24/7 Wall St. Insights
- It was another rough quarter for McDonald’s Corp. (NYSE: MCD | MCD Price Prediction).
- The fast-food giant is being pressed on several fronts.
- And its stock has underperformed the S&P 500 this year.
- Also: Dividend legends to hold forever.
It was another very rough quarter for McDonald’s Corp. (NYSE: MCD). The $5 Meal Deal did not help it despite the attraction of four Chicken McNuggets, a small fries, and a small Coca-Cola. Neither did the Chicken Big Mac. The huge fast-food chain posted difficult numbers in the most recent quarter.
Global same-store sales fell 1.3%. Revenue rose only 3% to $6.9 billion. Earnings dipped from $1.17 a share to $1.13. Management was baffled and had nothing cogent to say. Chairperson and CEO Chris Kempczinski commented, “We will stay laser-focused on providing an unparalleled experience with simple, everyday value and affordability that our consumers can count on as they continue to be mindful about their spending.” Yet, people don’t seem to be coming back every day enough to lift sales.
First among McDonald’s problems is that even value-minded customers find it too expensive. The cost of a Big Mac across McDonald’s store system in the United States can be over $5, depending on the state or store. Happy meals can cost as much as $8. Suddenly, a visit for a $5 meal becomes one that costs $10. Recently, the Today Show ran a segment titled “Have McDonald’s Prices Gotten Too Expensive?”
Increases in the minimum wage have also pressured McDonald’s, particularly in states where that has increased above $14 an hour. The federal figure is $7.25, but fewer and fewer states are at that level.
Finally, sales have fallen in China, the world’s largest market by population, at over three times that of the United States. It will be hard for McDonald’s to achieve substantial growth when sales in China dip.
McDonald’s stock is flat this year, while the S&P 500 is 23% higher. It is easy to see why.
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