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After McDonald's reported its November results, we updated our fair value and cut our quality score to 3.4. We lowered our rating to Watch and adjusted our projections for how many customers visit American stores after traffic fell in the quarter. We have added three new things to what we track: the impact of weight-loss drugs on menu strategy, legal risks from software-driven pricing, and how much franchisees are willing to spend on store upgrades. We also reset our expectations for sales growth in France and China after performance there slowed.
McDonald's will introduce a new lineup of value-focused meal bundles early next year. The move follows a quarter where fewer people visited its U.S. restaurants, signaling that the company needs more aggressive pricing to compete for budget-conscious diners.
For a long-term owner, this shows management is reacting quickly to the sales slowdown. The challenge will be offering prices low enough to bring people back through the doors without cutting too deeply into the profits the company makes on each burger and fry.
Source: Fast Company
McDonald's reported a drop in sales at its U.S. restaurants that have been open at least a year, ending a growth streak that lasted more than a year. This happened even though the company has been pushing more deals to attract customers who are feeling the pinch of higher prices.
This is a concern because the U.S. is the company's most important market. While the chain is still highly profitable, the dip suggests that its current value offers are not yet doing enough to win over diners who are eating out less often.
Source: Reuters
McDonald's delivered a solid quarter where it earned $3.57 per share, beating the $3.38 analysts expected. While total revenue of $7.16 billion was slightly lower than the $7.28 billion target, the company showed progress in its digital strategy. Sales to loyalty members, customers who use the app to earn rewards, reached $11 billion for the quarter, putting the company on track toward its long-term goal of $45 billion in annual digital sales.
Management noted that U.S. performance improved throughout the quarter after they focused more on value, which likely means offering more affordable meal deals to win back price-conscious diners. Operating income, which is the profit left after paying for the costs of running the restaurants, grew 7 percent. This suggests that even as the company fights for customers with lower prices, it is managing its own costs well enough to keep profits growing.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
U.S. lawmakers have sent a letter to the CEO of McDonald's questioning the company's use of algorithmic pricing. This refers to using software and data to automatically adjust menu prices based on demand, time of day, or other factors. The inquiry suggests growing government interest in how fast-food chains use technology to set prices and whether those practices are fair to consumers.
While this is currently just a request for information rather than a formal investigation or lawsuit, it highlights a potential regulatory risk. If the government eventually restricts how McDonald's uses its data to price its food, it could make it harder for the company to manage its profit margins across its thousands of locations.
Source: Reuters
Management has a reliable habit of beating profit targets even when sales are soft. This suggests they have a tight grip on costs and can protect the bottom line during slow periods.
| Expectation | |
|---|---|
| EPS | $3.25 |
| Revenue | $7.15B |