It seems that
) needs to do a lot more to regain its lost ground in the global
restaurant industry. The world's biggest burger chain has been
faltering due to a fragile macro economy, changing eating habits,
and cutthroat competition.
Basically, the company has become vulnerable to macroeconomic
headwinds like intense competition in the U.S. and decelerating
growth in Asia. Although the debt debacle in Europe has begun to
ease, as evident from
bullish run in comps in that market, the zone is still not out of
the woods. The company expects comps to remain under pressure in
the coming quarter as well.
November Comps in Focus
Most recently, the hamburger behemoth has come up with its
same-store sales (comps) results for November. Comps nudged up
in the month under review, down from 2.4% growth recorded in the
year-ago month. Comps were also flat sequentially.
What caught the attention in the recent results was the sudden
underperformance in the U.S. segment that was otherwise
well-positioned so far. Comps in the U.S. fell 0.8% as against the
0.3% growth expected
by the analysts.
Also, the Asia-Pacific region continued its long-stretching
sluggish run. The only ray of hope lay with comps in Europe which
expanded 1.9%, up year-over-year as well as sequentially.
Should You Pick MCD for Your Portfolio?
The underlying growth drivers of the restaurant industry remain
intact. This can further be validated by the impressive Restaurant
Performance Index (RPI) that climbed to a
Pent-up demand in the sector is high, promising long-term earnings
growth for the sector. Commodity costs are also cooling off in
major geographic regions, thus helping out the margin profile of
the restaurateurs (read:
Which Sector will Outperform in Q4?
In such a scenario, McDonald's just needs to reposition itself.
Despite recent operational woes, we still believe that the company
has strong value. McDonald's has historically enjoyed moderate
growth prospects. And investors should note that McDonald's is an
intriguing dividend play. As of December 9
, its dividend yield stood at 3.30%.
Market and ETF Impact
Following the comps announcement, McDonald's share prices fell
1.12% in a single trading session on December 9th. McDonald's has
decent exposure in funds like
Consumer Discretionary Select Sector SPDR Fund
Vanguard Consumer Discretionary ETF
XLY and VCR slipped marginally 0.08% and 0.06% respectively in
MCD's key session. However, the duo has a top Zacks ETF Rank of '2'
with 'medium risk' outlook and could be interesting picks for
investors. Thus, investors might consider buying the products on
the recent dip (see
the Top Ranked ETFs here
XLY in Focus
XLY is by far the largest product in the consumer discretionary
space with more than $7.0 billion of assets. In its 85-stocks
portfolio, the in-focus McDonald's takes up the fifth spot with
The ETF charges a meager 18 bps in fees a year and pays a dividend
yield of 1.26%. The fund returned 37.2% in the year-to-date time
frame (as of December 9, 2013).
VCR in Focus
This one is the third largest fund in the space with about $1.3
billion in AUM invested in 371 stocks. Here also, MCD takes up the
fifth position with 3.8% of assets. The fund surged a handsome 39%
in the year-to-date time frame. VCR is a cheaper fund, charging
only 0.14% of expense ratio while returning 1.09% in the form of
While things are yet to look up for this iconic brand McDonald's,
the chain is resorting to various sales-driven initiatives lately
to stay competitive. This might help MCD turn around next year.
Also, with a slew of economic good news and improved consumer
confidence, people might be willing to spend more.
Amid such a backdrop, the two funds mentioned above may be worth
considering thanks to their slightly low valuation at the current
level, as well as their decent outlooks-and ranks-for the
coming months (read:
Is This ETF a Better Bet in the Consumer Space?
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MCDONALDS CORP (MCD): Free Stock Analysis
VIPERS-CONS DIS (VCR): ETF Research Reports
SPDR-CONS DISCR (XLY): ETF Research Reports
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