McDonald's posts 1st monthly sales drop in 9 years

But the stock, down more than 13% since January, is still a good value.

By Jonathan Berr Nov 8, 2012 12:58PM
 SHAUN TANDON/AFP/Getty ImagesShares of McDonald's (MCD) are slumping Thursday morning after the world's largest restaurant chain posted its first decline in monthly sales in nine years. The results were worse than analysts had expected and underscore the many challenges that lie ahead for the Golden Arches.

The Oakbrook, Ill., company said sales at restaurants open at least 13 months fell 1.8% in October, as consumers flocked to rivals, including Burger King (BKW), which has been revamping its menus. Sales slumped 2.2% in the U.S. and Europe,   and dropped 2.4% in Asia Pacific, the Middle East and Africa.

CEO Don Thompson, who assumed the job earlier this year after the retirement of Jim Skinner, is ratcheting up marketing spending on its Dollar Menu to appeal to cash-strapped consumers. 

That's the correct strategy, though its success is hardly a given. For one thing, the company's rivals see the same economic data and some appear to be faring better.

During the last quarter, same-store sales, a key metric, rose 1.9% at McDonald's, lagging the 3.2% increase at Wendy's (WEN) and the 2.3% gain seen at Sonic (SONC), according to the companies' investor reports. Even Burger King, which has been in the shadow of McDonald's for decades, managed to post better-than-expected earnings. Rising food prices will also depress earnings for McDonald's and the rest of the restaurant industry for some time to come.

Though it might be tempting for investors to throw in the towel on McDonald's, I am not ready to do that quite yet. The company may be down, but it is far from out. For one thing, the U.S. economy continues to improve, albeit at an agonizingly slow pace. Once consumers become more confident, they will move from the Dollar Menu to pricier items such as gourmet coffee.  McDonald's also has a long history of savvy marketing, developing innovative products, and delivering for shareholders.

Wall Street hasn't given up on McDonald's yet either. The average 52-week price target on the stock is $106.05, more than 23% above where it recently traded. Shares of McDonald's are off over 13% this year. With a price-to-earnings multiple of 16.36, the company's shares are near their five-year low in terms of valuation, according to Reuters. 

The rewards of owning McDonald's shares far outweigh the risks. As an added bonus, the company also pays a dividend that yields 3.1%.

Jonathan Berr is long McDonald's. Follow him on Twitter@jdberr

Tags: BKWMCDWEN
19Comments
Nov 8, 2012 7:40PM
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More Bang For Your Buck at Burger King.
Nov 8, 2012 6:41PM
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McD's how is that new policy of charging for sauce going? You can't increase your prices by over %15 and start charging for sauce, when your competition does not, and expect to retain customers. Consumers should drive your products not accountants. A common fallacy in business lately. STOP GIVING THE BEAN COUNTERS TOO MUCH POWER. 
Nov 8, 2012 6:27PM
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McDonald's needs to have all their restaurants make sweet tea by the same recipe.  Once in awhile you actually get a glass of tea that isn't so sweet till your lips stick to the straw.  I know I could order it half and half but what if that was the one glass out of 100 that wasn't so ridiculously sweet?  Do they not know they could make more profit if they weren't putting it all into buying sugar to make tea syrup?
Nov 8, 2012 5:38PM
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McDonalds is getting too far away from their tried-and-true menu that four generations knew, burgers and fries. Smoothies and oatmeal and stale muffins are not what the clientelle has come there for.....
Nov 8, 2012 5:27PM
Nov 8, 2012 5:25PM
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That is because they postponed the launch of the McRib...lol.

Nov 8, 2012 5:11PM
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I ate at McDonalds yesterday and I have to say I enjoyed my meal.  I had the Angus Burger which has cheese, bacon and onions topping it.  I also had fries.  The entire meal was served hot and was most tasty.  But, there were many shady dealings occuring in the resteraunt which was in a downtown location....kinda like free entertainment but made me sad as I thought back to the McDonalds of my childhood where families could go for a "treat" and the atmosphere was family oriented.
Nov 8, 2012 4:52PM
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cheese burger was my last meal   :-(

Loved my McD's cheese burger after my parky run.

Nov 8, 2012 4:52PM
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LOVE THE SWEET TEA !! 

 

SALES DOWN BECAUSE SIMPLY THERE ARE TOO MUCH COMPETITION !

Nov 8, 2012 4:43PM
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That's rich , they took the small fries off the $1 menu , lets see what does a 5 pound bag of potatoes cost ? Their end cost should be .05 at most. How much profit do they have to make ?? Last time I ate at McD's was 20 years ago, and that was too soon.
Nov 8, 2012 4:39PM
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Instead of twisting that 1 month of a drop in sales is a tragedy, and then changing your strategy. Why not be happy, that you had nine years of growth. Corporate America greed is now a mind set in everybody. Do these CEO's really expect to grow and grow with never a dip.
Nov 8, 2012 4:27PM
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You gotta wonder about the economy if people can't afford to eat at McD's
Nov 8, 2012 4:22PM
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I use to eat there once in awhile but after they posted the calories by each item it is hard for me to go in there and purchase anything with the calorie count staring at me. Ignorance is bliss in this case. No more Micky D's for me.
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It's easy to understand..  with a record of terrible customer service and not hot food, it was inevitable.  I ask anyone.  when was the last time your meal except for the fries was actually served hot?  I'm not talking warm or lukewarm; talking about hot as if you just took your own sandwich off the grill and put it together
Nov 8, 2012 4:11PM
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Get out of stocks now folks!  I bought gold several years ago when Glenn Beck said to.  Of course he predicted everything that has is happening now.  I've already made a few hundred thousand $$$ off of gold and now with this idiot Obama winning another term, I'll double my money.
Nov 8, 2012 3:45PM
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Should have came out with the McRib in October. I  boycott them till it comes out
Nov 8, 2012 3:38PM
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McDonald's is considered a restaurant?

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