America's Not Lovin' McDonald's
The world's largest burger chain posted uninspiring quarterly results Tuesday morning, falling short of Wall Street's top- and bottom-line expectations. However, the real focus -- and rightfully so -- is the dreadful state of comparable-restaurant sales at domestic locations.
We already knew that the year got off to a lousy start. Comps at U.S. eateries plunged 3.3 percent in January and 1.4 percent in February. On Tuesday, McDonald's reported that same-store sales for the quarter declined 1.7 percent. Working the math suggests that comps may have started to turn the corner last month, but still clocked in slightly negative in March.
Things aren't getting any better at the Golden Arches.
McDonald's points out that traffic counts declined in this country during the quarter. Despite rolling out several new items, consumers just aren't craving the chain's offerings.
Several restaurants will post negative comps during the first three months of the year, but that only makes it that much more painful to see Chipotle Mexican Grill (CMG) -- a chain once owned by McDonald's before it was spun off -- check in last week with a 13.4 percent increase in same-restaurant sales during the same period.
There may be some merit to January's storms slowing business, but what about the balance of the quarter? The weather in February and March wasn't that bad. There's no point in trying to find a scapegoat outside of the company. Chipotle's 13.4 percent surge in comps makes all external excuses invalid. Besides, this is now the third consecutive quarter that store-level sales in this country have declined.
Test Kitchen Nightmares
McDonald's has been building out its menu over the past year, but some moves haven't panned out.
%VIRTUAL-article-sponsoredlinks%The Mighty Wings push found it ordering more chicken wings than it could sell. Other moves have come with more upside, like beefing up its "Dollar Menu & More" selections by tacking on the BBQ Ranch Burger and Grilled Onion Cheddar Burger for a buck apiece.
More moves are on the way. McDonald's has been testing mobile ordering and tablets. It plans to enhance the drive-thru experience by adding more windows at new locations.
One change that could pay off in a major way is replacing its current prep tables with deeper food prep areas that offer room for more ingredients. This will widen its potential burger toppings, but naturally this could also backfire if it creates more customer confusion and botched orders.
Burgers and Breakfast
McDonald's can't afford to coast. The first big challenge came late last month when Yum Brands' (YUM) Taco Bell rolled out a national breakfast menu. The taco builder has introduced two ads taking jabs at McDonald's as the reigning champ of fast food breakfast.
If McDonald's thought it had its hands full with "better burger" chains -- including Five Guys and In-N-Out -- expanding geographically, now it has to deal with even more places specializing in burgers. Even Olive Garden introduced a burger sandwich last year.
The last three quarters of negative comps have been disappointing, and that's not going to change unless McDonald's makes more than just token menu and design changes.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill and McDonald's.