Fast Food’s Biggest Secret: McDonald’s Is Back
It’s so easy to hate on McDonald’s (MCD) these days, but the world’s largest burger chain is showing signs of life. The once-reeling fast-food icon posted mixed monthly performance results on Monday.
The report wasn’t pretty, particularly closer to home where comparable-restaurant sales declined 4 percent in January compared to last year. The chain blames the “aggressive competitive activity” for the downturn, but comps in Europe did inch higher. Asia continues to be a struggle, but McDonald’s is addressing the brand weakness in Japan and safety concerns in China that have been holding it back in those markets.
The news follows an upbeat report a month earlier: U.S. comps in January posted year-over-year growth for the first time in more than a year, with an even better uptick in Europe. With a new CEO at the helm and a few significant trends working in its favor, this could be a real turnaround for McDonald’s if February — and not January — was the fluke.
I’m Lovin’ It
McDonald’s investors are starting to see a light at the end of the deep fryer. The stock rose 7.9 percent in February. That may not seem like much, but it’s the biggest gain that the shares have posted in more than two years.
There are plenty of welcome tailwinds working in its favor, fueled largely by an improving economy and lower gasoline prices. The improving economy results in more morning and afternoon commuters on the road, hitting up McDonald’s for breakfast in the morning or dinner on the way home.
Lower gas prices naturally benefit most consumer-facing retail establishments angling for discretionary income, but McDonald’s also benefits because they boost drive-through traffic: You no longer feel guilty about snaking through a potentially long queue of automobiles when gas prices are cheaper.
Shooing Away the Hamburglar
Steve Easterbrook inherited the CEO throne this month, and while obviously one can’t credit him solely for the chain’s comps turnaround in January and the stock’s big bounce in February, it’s not fair to discount entirely his impact on the chain’s revival. He was promoted internally, heading up the marketing department that’s been pushing out the brand-buffing ads that have been airing lately.
Something had to change at McDonald’s before he stepped up to lead the way. Monthly comps had been consistently negative since late 2013, and 2014 was the first year in more than a decade that revenue and earnings clocked in lower than the year before.
The coast isn’t exactly clear for McDonald’s. The unsettling February report will likely make this the sixth consecutive quarter of negative year-over-year comps. It still needs to upgrade the perceived quality of food, and it also wouldn’t hurt to silence activists clamoring for the chain’s franchisees to pay employees more. However, with the stock rolling and a 3.5 percent yield to reward patient investors, the turnaround at McDonald’s may come sooner than expected.