Market Overview

What's Wrong with McDonald's?

What's Wrong with McDonald's?

Following a great 2011, McDonald's (NYSE: MCD) has been one of the Dow's worst performers of 2012. Year-to-date, shares of McDonald's are down over 9.7 percent.

The shares are off their recent lows, but remain down significantly from the 52-week high of $102.22. A number of factors seem to weighing on the fast food giant.

Most recently, on Wednesday, McDonald's was forced to respond to a report by China Central that chicken it sold in its Chinese stores may have been fed indiscriminate amounts of antibiotics and growth hormone.

On Monday, Reuters reported that McDonald's leadership was urging its franchisees to keep their stores open on Christmas Day. This is a break from the company's traditional policy of closing on major holidays.

In a company memo Reuters obtained, management notes that McDonald's stores that remained open on Christmas averaged sales of $5,500. Given that most restaurants are closed for the holiday, impressive Christmas sales seem intuitive given the lack of competition.

Is it a sign of desperation, or just a part of a greater business trend? Walmart (NYSE: WMT) drew the ire of some employees in November, when it moved up the time it would open to 8pm Thanksgiving night.

Analysts at Bank of America don't see the push as cause for concern, noting, “We do not view incremental openings on Thanksgiving this year as a primary factor behind a surprisingly good 2.5% U.S. same store sales increase for the month of November. Likewise, we are not anticipating that more Christmas restaurant openings this year will have much impact on December results.”

The biggest issue with McDonald's is likely the company's exposure to Europe, which is significant. As Europe has struggled, McDonald's performance in the region has been weak. Yet, should the European economy begin to recover next year, that could create a tailwind helping to support shares of McDonald's in 2013.

Shares of McDonald's traded at $90.41 on Wednesday, down about 0.12 percent.


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