Investors braced for some unusually weak sales and earnings numbers for McDonald’s (NYSE: MCD) in its second quarter report (covering the months of April, May, and June). The period captures some of the most intense impacts to date of the COVID-19 pandemic. The fast food giant had already revealed a sharp decline in revenue in April and May in most of its markets.
On Tuesday, McDonald’s released its full results that showed a clear trend toward a return to global sales growth through June. However, the chain may be losing ground for some of its peers as consumers increasingly skip their breakfast trips.
Let’s take a closer look.
Image source: Getty Images.
Improving sales trends
Thanks to its June 16 update, investors already knew that traffic drops seemed to hit a low in April when comparable store sales fell 19% in the US and fell 39% overall. Those falls improved to 5% and 21% falls, respectively, in May.
McDonald’s revealed positive trends this week in June this week, with declines in offsets reaching 2% in the US and 12% in its worldwide sales footprint. The company even grew again in some key markets, including Australia and Japan. “We saw continuous improvement in our results during the second quarter as markets reopened worldwide,” CEO Chris Kempczinski said in a statement.
The breakfast problem
However, McDonald’s is not leading the industry in the rebound. Chipotle (NYSE: CMG) It recently said that US sales grew again in June, and that its 2% rally that month has accelerated to more than 6% through mid-July.
But Chipotle does not compete at breakfast hours, which are an important part of McDonald’s business and have been pressured by changes in consumer mobility since the pandemic began. More days spent working from home, for example, means fewer opportunities for morning take-out meals.
Investors can get a clearer picture of the fast-food giant’s market share position by watching peers compete in the morning meal hours. Starbucks (NASDAQ: SBUX) Just announced that its sales trends improved to a 16% decline in late June from a 65% drop in April. Dunkin ‘Brands announces its financial results in a few weeks.
Going back to growth
Meanwhile, McDonald’s plans to lean on its robust drive-thru service platform to help it return to the leading position. This compliance offering “has been particularly attractive to our clients during the pandemic,” management said, and was a key factor behind the rebound in growth in Australia.
Companions like Shake shack and Chipotle are apparently seeing the same encouraging data, which explains why both chains are busy building their access lanes today.
The good news is that McDonald’s has a great advantage in this battlefield, as self-service capabilities were incorporated into almost all of its restaurants as a central compliance platform. But the main question for the second half of 2020 is whether those assets can help the chain overcome weak breakfast traffic while consumers stay closer to home.
With many companies announcing teleworking policies that will take effect next year, this is a drag that could affect Mickey D beyond the initial COVID-19 hit that the business has taken in recent months.
