“Looking ahead to 2014, the U.S. is intent on rebuilding its underlying business momentum by strengthening key elements of customer service and leveraging the breadth of menu choices across all dayparts and value tiers.”
- McDonald’s November Press Release
We found the above quote to be quite interesting. In October, McDonald’s spoke of strengthening its underlying business momentum in 2014. In November, however, the talk has shifted to rebuilding its underlying business momentum in 2014. As we have been calling out for the greater part of 2013, MCD has issues in its underlying core business that management must address. The fact that management finally acknowledged it needs to rebuild its U.S. business momentum is a positive; but it is not a solution.
MCD reported November global same-store sales growth of +0.5% vs. +2.4% in 2012 and missed consensus expectations by 10 bps. The two-year trend ticked up 210 bps sequentially.
The U.S. and APMEA regions showed same-store sales declines of -0.8% and -2.3%, respectively. The U.S. missed consensus expectations by 110 bps, while APMEA missed by 160 bps. The two-year trend in the U.S. and APMEA improved sequentially to +0.9% and -0.9%, respectively.
Europe was the sole bright spot in November with +1.9% same-store sales growth, beating consensus expectations by 110 bps. Positive performance in the U.K., France and Russia was slightly offset by poor results in Germany. The two-year trend accelerated sequentially to +1.7%.
Overall, November marked another disappointing month for MCD, as the company missed muted global same-store sales estimates. The U.S. was once again a major source of disappointment, as the company attributed the weak comparable sales to the competitive environment and flat industry traffic trends. To be clear, this suggests that MCD is losing market share in the U.S. and, we contend, they have been for a while.
Despite the temporary uptick in two-year trends, our bearish thesis remains in play. With the street looking for 7% EPS growth in 2014, we continue to believe there is disconnect between investor’s expectations and the company’s fundamentals. Until we see a legitimate change in company operations or strategy, we fail to see how MCD will be able to hit the street's current 2014 EPS target.
Howard Penney
Managing Director
