On Monday, shares of McDonald's (NYSE:MCD) fell as a result of a worse-than-expected 2.2% decrease in November global same-store sales versus analysts' expectations of a 1.7% decline. And while this was bad news across the board, the results in its U.S. division were shocking as McDonald's reported a 4.6% comps drop at U.S. locations in November, making it the biggest monthly drop in over a decade. And that's on the back of a September 4.1% U.S. sales drop, confirming this is more than one poor month.
The news weighed on the company, with shares trading down as much as 3%. As far as investors are concerned, this continues McDonald's recent underperformance. Coming out of the Great Recession, the company tracked the greater S&P 500 until 2013, but has since traded flat where the S&P 500 has continued its run. The chart below provides proper context:
The reason for McDonald's woes has been well-documented, and that's the problem
You don't even have to be a Wall Street analyst to understand McDonald's woes: increased competition from young and nimble companies that emphasize fresh, healthy food as opposed to McDonald's status as a junk-food purveyor. In addition, the c ompany has large, bloated menus that slow down customer waiting times. The end result is a fast-food restaurant that's not fast with food more people are eschewing -- not a strong value proposition regardless of price.
But that's the issue: McDonald's has known about these challenges for a while now. For perspective, Morgan Spurlock's groundbreaking film questioning McDonald's nutrition, Supersize Me, is over a decade old. McDonald's sold Chipotle, Donato's Pizza, and Boston Market in 2006 to focus on the core business; Chipotle has become wildly popular with millennials and serves as a revolution of sorts against the fast-food empire that McDonald's represents.
More recently, McDonald's has tried to address these issues, but the results have ranged from disappointing (Mighty Wings) to the successful, but not game-changing, wraps and frappe lines. But the company hasn't had a large-scale overhaul like Yum Brands' Pizza Hut did recently. There's been talk about more customization with McDonald's "Create Your Taste" program and a possible McBrunch campaign, but neither program has had a large-scale rollout, although it appears the "Create Your Taste" program may expand its footprint significantly in 2015.
Turning the ship is hard with a large company
To be fair, it is hard to implement large-scale changes with a company this big. The company's structure as a majority-franchised entity makes it harder to deftly institute large-scale changes at all locations, adding the wrinkle of a franchise owner more concerned about his or her individual sales and costs than McDonald's overall profitability -- yes, those two can diverge.
But that doesn't mean the company can continue to delay these changes. The company replaced its U.S. president in August of this year, the second time in less than two years. If these results are of any indication, things aren't getting better. If McDonald's doesn't move faster on a modernization plan, it is possible for more among its executive suite to be replaced.