The country's leading fast-food chain faced several challenges on multiple accounts both in domestic and international markets caused by the COVID-19 induced lockdowns. Nevertheless, the performance of the company's share primarily mirrored the benchmark indices, having recovered smartly from its March lows to 6% down in 6 months compared to Dow Jones falling almost by a similar amount while S&P largely remaining flat.

MCD reported their Q2 earnings which remain underwhelming as the company's business operations were severely impacted due to lockdown restrictions. The company reported a steep 24% decline in global comparable sales with consolidated revenues tumbling 30% as the period coincided with the months of April and May which had the most stringent lockdowns across multiple regions globally. It's US comp sales growth declined 9% while the international market reported a sharper 41% SSS degrowth due to stricter lockdowns in several European countries particularly in the UK and France. While the revenue expectations were largely subdued, the biggest disappointment was in the earnings. Operating income declined a sharp 58% with Adjusted EPS declining 67% to $0.65 from $1.97 reported in the year-ago period. It also spent about $200 mn of incremental advertising costs to help franchises attract customers and boost sales during the pandemic. Restaurant margins slipped to 25% as owners spent on PPE equipment, free meals, and other discounting to woo customers.

The company alluded to the fact that the virus is expected to change the consumer behavior which would hurt the sales and is likely to depend on drive-throughs for growth. It also has lesser drive-throughs in international markets compared to the US which could potentially limit further growth as the company has looked out on international markets as growth engines in the past. However, the company highlighted that 99% of its US restaurants were already open with 96% of global restaurants open, albeit with a reduced capacity. We look forward to the management's update on key initiatives and potential challenges related to second round of shutdowns and reopening trends. However, the stock is currently trading at ~25x 1 Year Forward Earnings which is in-line with its 3-year median meaning there could be a limited upside to the stock and would face further selling pressure as the reopening optimism wanes out.

Data by YCharts