McDonald's Corp. (NYSE: MCD) stock opened down slightly this morning following news that the company's global sales in July slipped 2.5%.
The July sales figures are not surprising given the expired meat scandal in China that the company faced in late July. On July 20, McDonald's and Yum! Brands Inc. (NYSE: YUM) both announced that they had ended a partnership with Chinese distributor Shanghai Husi Foods after news broke that the company had been selling expired meat and chicken to McDonald's and Yum locations in China.
Following the incident, McDonald's officials warned investors that sales from stores open for at least a year would drop in the month.
While global sales were down 2.5%, sales from the Asia/Pacific, Middle East, and Africa regions were down a combined 7.3% in July.
Last month's incident followed a 2012 scandal in China that embroiled the two restaurant chains. At the time, officials discovered that MCD and YUM had been using chicken that was filled with excessive amounts of antibiotics.
A second incident, just two years later, will undoubtedly impact any goodwill the company had regained following the 2012 scandal.
Since mid-July, MCD shares have dropped more than 7%. In the last three months, MCD is down 9%. YUM shares have been hit even worse by the scandal, tumbling more than 15% since mid-July.
But it isn't just the Chinese distributor scandal that has been weighing on MCD stock. McDonald's is facing numerous issues at the moment, many of which start right at home...
Challenges Mount for MCD Stock
In today's sales report, the company also indicated that U.S. sales dropped 3.2% in the month of July. Part of the problem has been a lack of customer traffic to its locations. McDonald's officials have even admitted that they seem to have lost relevance in the United States.
Chief Executive Officer Don Thompson has previously told investors that it needs to repair its fundamentals, like staffing stores properly. There have also been discussions about simplifying its menu, after years of adding new items in the U.S. market.
However, those changes seem far off...
The company has told investors that it has developed a "learning lab" so that it can better understand the needs of its consumers. Thompson also said that the company is tweaking its kitchens to allow for better efficiency, although details of the updates have been sparse.
That hasn't exactly drummed up investor excitement.
"McDonald's will likely underperform in the near term, as it has emphasized rolling out restaurant efficiencies as well as digital and mobile initiatives that won't likely launch until next year," Barron's Teresa Rivas wrote in July. "Certainly, these steps are necessary for the company's longer-term success, but with lackluster performance and few successful menu innovations in the interim, the stock doesn't look poised for gains."
For Q3, analysts are expecting MCD to post earnings of $1.56 which would be an increase of 2.6% from the previous year and 11% from Q2. Given the company's lackluster sales figures, those EPS estimates seem high. MCD has missed earnings estimates the last two quarters.
"Fundamentals are stuck and lack catalysts, next year's consensus EPS appears too high, and financial engineering opportunities are underwhelming," Oppenheimer analyst Brian Bittner wrote to investors.
There's little reason to be optimistic about MCD stock in the short term. Any innovations in the U.S. market, specifically menu-wise, seem months away.
Join the conversation on Twitter @moneymorning and @KyleAndersonMM using #McDonalds.
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Related Articles:
- The Wall Street Journal: McDonald's July Sales Slip on China, U.S. Pressures