Is McDonald’s About to Tank?

Ray Dalio bought McDonald’s (MCD) shares last quarter. Dalio believes that the company may benefit from escalated food-traffic tied to blunders at other fast-food rivals, mainly Chipotle Mexican Grill. Earlier this month, McDonald’s reported its first quarter results. The company’s comparable sales surged 6.2 percent throughout the starting three months of 2016.

It seems that Dalio’s thesis has proven to be correct as it would have been very difficult for a company of the size of McDonald’s to report 6.2% comps gains otherwise.

In accordance with the traffic gains, McDonald’s hit a new all-time high recently as the shares of the company were up almost 40 percent from its 52-week lows.
This was mainly possible due to the hastened sales growth. At present, the company governs around 36,500 restaurants all over the world, and it is very difficult to achieve a strong growth when you reach such a massive scale. Furthermore, the company continues to differentiate itself, broadening the gap from its comps to sector comps.

However, the company has performed well under the guidance of new CEO Steve Easterbrook, as the comparable restaurant sales in the Unites States moved on the positive side for the first time in last two years throughout the third quarter previous year. McDonald’s all-day breakfast as well as new McPick 2 value platform lingers to deliver robust results.

Apart from this, McDonald’s new market growth is also thriving as the company sold more than 2,000 Big Macs on the initial day of operation in Kazakhstan. McDonald’s plans to expand its all-day breakfast internationally, as the company hopes its success in the U.S. will be replicated in the worldwide markets as well. The company also decides to open at least 1,500 new restaurants across Korea, Hong Kong, and China over the coming five years.

It is very obvious to everyone that fries are one of the most popular products on McDonald’s menu. Recently, the company introduced new Gilroy garlic fries at four of its San Francisco restaurants. However, twirling fries around in slippery and saucy steel may look like a modest idea, but it is a precise move for the company, as it can be expanded to other restaurants when the company needs a boost.

Parting Remarks

Chipotle Mexican Grill (CMG) will likely continue witnessing weak sales. The company’s damaged reputation has seen its sales fall almost 30% on a year-over-year basis and it will take a long time for Chipotle to regain those sales.

In the meantime, McDonald’s will continue benefiting from Chipotle’s losses. In addition, McDonald’s also has many other growth options as mentioned in the article above.


Published on Jun 1, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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