Is McDonald’s Losing Its Flavor?
McDonald’s (NYSE:MCD) is slightly off in the morning after announcing that its global same-store sales fell 1.8 percent in October. The company seems to be pacing the sluggish global economy and reacting slowly to shifts in consumer demand.
In its third-quarter results, McDonald’s posted a global comparable-sales increase of 1.9 percent. However, net income and revenue both dropped. The stock price has slid over 7 percent since the middle of October, with the price down over 12 percent this year to date.
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The monthly same-store sales decline is the first in nine years, but was not unexpected. Analysts were predicting a drop of about 1 percent in global sales. Effects of the weak economy on sales have been compounded by competitive pressures.
Wendy’s (NYSE:WEN) and Burger King (NYSE:BKW) have been aggressively retooling their menus in order to keep up with a generally bleak outlook for quick-service restaurants. Wendy’s posted a loss of 7 cents per share on its last earnings, but managed to pull top-line growth of 4.1 percent year over year. Shares are up as much as 4.2 percent in morning trading.
Despite getting beat up recently, the advent of quickly growing chains like Chipotle Mexican Grill (NYSE:CMG) have added substantial pressure to an industry traditionally dominated by hamburger restaurants. The company posted a 4.8 percent comparable-sales increase in its third-quarter report, and an impressive 8.3 percent comparable-sales increase for the nine months ended September 30 compared to last year.
Traditional lunch and dinner food is just one front of the war that McDonald’s is fighting. The world’s largest hamburger chain has been ramping up its breakfast and coffee plays. The company has filed trademarks for its McCafe coffee, and announced in October that it would begin selling ground coffee in Canada. The company has over 600 McCafe locations worldwide.
Quick-serve restaurants have been eying the increasingly lucrative global coffee turf war for a while, and will face brutal competition from chains like Starbucks (NASDAQ:SBUX) unwilling to cede territory. For its part, Starbucks has been piloting pastries that could lure in consumers who want a bite to eat with their coffee, who traditionally would head somewhere like McDonald’s for breakfast.
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