There are a number of reasons to believe that MCD’s domestic business is slowing. First, a recent franchise survey estimates that MCD’s U.S. September same-store sales have slowed to 3.1% from August’s 4.5% number. According to the survey, the October number slowed even further. On a 2-year basis, this slowdown is even more apparent with 2-year average trends falling to 3.3% in September from 6.0% in August.
- Second, the most recent data from WMT signaled that its sales trends have slowed. We have not heard from MCD since WMT reported its sales for September.
- Third, we have posted in the past that MCD is getting more aggressive with coupons, which is another sign that MCD is struggling to generate traffic trends!
- Fourth, we recently posted some data on industry discounting (please refer to my October 18 post titled “Deal or No Deal”). The data pointed to a significant increase in discounting. The combination of slowing sales trends and increased discounting will lead to lower levels of profitability.
- Fifth, nobody is immune!
- There are a number of reasons to be bullish on MCD, but I’m not in that camp. I have posted about franchise anxiety, which is at levels we have not seen in years. The currency benefit the company has enjoyed for the past years slowed significantly in 3Q08 and will be a drag to EPS in 4Q08. The bulls point to the new coffee program as being the savior for top line sales over the next 18-months. I believe that there are clear signs that MCD will need to adjust expectations down for that program as we enter 2009.
One of the biggest issues for the stock is that the street is hiding in MCD as a “safe haven.”
