McDonald's sales heat up as consumers eat up
After a cold winter, the fast-food chain has recovered with the help of a new menu.
By Bret Kenwell
It has been a bizarre run for McDonald's (MCD) over the past couple of years. Starting in 2011, the stock was trading in the low $80 range.
Then near the end of that summer, investors panicked, gold skyrocketed along with volatility and all hell broke loose. It was the herd mentality at its finest. But amid the chaos, the Golden Arches were not only holding up, but the stock was killing it, running all the way to $100 a share.
Traders and investors had apparently come to the collective agreement (read: herd mentality), that no matter what happened going forward, McDonald's would always be there -- and obviously, many other companies they irrationally left for dead would be too.
But that's not all. After a few months into 2012, the stock dropped all the way back to the low $80s because now all of a sudden, McDonald's global sales were down and the company could seemingly no longer compete. This story played out for the rest of 2012, marked by a 52-week low of $83.31 on Nov. 16.
Sheesh, talk about a change in mind! The stock was unofficially crowned the almighty savior in 2011 for its stability and dividend, before being kicked to the curb in 2012. So where is McDonald's going, and what will it do next?
There's no doubt that the management changes in 2012 took a toll on the stock price. McDonald's was having trouble adapting to both the harsh global economic landscape, as well as the increased pressure from Burger King (BKW), Wendy's (WEN) and Yum! Brands' (YUM) KFC and Taco Bell.
The explosive growth of healthy, quick eateries such as Panera Bread Company (PNRA) and Chipotle Mexican Grill (CMG) didn't help matters. Along with higher food costs, this contributed to McDonald's margins shrinking faster than management could respond.
But ultimately McDonald's would be the fast-food king that we all know and emerge with some form of alternative to combat these challenges. McDonald's CEO Don Thompson rolled out a new menu in 2013 featuring some new items: the Egg White Delight, Premium Chicken McWraps and new flavored smoothies.
Clearly, McDonald's is responding to the wishes of calorie-counting diners.
The company has also made a slight alteration to its ever-famous Breakfast Menu -- more than just egg whites, too. The company will now begin serving breakfast items at midnight, at which time they can be ordered in combination with lunchtime favorites, such as Big Macs and double cheeseburgers.
Although the company's October 2012 same-store sales growth was negative -- the first time in nearly a decade -- the new menu changes seem to be providing a boost, especially in North America.
The company posted same store sales growth of 1.9% in the region for the month of May, beating analysts' expectations of 1.4%. Across the globe, the company posted sales growth of 2.6%, the highest figure in 2013.
McDonald's still faces an uphill battle in other areas, such as Europe, due to the continued economic weakness and in Asia, where the burger giant is also trying to add menu items in hopes of spurring higher sales.
Although McDonald's presence in Asia is small, (about 2% of the market), the region could become one of the company's best once it finds the most effective menu combinations.
Don't expect McDonald's to post huge sales growth anytime soon. Margins have been -- and likely will remain -- under pressure, and competition will remain fierce.
However, over the long term this name is an excellent choice. Investors will enjoy a healthy dividend, which is one of the most consistent payouts in the industry. In fact, with a slightly deeper look into the company's payout, the consistency becomes nearly overwhelming.
McDonald's hasn't missed a dividend payout since 1976 and has raised its annual dividend for 25 consecutive years. Taking a slightly closer peek, investors will see that the dividend was actually raised by 10% or more in nine of the last 10 years.
Oh yeah, the one year that didn't qualify? During the 2008 financial meltdown, McDonald's paid its dividend, but was able to raise it by "only" 9.33%.
Even though shares are up more than 13% year to date and nearly 20% from the November lows, the stock should continue to see increased demand due to its brand recognition, dividend dependability (currently yielding north of 3%), and its conglomerate-like, restaurant stature.
Company executives aren't remaining stuck in the mud. Although they're sticking with their bread and butter -- burgers and fries -- they're also expanding the menu options to satisfy the more health-conscious customer.
Mickey D's remains king of fast-food until otherwise noted.
At the time of publication, Kenwell held shares of MCD and PNRA.
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