McDonald's Now on the Value Menu
Although Mickey-D's golden arches have long been the golden standard in the U.S. quick-service space, the tough consumer spending environment, which has also hurt strong brands like Coca-Cola
I'm not going to deny that McDonald's has underperformed. But given the company's size and scale, we need to keep things in perspective.
I'm reading articles suggesting that analysts are no longer "loving McDonald's." But this is not a situation where the company is losing market share.
Sales do need to improve. But that's also the case at rival restaurants like Yum! Brands
What's more, both companies trend neck-and-neck, including posting similar 1% growth in U.S., while experiencing soft sales in the rest of the world.
The fact that consumer confidence has yet to fully emerge out of its pre-recession slump is a concern. I believe this has taken a toll on not only McDonald's, but even Wal-Mart
And as with Wal-Mart, revenue growth alone is not always an accurate indicator of how well McDonald's is actually performing, especially given that it's one of the largest franchisors in the business.
Still, as you can imagine, with such meager sales results, profitability is certain to take a hit. Here too, I believe McDonald's struggles with profitability have been exaggerated. There's no denying that margins have been under pressure.
As we have seen with Chipotle Mexican Grill
And let's not discount the fact that even though operating margin declined in the recent quarter, the company still posted a 2% increase in operating income. Essentially, amid rising food and labor costs, management still figured ways to squeeze a strong profit, helped by efficient cost controls.