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Rachael Rothman, Susquehanna Financial Group analyst, weighs in on McDonald’s earnings miss and what drove the company’s losses.
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Quarter McDonald's earnings missed -- -- and global same store sales grew at their slowest pace in nine years.
Joining us to dig deeper is Rachael Rothman analysts at Susquehanna financial.
Richard thanks so much for joining us what what do you think was McDonald's biggest problem here they talk about currency.
But we had a guest on yesterday who is saying you know we need our direct currency problems it really means our business in Europe.
It's terrible.
Actually -- was a bright spot in the quarter I think the real overhang on the stock is as you pointed out comps were weak and they were pretty much in line with expectations that they were still soft.
Unfortunately the cop the company followed on with a comment in the release it said that October same store sales -- the forward looking commentary was actually negative.
Those sales do include about a 300 basis point delta and -- trading day adjustment so they're starting out already in the whole.
But it isn't good to -- a weak comp and then to comment that -- are forward looking comps are actually trending negative why do you think that is what do you think is what what do you think is their problem why those numbers look -- -- Well Don Thompson the CEO said on the conference call that he couldn't recall a time when they've seen macro headwinds and all of their geographies.
McDonald's has been citing since earlier in the -- -- believe it was in March when they started talking about it tough global macro environment.
And so that the company's doing to try to offset macro headwinds is to focus on driving transactions.
And they're taking a couple of approaches to that the first would be to remodel their restaurants and make them more inviting -- people will come -- side.
But in addition they're focusing on value messaging and introducing more value products.
And obviously those will drive traffic but -- hurt your menu mix.
The the amount that each customer spends within the restaurant and so that's a headwind to same store sales growth -- address the margin problem.
Margins under some pressure depressing to nineteen point 1%.
You mentioned some of the fundamentals but you also have rising commodities costs so how does McDonald's offset that.
You bring pick -- a great point great if comps are gonna be weak and margins are gonna be under pressure.
Offsetting that for McDonald's is on the commentary that they made on the conference call which is that they had locked in their 2013 commodities earlier than usual this year.
And they actually did it prior to the 2012 drought.
Which as we know was their biggest trap that we've had since the 1950s in the US so what you're gonna have now is a dynamic that will play out where.
-- McDonald's competitors which did not -- by their commodities.
Are going to be forced to take even more price next year losing more traffic.
And driving that hardline on price which mcdonalds will be able to do because of the structurally lower commodity costs for next -- Is gonna enable them to continue to take market share in the informal eating out category.
So unfortunately for everybody else what's bad for McDonald's is still bad for McDonald's but it's worse for all of their competitors so so we sign up for 2013.
Yet I had no real -- rates -- before you run out of time chipotle had -- how to really tough quarter McDonald's did as well.
Is mcdonalds best in class in your mind or is there somebody who's doing it better.
And McDonald's is best in class six to 900 pound gorilla with scale and advertising in purchasing in anything anybody else can do they can do better and they can now advertise some sort of one.
And they can do it at a lower price so again what's bad for McDonald's for fat for its peers for worse -- worse.
Okay Rachel thank you so much.
-- -- -- bargain and that means big business for dollar.
