McDonald's (MCD) Posts its First Monthly Sales Decline Since 2003
Shares of McDonald's (MCD: Charts, News) slid yesterday, after the fast food giant posted its first decline in monthly sales in nine years. In October, McDonald's sales slid across all global markets. Revenue dropped 2.2% in the United States and Europe, while its Asia Pacific, Middle East and Africa regions posted a drop of 2.4%.
Same-store sales across the company slid 1.8% instead of rising, reversing a trend of constant growth in effect since April 2003. October's results comes on the heels of disappointing third quarter earnings last month, after the company reported a 4% decline in profit, which followed a 4.5% drop in the second quarter. Don Thompson, who took over as CEO in July, acknowledged the challenges ahead, stating that McDonald's weak figures "reflect the pervasive challenges of today's global marketplace." Daily Chart
McDonald's results pale in comparison to rival Yum Brands (YUM
) (the parent of company of KFC, Taco Bell and Pizza Hut) as well as coffee giant Starbucks (SBUX
). Both Yum and Starbucks experienced significant growth in Asia as McDonald's growth slowed. Yum notably revived its lagging Taco Bell brand in the United States with its popular Doritos Locos Tacos and Cantina Bell items, and aggressively increased its store openings in mainland China, its largest market. Yum's same-store sales rose 6% in China. Meanwhile, Starbucks posted 28% sales growth in its Asia Pacific region, and opened its 700th store in China during the third quarter. McDonald's has struggled to replicate the success of its peers in Asia, and has been bogged down by the crisis in Europe, which accounts for 40% of the company's revenue. Yum and Starbucks have comparatively less exposure to the troubled European market. In the United States, McDonald's has attempted to offset its decline by promoting its value menu items to drive a low-margin, high-volume approach. It has also added new products, such as its new Cheddar Bacon Onion sandwiches, in an effort to revive interest in its standard menu items. McDonald's has also attempted to promote a healthier image by posting calorie counts for all of its products, as well as adding salads and lighter fare to its menus. However, domestic competitor Burger King (BKW
), which returned to the market earlier this year, has ramped up its efforts to compete with McDonald's with renovated stores, new menus, an updated advertising campaign, as well as hiring celebrity endorsers. Yet Burger King still has a long way to go before it becomes a viable threat to McDonald's, as it posted an 83% plunge in profit and shrinking margins last week due to multiple restructuring charges. McDonald's also noted that its "cult favorite" McRib will return in December, which may help bring sales back into positive territory. McDonald's currently trades at 14.7 times forward earnings with a 5-year PEG ratio of 1.96, which signifies that the stock is fundamentally undervalued, but may face sluggish growth ahead. Unstable commodity costs, a strong dollar, and a prolonged European crisis could exacerbate problems for McDonald's, which trades far below its 52-week high of $102.22, which it hit back in January. The stock pays a quarterly dividend of 70 cents per share - a 3.6% yield at current prices. Other News About MCD McDonald's Monthly Sales Fall For First Time in Nine Years
McDonald's disappoints investors with bleak October numbers. McDonald's Sales Drop For First Time Since 2003
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Published on Nov 9, 2012
By Leo Sun