Will Hurricanes Halt McDonald's Sales Momentum?

McDonald's has a lot of momentum in 2017. Can that weather the storm?
McDonald's has a lot of momentum in 2017. Can that weather the storm?
flickr: Mike Mozart

It’s clear that hurricanes Harvey and Irma will dent restaurant profits around the nation. Just how much won’t remain a mystery for long—at least not when it comes to publicly traded brands.

The titan in this discussion remains McDonald’s, and reports Tuesday that the fast food chain would whiff on third-quarter expectations sent shares falling more than 3 percent, the biggest intraday drop since July 2016. It was sitting at $156.60 in early afternoon trading.

As McDonald’s has outpaced its competitors with a strong 2017, so has its price. The chain’s stock was up 33 percent through the year heading into Tuesday. It actually cleared a $160.08 buy point, according to Investor’s Business Daily, the day before.

But data tracker M Science, a company that has wavered shares of Chipotle with its reports in the past, told Bloomberg that its sales projections for McDonald’s were likely to disappoint Wall Street.

The brand has more than 2,000 locations combined in Florida and Texas, the two regions affected most by Harvey and Irma, respectively—and two of the nation's three most populous states. M Science CEO Michael Marrale said in the story that purchasing, traffic, and regional performance trends were taken into consideration. Domestic revenue and same-store sales are where the impact will register the most. A Cowen & Co. research note showed that 6.4 percent of McDonald’s total stores are located in Florida.

McDonald’s has enjoyed a strong fiscal year to date. Its second-quarter performance beat expectations as same-store sales grew 3.9 percent in the U.S. System-wide sales were up 8 percent and revenue came in at about $90 million more than expected. Much of this growth has been credited to menu innovation, an increased delivery presence, and the brand’s continued commitment to technology advances.

McDonald’s also recently announced it was relaunching its McCafé line and bringing bottled coffee to retail stores nationwide.

Restaurant Brands International, parent company of Burger King, Tim Hortons, and Popeyes, also experienced a drop of more than 2 percent Tuesday. Given the concerns over recovery due to shutting stores, gas prices, and other factors related to the storms, its likely stock declines will continue in the coming months as investors grapple with the uncertainty. Will fuel costs keep guests indoors? Will recovery burdens restrict their spending budget? Frankly, nobody knows, and that’s what drives the fluctuations.

Industry tracker TDn2K reported that same-store sales in Texas fell 15 percent the week Harvey hit, dropping national sales results by more than a percentage point in that period and 0.3 percentage points for the entire month of August.

This issue appears to be affecting quick-service brands more prominently than full-service ones, at least for the time being. Tuesday, in addition to RBI and McDonald’s, Yum! Brands, Domino’s, and Dunkin’ all saw shares slip a bit. The McDonald’s report likely played a role.

Dunkin’ Donuts has 9.7 percent of its stores in Florida, Burger King has 9 percent, and fast casual Zoës Kitchen has 8.8 percent.

Many pundits believe the pendulum will swing back, however. McDonald’s has topped earnings per share and revenue estimates for four straight quarters and TheStreet founder Jim Cramer cautioned investors that the research had be hit-and-miss. McDonald’s stock hit new 52-week highs before the fall.