurant News.

McDonald's admits in its recent press release that it faces "ongoing broad-based challenges," but what's worrisome is that its falling May sales numbers reflect a failed focus that should be one of its key strengths: McCafe coffee.

The morning beverage has always been one of the bright spots in fending off encroachment by Dunkin' Brands, Starbucks, and others that have sought to steal a portion of McDonald's commanding 31% breakfast market share. But in April, McDonald's was likely only able to spike comps by running a two-week promotion giving its coffee away. With that special now behind it, and despite concentrating on the beverage, McDonald's is still returning to form, suggesting deeper problems and more that needs to be done, and quickly.

As McDonald's heads into the summer months, and with its stock trading near historic highs, investors may just want to don their winter parkas again.

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 and Starbucks. The Motley Fool owns shares of 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information