Updated Aug 7 at 11:20am ET.
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New sales data shows Burger King is seeing a surge in U.S. demand, driven by a refresh of its core menu. This comes at a difficult time for McDonald's, which recently reported sluggish growth in the U.S. as customers became more selective about where they spend their money.
While McDonald's still has a much larger footprint, this shift suggests that its grip on the value-conscious diner is slipping. If rivals can successfully lure customers away with better deals or updated food, McDonald's may have to spend more on discounts and marketing to win them back, which could eat into its profit margins.
The company is overhauling its approach to value after its latest $3 menu failed to attract enough diners. Management also admitted that cutting back on digital discounts, special offers available only through the mobile app, was a mistake that hurt traffic from its most loyal customers.
For a business that relies on being the affordable choice, these missteps are a concern. The goal now is to simplify the menu and find a better balance between low prices and profit. If the chain cannot win back budget-conscious diners without hurting its own margins, it may struggle to reach its long-term growth targets.
Guggenheim lowered its price target to $290, down from $320. This move follows the company's recent results, which showed that domestic sales growth is slowing as customers become more careful with their spending. While the new target is lower, it still sits above the current stock price of about $274.
Source: Guggenheim
The company reported quarterly earnings of $3.38 per share, slightly ahead of the $3.32 analysts expected. Revenue came in at $7.1 billion, just under targets. While total global sales rose 5%, the U.S. market saw a sharp slowdown, with sales at established stores growing only 0.8% compared to 2.5% a year ago.
The results show a business caught between rising costs and a customer base that is reaching its limit on price hikes. Management noted that recent value promotions did not work as well as hoped. However, the digital strategy remains a bright spot, with loyalty program sales reaching $40 billion over the last year and active users growing to 220 million.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
The company has appointed Skye Anderson as the new President of its U.S. business. Anderson has been with the chain for over two decades and takes over at a critical time when domestic sales growth is slowing and customers are pushing back against higher prices.
This leadership change is significant because the U.S. is the company's biggest market and the primary driver of its profits. Anderson's main task will be fixing the value strategy and improving service to win back diners who have started eating at home or at cheaper rivals.
Source: 8-K filing
Many analysts lowered their price targets for McDonald's following its recent earnings report. Most of the 62 analysts still rate the stock as a buy, and the average target of $330 suggests a 20% upside from today's price.
The company has a very consistent habit of beating analyst profit targets, often by just a few cents. This suggests management is skilled at setting a bar they know they can clear.
| Expectation | |
|---|---|
| EPS | $3.41 |
| Revenue | $7.34B |
