MCD: Weakest U.S. Comps in Over a Decade

MCD reported dismal same-store sales for the month of November this morning, mostly missing estimates across the board:

  • Global comps -2.2% vs -1.9% estimate
  • U.S. comps -4.6% vs -2.1% estimate
  • Europe comps -2.0% vs -2.0% estimate
  • APMEA comps -4.0% vs -3.8% estimate

 

Last month, we warned that we’ve yet to see a light at the end of the tunnel signalling a true recovery.  Today, we echo that sentiment.

 

Global and U.S. comps were particularly woeful, with severe underperformance in the U.S. leading the way due in part to “strong competitive activity.”  This is the worst monthly comp McDonald’s has reported for the U.S. in over a decade.  Importantly, management lowered 4Q14 EPS guidance by $0.07-0.09 due a strengthening U.S. dollar. 

 

While Europe performed in-line with expectations, weakness in Russia, France, and Germany resulted in a -130 bps sequential decline from October.  APMEA, despite being down -4.0% for the month, was the only region to record a sequential improvement in comps on both an absolute and two-year basis as Japan and China attempt to recover from the supplier issue.  As a reminder, management previously announced this issue will negatively impact EPS by $0.07-0.10 per share in 4Q14.

 

MCD: Weakest U.S. Comps in Over a Decade - 1

 

Rhetoric was quite similar to that of a month ago, as management noted they are working to restore momentum in the U.S. by enhancing marketing, simplifying the menu, and shifting toward a more locally-driven structure to increase its relevance.  We’ve wondered in the past to what extent these changes will be made and whether or not they will be able to change the direction of the U.S. business. Though we recognize these changes will take time, November was nothing short of discouraging.  In fact, the decline in the business appears to be accelerating.

 

It will be a long road to recovery for MCD, which makes us cautious on the stock. The bull case for McDonald’s is that an activist will step in to unlock value.  But, as we opined in a note last month, the activist case for McDonald’s appears quite bleak as well.  We're staying on the sidelines, until we clearly identify a catalyst to get involved on either side of the trade.

 

While appreciating the difficulty and complexity of the situation at hand, major changes must be made – and fast.  

 

MCD: Weakest U.S. Comps in Over a Decade - 2

 

MCD: Weakest U.S. Comps in Over a Decade - 3

 

MCD: Weakest U.S. Comps in Over a Decade - 4

 

MCD: Weakest U.S. Comps in Over a Decade - 5

 

MCD: Weakest U.S. Comps in Over a Decade - 6

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more