Wednesday, December 10, 2014

McDonald's Looking Out Of Step

I know that if you are like many investors, McDonald's (MCD) is a part of your core portfolio. Therefore, I wanted to provide this brief commentary on the company and their prospects. 
McDonald's reported global comps for November that fell short of expectations. Global comps of -2.2% missed consensus by -2% and decelerated further from the previous month when we saw -0.5% in comp sales. Both the US and Asia remain weak with a -4% decline in comps, highlighting the competitive environment in the US while Asia, particularly China, continues to be mired by the supplier scandal that has been weighing on comp sales in the country.
Pessimism is building into the Q4 earnings as management expects margins to be pressured due to weak topline growth and wage inflation. Moreover, the scandal involving the Chinese supplier would place $0.07-$0.10 downside impact on EPS, and this is in-line with the prior discussion. Finally, strengthening of the US dollar is likely to drag on the overall result with a $0.07 to $0.09 impact on EPS. My view is bearish on MCD as I believe the company's low-end focus places it at a disadvantage relative to the high-end focused peers such as Starbucks and Chipotle. The business seems to be out of step with what consumers are looking for today; a healthy selection in a trendy atmosphere. McDonald's offers neither.

No comments:

Post a Comment