McDonald's SSS

Yesterday we received same store sales from McDonald's which again disappointed. Same store sales have been flat for the past 1-2 years as various macro and micro factors had their influences. Lets first look at the numbers then we can chat about the company as an investment.


Same Store Sales fell 0.3% for the month of February. The US SSS fell 1.4% on the back of bad weather according to McDonald's. However this is the 5th straight month of declining sales in the region. European sales actually increased 0.6% which was well above consensus of a slight decline. This was because of positive data coming from France and the UK. That is good to hear. Who would have thought a year ago that Europe would be holding up the fort for so many of these global businesses. Asia declined sales by 2.6% driven by disappointing numbers in Japan and Australia. Asia has seen declines for 6 months in a row.


As you can see, the word decline was used way too much. Flat sales is a big concern for the margins of this business because as input prices increases, the ability to push that onto the consumer becomes less viable.


So why are sales declining? 25% of McDonald's sales comes from breakfasts, apparently a high unemployment rate has put pressure on breakfast sales because less people are on the move. McDonald's have also struggled with younger people. People aged between 18 and 35 have been difficult to capture. The health factor is certainly a concern. People are more aware of the benefits of being healthy as well as looking good. Don't underestimate the power of vanity. Governments are incentivised to create and grow this awareness.


But McDonald's do have a counter to this. They can change their menu and focus on more health orientated food. Although I am still a firm believer that the McDonald's niche is cheap and fast burgers and chips. Maybe they can change that image.


It is a theme and issue we are looking at closely. We have already divested from Coke for the same reasons. Coke cannot change their menu so their options are limited. However I still really like the fast food theme as a soft luxury which is extremely convenient in an age where time is of the essence. You are also getting paid a nice yield of 3.4% while you wait. We continue to hold and follow closely.