Hard Year for McDonald’s Investors

Normally, a year in which a company’s stock gains almost 12% would be a good one. McDonald’s Corp. (NYSE: MCD | MCD Price Prediction) shares did that this year. However, the Dow Jones industrial average rose almost 23% for 2019, which made McDonald’s one of the worst-performing companies of the 30 components in the index.

Specifically, McDonald’s shares were up 11.60% to $198.17. The Dow rose 22.80% to 28,645.26. While the Dow is within a fraction of its all-time high, McDonald’s stock peaked in August.

The easiest, but not necessarily the most important, expansion for the McDonald’s trouble was the ouster of former CEO Steve Easterbrook over a relationship with a company employee. He was replaced with one of the fast-food chain’s most competent executives. Chris Kempczinski had run U.S. operations. McDonald’s board needed new blood immediately. Shortly after the job became his, he suggested McDonald’s “sharpen” its executive for 2020. He did not make it clear what that means.

McDonald’s has deeper problems. Although same-store sales rose 5.9% in the most recently reported quarter, revenue rose only 1% to $5.4 billion. Earnings per share fell slightly to $2.10 from $2.11 in the same period a year ago. McDonald’s is not growing.

McDonald’s operates in a much different environment than it did a decade ago. It still has to compete with Burger King, Arby’s and Wendy’s, as well as an army of pizza chains led by Pizza Hut and Domino’s. Chicken has become a rage. Fast-food retailers with mostly chicken menus like Chick-fil-A have joined Kentucky Fried Chicken.

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McDonald’s also operates in a world of food delivery — even fast food. Doordash delivers food from tens of thousands of restaurants, McDonald’s among them. When almost anyone can order any food from anywhere, the advantages among the largest chains of locations begin to become lost.

McDonald’s also has to change the way it serves people in its own stores. In many, people can order via people-less kiosks. Whether that changes the customer experience is one question. What it does to employee morale and service quality is another.

McDonald’s shares show no sign of running up. That is probably because there is no catalyst to push them.

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