Why McDonald’s (MCD) Stock Is a Do-Nothing Loser

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We all know McDonald’s (MCD) stock isn’t going to double or triple any time soon. But, given the fast food chain’s current condition, I’d be shocked if shares even kept up with the broader market.

mcdonalds mcd stock price closes more stores than opensI’ll admit, calling for MCD stock to underperform isn’t the boldest call I’ve ever made, although I’ll take accuracy over audacity any day of the week. In the last year, McDonald’s shares are down 5%, trailing the S&P by 12 percentage points. In the last five years, MCD managed to gain 36%, though you could’ve gained 88% in the larger market.

But, something will happen in 2015 that represents a major inflection point in the MCD corporate history, and it’s quite troubling: McDonald’s will actually close more locations in the U.S. than it opens this year.

First Time in 40+ Years, “Perhaps Ever”

A report from the Associated Press this morning made the decline public, saying the chain hadn’t trimmed its U.S. store count in “more than 40 years, and perhaps ever.” Why is McDonald’s doing this?

Well, try four straight months of U.S. same-store sales declines, a microcosm of a larger multi-year trend that’s been the driving impetus behind the woes of MCD stock in recent years. U.S. same-store sales fell 2.2% in May, and 0.3% across the globe. The results have been so depressing that McDonald’s plans to discontinue monthly same-store sales reporting entirely after second-quarter results.

In one sense, the decision to shutter more McDonald’s locations than it opens makes financial sense. If you’re seeing widespread same-store sales contractions and you want to show investors growth, you’ll have to close a ton of underperforming stores.

In another sense, it’s the clearest confirmation yet that McDonald’s — and MCD stock — is in decline.

While the new MCD CEO, Steve Easterbrook, is already shaking things up with promotional summertime deals — specifically, you can now get a double cheeseburger and fries for $2.50 — his turnaround plan was panned by Wall Street, which found it vapid and devoid of specific details.

Oftentimes, companies going through tough times will blame their lackluster results on heightened competition. In McDonald’s case, it’s true: Yum! Brands (YUM), Wendy’s (WEN), Jack in the Box (JACK), Shake Shack (SHAK), Five Guys Burgers and Fries and many others are gunning after Mickey D’s harder than ever.

That’s not even taking into consideration the fast-casual renaissance we’ve seen in recent years. Chipotle (CMG), a company that was itself famously spun off from McDonald’s in 2006, has led the revolution, and as the economy improves consumers have more money to spend on higher quality food.

McDonald’s got $1.5 billion from the Chipotle spinoff. Today, CMG stock has a market capitalization of $19 billion and same-store sales jumped 10.4% in the first quarter. Ouch.

Mickey D’s will never see double-digit same-store sales growth again. By closing more stores in the U.S. than it opens this year, McDonald’s is tacitly conceding what we’ve known for a long time: The Golden Arches just ain’t what they used to be.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/06/why-mcdonalds-mcd-stock-is-a-do-nothing-loser/.

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