Greasy Burgers Are Still Selling, Just Not At McDonald’s

(Photo Credit: Mike Mozart)

Friday morning we’ll see just how weak the 4th quarter was for the golden arches. In October and November McDonald’s (MCD) saw its global revenue fall 3.4% and 6.0% respectively as comparable sales fell and the corporation faced off against steep currency headwinds. Conditions may be challenging, but that doesn’t explain why McDonald’s is losing ground on other burger joints. 

Lately McDonald’s earnings have been taking a beating. That hasn’t been the case for its competitors. CNBC’s Carl Quintanilla pointed out the disparity between McDonald’s and Wendy’s stock returns today on Twitter.

Over the past 8 quarters Wendy’s (WEN) earnings have climbed 7 times and at worst they were flat last period. Meanwhile McDonald’s profits have slipped twice during that timeframe, dropping a shocking 28% in the third quarter of 2014. 

McDonald’s earnings nosedive is displayed above. McDonald’s respectably owned up to its shortcomings during the third period and announced a plan to reinvigorate its brand. Unfortunately monthly sales figures released for October and November have shown no signs of improvement and it may take several quarters for McDonald’s to turn things around.

In October McDonald’s comparable sales were down 0.5% while US comps slipped by 1% and total global revenue dropped 3.4%. On a constant currency basis systemwide sales actually increased 1.9%. The problem is that McDonald’s has a massive worldwide presence. That means when the US dollar becomes stronger, repatriation costs for foreign revenues weigh down the company’s fundamentals.

November proved to be an even tougher month. Global sales remained flat on a constant currency basis which translated to a 6% drop in revenue overall.

For the entire quarter contributing analysts on Estimize are forecasting revenue of $6.762 billion. That represents a 4.7% drop from last year’s Q4 sales figure, $7.093 billion. Given that over October and November sales dropped by an average of 4.7%, this estimate assumes that sales will close out the quarter softening at an unchanged pace. The result is likely to be McDonald’s first full year of comparable sales decline since 2002.

When McDonald’s released its poor results in October it also revealed a plan to reinvigorate its brand. Mickey D’s will focus on improving its restaurant experience with technology and slimming down its super sized menu. Critics have pointed to the expansive range of offerings as a strain on customer turnover time and a limiting factor during peak meal hours.

McDonald’s has also touted that it’s got a digital strategy to bring its restaurants up to speed in the 21st century, this plan includes Apple Pay. Apple Pay could help the brand resonate better with millennials while simultaneously increasing throughput times. McDonald’s is also testing more customizable menu options which could put its ordering experience on par with newcomer competitors like Five Guys and Shake Shack.

A lot of fast food’s woes have been blamed on competition from healthier fast casual restaurants. But the widespread success of Five Guys and the forthcoming IPO from Shake Shack prove that America hasn’t lost its obsession with greasy burgers. Today there are other options and they’re making a dent on McDonald’s.

McDonald’s can do better. It’s time to crank this makeover into gear.