What Happened To The Clown?

What The McDonald's Earnings Mean For Wall Street and Main Street

For many years McDonald's has been a Stanley if not the staple in the economy. On Main Street, when times were good all the way through recessions McDonald's was there to prove good low cost quality meals for families to celebrate or to get through rough time. This Translated to Wall Street where McDonald's has for the longest time been one of the go ti stocks to have in your portfolio through all types of marketing phenomenon. It was in my opinion a long time flight to safety stock.

The question becomes what happen with yesterday's earnings? My answer would be they forgot who their customer was.

McDonald's missed on earnings and revenue. This was the first time this happened since 2020; at the height of the pandemic. Since the pandemic they rode the wave of high prices and inflation; like almost every other company. Part of this is due to the stimulus where people had money and they were going to spend it regardless. However,  this is also where they lost sight of their vast consumer base. Like many other businesses, they thought they could ride the inflation train an push profit margins to the limit. They forgot they they were there to provide low cost value to their customers; to be there when times were starting to get tough.

Soon the stimulus money ran out, inflation was out of control, and people were looking for that low cost value. That bedrock of family outings. But it wasn't there. So people started looking elsewhere.

McDonald's reported same store sales down all over the world. Same store sales shrank 1% worldwide and .7% in the US

The question is will McDonald's be able to bounce back. I'm not so sure; at least not for a while. At the end of the day, we expect customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters in this very competitive landscape,” McDonald’s U.S. President Joe Erlinger said.

Where I once wouldn't hesitate to call McDonald's a flight to safety, I am now starting to question that. The stock is in line with many of its peers so I don't think it is overpriced; especially with the pull back it has had. Also, it is still a good hedge against the market due to its beta being .7.

One credit is that they have started to rollback prices dramatically and early. However, if it is enough to turn the tide and lure customers back in remains to be seen. But as Erlinger alluded to, this is going to take a while. There are going to be slimmer profit margins at McDonald's which investors do not like, as Mcdonald,as well as their competitors, try to find ways to cut prices and costs.

Because of this there might be some pull back in the stock. But at the end of the day McDonald's is still an American institution and is not going anywhere anytime soon. So, I still don't see McDonald's being totally down for the count. For me, I would wait for a pull back as McDonald's goes through its next quarter or two, then I would like to buy.

*This is solely my personal thoughts and opinions and not to be taken as financial advice. For that, please contact your financial advisor