Is McDonald’s Domestic Sales Weakness an Overblown Concern?

Focus on the bigger picture.

Jul 25, 2014 at 9:00AM

McDonald's still draws crowds everywhere.
Source:  McDonald's

Many have been quick to take shots at McDonald's (NYSE:MCD) -- including myself -- for its recent domestic same-store sales growth slump. No investor likes to see negative numbers, but are we making mountains out of molehills? Let's take a step back and take a look and see just what is going on at the Golden Arches.

First, the slumping domestic numbers
If you've been following McDonald's closely, you know that in the United States, the company has been struggling of late to show growth. Mighty Wings, Fish McBites, the Bacon Clubhouse Burger, and other such items failed to give the chain enough of a boost to put it back in growth mode domestically.

The last time McDonald's had positive same-store sales to report for the U.S. was for the third quarter of 2013, when results rose 0.7%. For the fourth quarter, they slipped 1.4%. Then they fell 1.7% in the first quarter of 2014. The month of April was a good attempt, with only flat sales, and for May they tripped down 1%.

But what do these numbers even mean?
In 2012, the average McDonald's in the U.S. did $2.6 million in sales. It was one of the highest per-unit measures of any national quick-service or fast-casual chain. A 1% or 2% gain or loss in same-store sales means only $26,000 or $52,000, respectively, if you do the math.

Based on $2.6 million, that means a 2% drop is still $2.55 million and a 2% gain is $2.65 million. Is there really that much of a difference? That's up for debate, but there is no getting around that each McDonald's on average is still a powerhouse.

Take the No. 2 national burger chain by unit sales called Whataburger. It does less than $2 million in sales. Then you have Wendy's and Burger King, which are closer to between $1 million and $1.5 million in sales. Now that's quite a difference when compared to McDonald's.

People are still lovin' it.  Source:  McDonald's

What about abroad?
It should be noted that McDonald's doesn't exist in a U.S.-only vacuum. In reality around 60% of its locations exist outside of the U.S. For example, McDonald's largest Latin American franchisee, Arcos Dorados, has been on a tear with same-store sales, which were up 11.2% last year alone. Overall global same-store sales last year inched up 0.2%.

Overall in the first quarter of this year, global same-store sales were up 0.5% -- with a 1.4% gain in Europe, a 0.8% gain for the Asia Pacific/Middle East/Africa region, and an 8.8% gain for Arcos Dorados. I think you get the point: The rest of the world is doing fine overall.

Globally things continued well for the months of April and June, with global same- store sales gains of 1.2% and 0.9%, respectively. This means that while there is some concern with the slight slippage domestically, McDonald's still remains insanely popular everywhere. The company overall is still growing its sales around the world at each location on average and through more units.

Foolish takeaway
All of this being said, it's still always a good idea to track trends, good or bad, as often they prove long term to be more important than the individual data suggests. So far I see no reason to sound off any alarm bells. McDonald's brand is doing just fine -- better than fine. Shareholders want to see better and better growth no matter how good any company is doing, which is understandable, but for now McDonald's the company is doing extremely well.

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Nickey Friedman 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.

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