Weak Quarterly Results
This morning, McDonald’s reported second quarter earnings of $1.09 billion, or $1.25 per share, down 9.1% from $1.2 billion, or $1.26 per share, in the year-ago period. Revenue fell 3.6% from last year to $6.265 billion.
On average, Wall Street analysts expected much higher earnings of $1.39 per share, on larger revenue of $6.269 billion.
Perhaps the worst part of MCD’s report was the weakness in same-store sales growth. The company’s same-store sales rose just 1.6% from last year, less than half of analyst expectations for a 3.5% gain. Same-store sales, also known as comparable sales, measure the performance of stores open at least one year, making for a fairer comparison versus the year-ago period.
Growth Story Now in Doubt
With such a lackluster quarter, MCD shares are officially on watch for a major pullback. Considering how much they have outperformed the wider market over the previous year, any remaining good news is likely already priced in. Investors who own the shares and are sitting on big gains may want to take a bit off the table as a result, because the risk/reward has skewed strongly to the negative side of things.
McDonald’s Corporation (NYSE:MCD) shares fell $4.41 (-3.46%) to $122.99 in premarket trading Tuesday. MCD has risen 7.84% since the start of 2016, and over 32% year-over-year, while the S&P 500 has gained 4.3% YoY.