McDonald's posts 1st monthly sales drop in 9 years
But the stock, down more than 13% since January, is still a good value.
Shares 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.
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
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