To The Moon

Fast food sector representative $McDonald's (MCD)$ announced its 2024Q2 results, and while the results for the period were almost all Miss, the secondary market did not overly penalize the company in the face of already low market expectations, but instead also jumped 3% in the day's trading.

Q2 results overview

• Revenue of $6.49 billion was essentially flat year-over-year (-0.12%), though still up slightly year-over-year at neutral exchange rates, but still below estimates of $6.63 billion.

• On the profit front, net income fell 12% year-over-year to $2.0 billion, while EPS came in at $2.97, below estimates of $3.07.

• Global store comparable sales -1%, below expectations of +0.84%, the

Despite the poor update on consumer spending trends, the company maintains all elements of its 2024 outlook and still expects to open approximately 2,100 restaurants, which will contribute nearly 2% to system-wide sales growth.Considering no store closures, net openings are expected to be 1,600 restaurants.At the same time, the company maintained its capital expenditure guidance;

Across all business lines, the "5 Dollar Menu" has been positively received by customers and sales have exceeded expectations.Currently 93% of the Company's restaurants have committed to extending the $5 deal.

Investment Highlights

The negative same-store sales growth in Q2 is still mainly due to the general environment.

1. Consumer spending trend slowdown: the current economic environment, especially the low-income group of consumer spending tends to be cautious, starting from 2024Q2, the excess savings of this group of people began to be negative, may continue to affect McDonald's sales in the next period of time;

2. Increased competition in the industry: the fast food industry is highly competitive, McDonald's faces pressure from other fast food chains, street food, coffee shops and other aspects of competition, which may lead to the erosion of market share.

3. Increased price sensitivity: Under inflationary pressure, consumers are more price sensitive, which may lead to some consumers choosing more economical dining options.

4. Differences in regional performance: the degree of economic recovery and changes in consumption habits may vary from region to region, in addition, the strength of the US dollar exchange rate in Q2 also brought about foreign exchange headwinds.

   

However, the company also has corresponding coping strategies

1. Low-price strategy is outperforming expectations, and the company's "$5 package" is committed to an extension that will continue to help attract price-sensitive consumers;

2. Focus on delivering reliable everyday value and accelerating strategic growth drivers such as chicken and loyalty;

3. Not only will this help attract price-sensitive consumers, but it is also likely to increase customer engagement with loyalty programs, as offers are often tied to membership.

4. The loyalty program continues to move forward, with McDonald's loyalty program generating more than $26 billion in system sales in 50 markets over the past 12 months, or about $7 billion in a single quarter.

In terms of secondary market reaction, the company has several things to look for, and the positive market reaction may still be due to the fact that most of the negative expectations have been digested ahead of the earnings report.

1. Long-term expansion plans remain unchanged: Despite short-term pressures, McDonald's maintains its Accelerating the Arches strategy, with plans to open 10,000 new stores by 2027, and expects to add more than 1,600 restaurants by 2024, contributing to system sales growth of nearly 2%.

2. With respect to the value strategy focus, the customer value perception strategy, including the introduction of the $5 package, is expected to drive a rebound in traffic and incremental improvements in same-store sales in the ensuing environment.

3. This is a common industry-wide challenge, and despite competition, the current value perception issue in the restaurant industry affects not only McDonald's, but also other fast food chains such as Burger King, $Starbucks (SBUX)$ and KFC $Yum Brands (YUM)$, which suggests that this is a common challenge faced by the entire industry.This suggests that this is a common challenge across the industry.