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McDonald's November Comps Disappoint

The news was not a surprise, however, and changes are under way.
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McDonald's (MCD) is off 3% today following disappointing November same-store sales, which came in at negative 2.2% vs. the negative 1.9% consensus estimate. Breaking it down, the U.S. fell 4.6%, Europe declined 2% and Asia/Pacific, Middle East, and Africa (APMEA) dropped 4%. North America came in below expectations and Europe/APMEA were in line.

Clearly, the numbers are disappointing, especially in the North American region where there is continued market share loss. But the problems are not new at McDonald's, and the share loss is the reason that the company has recently made several management changes in the region. Specifically, the company hired back Mike Andres who has 35 years of experience in the restaurant industry, including as CEO of Logan’s Roadhouse, CEO of Boston Market, and an earlier stint at McDonald's running its central division in the U.S. Andres, who has been at McDonald's since Oct. 15, just hired back Karen King, the retired east division president for McDonald’s USA who will be the chief people officer for the U.S.

There have also been other changes, including the retirement of the chief operating officer and the departure of the company’s U.S. chief creative officer. And we expect further announcements and changes to occur now that Andres is back and fully engaged. In other words, it’s too early to tell what new initiatives will be taken and the impact they will have, but management has goals of revamping the menu, investing in quality initiatives, and spending more on technology/digital efforts -- much like it has been doing in its test markets in Europe.

In addition to changes to the products and store formats, we think there is more the company can do with its under- levered balance sheet to provide additional cash to shareholders in terms of a special dividend and/or a bigger buyback.

So, the news today is disappointing but not surprising and we now await the changes from management to produce better results. Success will not happen overnight, but the people are in place to make the changes, and while we wait there is an activist now involved. The stock yields 3.7% and expectations are very low.

Regards,

Jim Cramer, Stephanie Link, and TheStreet Research Team

DISCLOSURE: At the time of publication, Action Alerts PLUSwas long MCD.