Prior to COVID, people had a very distinctive routine and eating out was part of their routine. Many people due to a host of factors, tended to buy food on their way to and from work. Given the many choices it was not a bad thing to do. A company such as McDonald’s originally catering to the those eating hamburgers which tended to be lunch and dinner. Over time, they recognized breakfast was a profit opportunity and they were in a great position to capitalize on people having less time to themselves. Many folks eat at McDonald’s. Then COVID happen and routines for many commuters changed. Restaurants had to change and it was believed a large restaurant chain such as McDonald’s would be adaptable to the changes.
In an article by Nivedita Balu and Hilary Russ of Reuters, in late July McDonald’s released their quarterly results and there was a broad drop in global same-store sales and lower profits. The store due to health regulations was only able to offer take out and delivery. Globally the same-store sales were down 23.9%, which was in line with analyst expectations of 23.34%.
In the US, same-store sales were down 8.7% better than what analysts had expected 9.97%. About 96% of the stores are operating and marketing dollars were cut 70% in the second quarter. According to CEO Chris Kempczinski as lock downs eased, sales improved which provided optimism.
Linking to dividend paying stocks, the expectation is companies which have a continuous record of being profitable can make changes when negative things happen. Large chains typically have to deal with a disaster or two, ie hurricane which allows them to bounce back. However in the restaurant world, discretionary income is key and with Congress allowing the extra $600 a week to lapse, those government actions will not help the quarter. Government policy can be helpful.
There are more questions than answers, till the next time – to raising questions.