MCD Turns to Millennials for Turnaround

by Alyssa Oursler | October 3, 2013 10:37 am

MCD mcdonalds stockThe fact that McDonald’s (MCD[1]) put on a dismal stock performance in 2012 and that MCD has followed that up with a disappointing one so far in 2013 is hardly news. McDonald’s stock is up a shrug-worthy 11% year-to-date — around half the gains of both the broader restaurant sector and broader market.

But McDonald’s stock could be ripe for a comeback if the company’s many recent moves begin to pay off. See, MCD has faced three big-picture criticisms in recent years — and has addressed them all in the past few months.

Let’s take a closer look at some bright spots for investors (like me) in McDonald’s stock.

MCD Is Moving Forward

To start, I criticized MCD[2] late last year — at a time when McDonald’s stock was sitting around 10% in the red year-to-date — for a lack of innovation. While Yum Brands’ (YUM[3]) Taco Bell was tossing out a new Cantina line and the famous Doritos Locos tacos, and Burger King (BKW[4]) was testing bacon sundaes, MCD was pretty much sitting still.

This year, though, that criticism of MCD holds no weight. The company has been busy introducing new items, including a cheaper version of the Starbucks (SBUX[5]) pumpkin spice latte[6] and chicken wings[7].

Plus, McDonald’s is now offering salads as a side for value meals, at no additional cost, on top of only promoting water, milk and juice as Happy Meals beverages. This doesn’t just stir up interest in the chain, but addresses another common complaint about MCD:

It’s bad for you.

While this isn’t the place to debate the specific nutritional value of various McDonald’s menu items, the important thing is that McDonald’s is responding to what folks are saying, and what’s working for competitors. Wendy’s (WEN[8]), for example, has offered side salads with meals for some time now.

Last but not least, MCD has also addressed its “millennial problem,”[9] noting the rise in apps and the preference for custom food choices like Chipotle (CMG[10]). (Although I found the problem a bit off the mark[11] when it first began circling last year.)

Regardless, MCD is launching a new electronic loyalty program[12], a la Starbucks and Panera (PNRA[13]), in an attempt to lure in ever-elusive millennials. McDonald’s also has introduced a mobile payment program.

Of course, investors in McDonald’s stock won’t have much to celebrate until there’s proof that these initiatives will ramp up traffic, get same-store sales back on track and thus trickle down to the bottom line for MCD.

The first look at this attempted turnaround for McDonald’s stock will come on Oct. 21, when MCD reports earnings. MCD has missed earnings estimates in three out of the past four quarters, although by mere pennies each time.

For the current period, McDonald’s is slated to earn $1.51 per share — roughly 6% earnings growth year-over-year on around 3% sales growth.

As of this writing, Alyssa Oursler was long MCD.

  1. MCD:
  2. criticized MCD:
  3. YUM:
  4. BKW:
  5. SBUX:
  6. pumpkin spice latte:
  7. chicken wings:
  8. WEN:
  9. “millennial problem,”:
  10. CMG:
  11. a bit off the mark:
  12. electronic loyalty program:
  13. PNRA:

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