McDonald’s Corporation (NYSE:MCD) stock is up as much as 4% this morning after embattled President and CEO Don Thompson announced his retirement. Thompson took the helm in July of 2012, and it didn’t take long for major problems at Mickey D’s to pop up with the speed and annoyance of a whack-a-mole.
Facing an extremely weak European economy, strengthening dollar, influx of competition, changing tastes and food sourcing scandals from China, McDonald’s same-store sales (or SSS) growth reversed sharply under Thompson’s direction.
MCD stock couldn’t stomach the plunging SSS, and in the two-and-a-half years Thompson was the McDonald’s CEO, MCD stock rose less than 0.3%. The S&P 500 (INDEXSP:.INX) roared 50% higher in the same period.
So I can understand why MCD investors are applauding the move today. But McDonald’s problems won’t just disappear with Don’s departure. New McDonald’s CEO Steve Easterbrook will have his work cut out for him when he takes the helm on March 1.
Fast-Casual, Suppliers and Same-Store Sales, Oh My!
For MCD stock to have any chance of recovering, McDonald’s needs to immediately address a growing problem, one that may be at the core of its SSS meltdown. Essentially that problem is the McDonald’s brand, which is still suffering backlash from an expose revealing Chinese workers in the MCD supply chain mishandling meat.
Up to 25% of McDonald’s locations in China may have been serving unsanitary or expired meat.
On the competitive front, the space has never been so crowded. Not only has the meteoric emergence of fast-casual chains like Chipotle Mexican Grill, Inc. (NASDAQ:CMG), Noodles & Co Inc. (NASDAQ:NDLS), Panera Bread Co (NYSE:PNRA) and others wooed customers away, but the growth of other fast-food and burger chains has hit MCD stock.
Taking a quick glance at the stock prices of competitors illustrates just how severely MCD stock has let investors down since Don Thompson took the role in July of 2012. These are returns for July 2012 through Wednesday, January 28, 2015:
- Jack in the Box Inc. (NASDAQ:JACK) stock: +202%
- Burger King Worldwide Inc (NYSE:BKW) stock: +124%
- Wendys Co (NASDAQ:WEN) stock: +120%
- Chipotle (NYSE:CMG) stock: +71%
- Panera Bread Co (NASDAQ:PNRA) stock: +17%
- Yum! Brands, Inc. (NYSE:YUM) stock: +10%
Meanwhile, MCD stock gained just 0.3% over the same period.
The Golden Arches will need something magical to revive the company. Although SSS growth topped 10% just a few months before Don Thompson’s arrival, SSS have cratered ever since.
Incoming CEO Steve Easterbrook comes with a complementary skillset that reads like a remedy to some of Mickey D’s ailments:
“Easterbrook was Senior Executive Vice President and Chief Brand Officer, leading McDonald’s efforts to elevate its marketing, advance menu innovation, and create an infrastructure for its digital initiatives.”
Sounds promising, but I wouldn’t go gobbling up MCD stock just because of an executive shuffle. Shareholders may be lovin’ it today, but who knows how long that will last? (Seriously. The chief creative officer credited for coining that iconic phrase is also leaving the company.)
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.
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