McDonald's Is Running Out of Excuses
When McDonald's announced on May 28 that it will return up to $20 billion to shareholders over the next three years, I got a sinking feeling that May wasn't going so well. It just smacked of McDonald's trying to buy its way out of the negative spotlight. I was hoping I was wrong, to be quite honest, but once again its May same-store sales failed to impress.
Blaming the weather
It had seemed like McDonald's was finally making a comeback. Domestic same-store sales growth went positive in the third quarter of last year. From there, it's been slipping and sliding. The fourth quarter saw a 1.4% drop. For January, it fell 3.3%. In February the slippage was 1.4%.
All the while McDonald's primarily blamed the weather for its shortfall and pointed to its higher international same-store sales numbers. In March the weather challenges thawed a bit and same-store sales only fell by 0.4%. For April, they were flat. Hurray! Maybe McDonald's was finally out of the snow-covered woods, many of us thought.
We thought wrong. At least for now.
April showers didn't bring May flowers
On June 9, McDonald's reported same-store sales for the month of May. The Asia-Pacific, Middle East, and Africa region popped same-store sales by 2.5%. Not bad. Europe lifted by 0.4%. Better than a loss. U.S. sales dropped 1%. Ouch. McDonald's will have a tough time getting away with blaming the weather for this one.
CEO Don Thompson didn't really have much to say in the press release. He just gave the usual speech about providing customers with food, drink, "memorable experiences," convenience, and a brand. What's new, Mr. Thompson?
McDonald's blamed "ongoing broad-based challenges" without going into detail. The release further stated, "McDonald's U.S. business is heightening its customer focus through service, value and menu initiatives to stabilize results." At least it is admitting that its results need stabilizing and has quit blaming Mother Nature and her husband Old Man Winter.
Promotions not working?
During May, McDonald's put efforts toward "the promotion of Dollar Menu & More offerings and breakfast including a focus on McDonald's popular McCafe coffee." It doesn't look like this worked very well. As an example of what did work, rewind to a year ago. In May 2013, domestic sales popped 2.4%. McDonald's then said the gain was led by breakfast, especially with the introduction of the new Egg White Delight sandwich at the time.
Perhaps innovation is key at breakfast. Is Taco Bell chipping away some market share during the morning hours? We'll get more information about that in July. The good news is that the year-ago monthly comparisons will start to become easier with August just two months away.
Where's the bacon-topped beef?
It was kind of disappointing that McDonald's didn't mention or even refer to its new Bacon Clubhouse burger. Was it another flop like the Mighty Wings? I had high hopes for it, and McDonald's mentioned it in its May 8 release.
Then again, I love to sample new items from restaurants I write about, and something stopped me from taking the next step and just ordering this one. It may be apprehension and distrust about McDonald's trying to offer a fancy gourmet hamburger. Perhaps it just seems too good to be true. Perhaps I'm not alone.
McDonald's is expected to report fiscal second-quarter results on July 22. It will be interesting to learn (with actual detail this time) what strategies and plans McDonald's has to rejuvenate domestic same-store sales growth again.
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The article McDonald's Is Running Out of Excuses originally appeared on Fool.com.Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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