Earnings

McDonald’s Corporation (MCD) Shares Fall After US Sales Disappoint

McDonald's Shares Fall After US Sales Disappoint
McDonald’s Corporation stock plummeted more than 3% as the company reported weaker-than-expected same-store sales growth in its latest quarter

On Tuesday, McDonald's Corporation (NYSE:MCD) revealed its weaker-than-expected second quarter earnings for the fiscal 2016. Following the earnings, the stock went down more than 3% to $122.97 during pre-market hours trading. This latest results show that it’s All-Day breakfast scheme is losing its charm and that its US turnaround strategy is still off.

Though this was the fourth straight quarter of positive same-store sales growth for the company, but it still failed to meet analysts’ expectations. In the US, its same-store sales surged 1.8%, far below analysts’ consensus anticipation of 3.4% growth. Failing to meet consensus estimates reveals the fact that McDonald’s McPick 2 and All-Day breakfast promotions hype is now being normalized. In the recent press release, McDonald’s CEO Steve Easterbrook acknowledged "softening industry growth" in the quarter.

The famous hamburger chain introduced its all-day breakfast at its domestic restaurants back in October last year to attract more diners as it faces competition from other rival food chains such as Chipotle Mexican Grill and Shake Shack. The move helped the company to witness growth in its sales. However, now it seems that the growth was short-lived and was not as strong as some investors were hoping it to be.

Despite, the CEO remains bullish on the company’s future growth prospects as he stated that the results show "a clear indication that customers are responding to the steps we're taking to deliver the menu and value options they want at the convenience of McDonald's."

According to the earnings release, the company's same-store sales rose 3.1% globally led by the United Kingdom, Australia, and Canada in the International Lead segment. However, as per Factset, Wall Street analysts expected the restaurant retailer to see positive same-store sales rise of 3.6%.

In giant hamburger chain’s high growth segment, it witnessed 1.6% increase in the same-store sales, driven by positive growth in Russia and China. The International Lead segment witnessed same-store sales soared 2.6% during the quarter. In Foundational markets, same-store sales grew 7.7%, showing robust performance in Japan and other markets.

Mr. Easterbrook said in the press release: "We're making steady progress on transforming our business to satisfy the needs of our customers around the world, despite a challenging environment in several key markets."

In its 2Q earnings, the company reported revenue of $6.27 billion, representing a fall of 4% as compared to the figure it had in the same quarter last year. The reported revenue is slightly less than expected figure of $6.27 billion.

The giant burger chain reported earnings per share (EPS) of $1.25 on the net income of $1.09 billion, up from the last year‘s same quarter net income $1.2 billion, or $1.26 per share. However, the reported EPS was less than analysts’ expectation of $1.38 EPS.

The company also witnessed weaker-than-anticipated US performance due to soft restaurant industry traffic. Consumers have been pulling back their spending due to economic uncertainties during the time when the gap between restaurant and restaurant grocery prices has broadened.

In a recent research note issued to its investors, analyst Andy Barish at Jefferies called the top of the US restaurant cycle.

Mr. Barish said in the note: "We believe the industry has at least 18 months of challenges ahead in terms of softer [same-store sales growth] and higher labor costs because of capacity growth and labor tightness, a year after the stock peak in summer '15."

McDonald’s is trying its best to get back its customers under the leadership of Mr. Easterbrook, who became the CEO of the company last year. According to the burger chain, much of its sales have improved because of its all-day breakfast deal. However, to keep this momentum going on positively, the restaurant retailer plans to expand its all-day breakfast offering in the second half of this year. The restaurant retailer also revealed that it will make more product and operational improvements.

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