McDonald's (NYSE:MCD) keeps going in the wrong direction. The world's largest burger chain posted sales data for the month of May on Monday.
It wasn't pretty. Comparable-store sales slumped 0.3% worldwide at McDonald's last month when pitted against May 2014. Analysts were holding out for a sharper 0.9% slide, but there's no point in providing a round of golf claps for negative sales. The global economy's humming along, and inflation alone provides a tendency for comps to check in at least mildly positive. It didn't happen this time, and it has rarely happened at Mickey D's since late 2013.
Things get even uglier for McDonald's closer to home, as a 2.3% year-over-year uptick in Europe masks a 2.2% drop at its U.S. restaurants and an even bigger slide in Asia. Barring a miraculous June we're eyeing what will be the chain's sixth consecutive quarter of negative comps at its stateside eateries.
Comps can be deceiving. Sometimes a good or bad monthly or quarterly report is largely the handiwork of the previous period setting the bar too high or too low. That's not the case this time, since U.S. comps were also negative in May of last year. Investors can't live off comps alone because they reveal little about what's going on as we work our way down the income statement. This may be more true for traditional retailers -- where margin-crushing sales can result in a spike in sales or end to markdowns can boost profitability at the expense of register rings -- but it's also a factor for eateries. Unfortunately for McDonald's we're seeing rising food costs and picketers clamoring for unions and higher wages at a time when it doesn't have the flexibility to push these increases on to its consumers.
The silver lining for investors could be that McDonald's is a largely franchised operation. It just collects a steady trickle of royalties. However, if the franchisees are struggling to turn a profit at a time when the brand isn't as golden as its signature arches it will probably be a problem to attract new store owners or even retain the ones that they already have. This could prove particularly problematic at a time when new CEO Steve Easterbrook wants to hand over more of its company-owned restaurants to franchisees.
Mr. Market doesn't seem to care. Despite the disappointing recent performance the stock hit a new all-time high last month if we adjust for the juicy quarterly dividends being paid out. Easterbrook has his hands full, and while the cost-shaving initiatives that he recently announced are commendable, we still find ourselves eyeing an iconic restaurant chain that doesn't seem close to licking its waning popularity. There's a lot of McFixing to do here. Don't let the stock chart fool you into thinking otherwise.