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The share price of mega-fast food chain McDonald’s (NYSE:MCD) hit a 52-week low yesterday at 91.09 following its disappointing report on global comparable sales. Sharees opened this morning at 90.84, before rebounding enough to recover all of the loss suffered on 09 September. Keep in mind that at its current 92.64, it is still in its lowest trading range for the last 12 months.
McDonald’s reported comparable sales for August down in each of its three major geographic sectors, with the most significant decrease in the Asia/Pacific, Middle East and Africa (APMEA) where sales were down a combined 14.5%. Sales in the U.S. were off by 2.8%, whilst European sales were off by a much more modest 0.7% for a composite decrease of 3.7% globally.
What is the problem?
I saw a photo of a McDonald’s location recently. The caption said, “Passersby walk past a McDonald’s store.” The pretty much tells the story. Regardless of the back stories, more and more people are walking or driving past the famous golden arches.
Granted, McDonald’s problems with suppliers in China had a significant impact, as the geographic breakdown clearly indicates. That unfortunate situation has damaged sales and eroded customer confidence in “Japan and certain other countries” as well as in China.
The future isn’t looking all that bright, at least in the near term. The company is now projecting that third quarter results are now expected to come in at about 15 to 20 cents lower than last year.
China is not the only problem.
Sometimes the problem is the competition. One of the more obvious competitive problems for McDonald’s is Burger King (NYSE:BKW). It’s most recent comparable sales report indicated same stores sales up 1.0% as of 04 September. BKW’s share price reached its 52-week high – and five-year high on that same date at 33.82. The company comparable sales have declined only once in the last 12 quarters.
Burger King is the second-largest fast-food hamburger chain in the world, and it about to become the third-largest quick-service restaurant company with its impending acquisition of Canadian chain Tim Horton’s (TSX:THI), whose shares, by the way, have been trading at an all-time high since the deal was announced.
The success of Chipotle Mexican Grill (NYSE:CMG) has taken a bite out of McDonald’s as well. Comparable sales for Chipotle were up 17.3% for the second quarter of 2014 and 15.5% for the first half. It’s overall sales, which includes product from new stores, were up 26.4% for the first half.
The real problem with McDonald’s may simply be that it’s been a long time since it was the latest, greatest thing, and the company is not structured or positioned to make innovative changes. People are moving on.
