Filed under: Company News, McDonald’s, Industry News, Restaurants, Investing
McDonald’s (MCD) is in a funk, and things are only getting worse. The world’s largest burger chain posted uninspiring financial results over the weekend, with global comparable sales slumping 2.5 percent for the month of July.
Things were even worse closer to home, where comps at stateside stores clocked in 3.2 percent lower than the same month a year earlier. After three consecutive quarters of negative domestic comparable sales, McDonald’s seems ready to stretch that streak to four periods of year-over-year quarterly declines.
Things may be bad for the revenue leader, but let’s not paint the entire fast food industry with a broad basting brush. Many of McDonald’s smaller rivals are doing just fine, and we heard from one of them — Jack in the Box (JACK) — late last week.
Let’s go over a few of the ways that Jack in the Box is holding up better than McDonald’s.
1. Comps are Growing at Jack in the Box
Your typical Jack in the Box eatery is still ringing up higher sales than it did a year earlier, unlike McDonald’s which has posted negative comps at its U.S. restaurants in eight of the past nine months and is looking at the likelihood of its first year of negative comps since 2002.
Jack in the Box operates on a different fiscal year than McDonald’s, but its comparable sales increased 2.4 percent during its fiscal third quarter which consists of 12 weeks ending on July 6. Comps are also positive — up 1.8 percent — through the 40 weeks ending on July 6, a period that’s roughly in line with the three consecutive quarters of declining domestic sales at McDonald’s.
Jack in the Box isn’t the only chain that’s growing its sales at the individual store level. McDonald’s is actually the one that stands out for going the wrong way here.
2. Jack in the Box Kept its Quick-Service Burrito Chain
One of bigger mistakes that McDonald’s has made was unloading Chipotle Mexican Grill (CMG). Many burrito buffs have no idea that McDonald’s once owned a meaty 90 percent stake in the market darling of the fast-casual space. That’s because it spun off the chain in 2006 after helping take it from just 16 locations when it first bought in back in 1998 to more than 500 when it gave it an IPO as a standalone publicly traded company.
McDonald’s probably thought it was making a killing, turning roughly $360 million in investments into a $1.5 billion payday, but that doesn’t seem so smart today with Chipotle carrying a $21 billion valuation.
Jack in the Box watches over Qdoba Mexican Grill, the growing Chipotle rival with more than 600 locations across the country. It’s no Chipotle, but it doesn’t need to be. Qdoba’s comps improved 7.5 percent in its latest quarter, making it one of the industry’s best performers after Chipotle. Jack in the Box isn’t in a hurry to sell off the strong concept that will give it some diversification if burgers go out of favor. The same thing can’t be said about McDonald’s.
3. Jack in the Box Doesn’t Have the Stigma of McDonald’s
A recent Consumer Reports survey of fast food patrons found McDonald’s ranking dead last in the burger category on taste among the country’s 21 largest burger chains. Now, taste tests may be subjective, but it’s not as if Jack in the Box can claim bragging rights over McDonald’s: It was ranked No. 20.
But Jack in the Box is not the poster child for an industry that pays entry-level employees poorly and is often the scapegoat for childhood obesity. Activists have been making plenty of noise as they protest McDonald’s, urging it to boost its minimum wage to $15 an hour. You don’t see the same kind of public dissent when it comes to Jack in the Box and other chains that aren’t necessarily paying their employees any better.
No matter where you stand on the debate for increasing the minimum wage, it’s a safe bet that you recognize giants like McDonald’s and Walmart (WMT) are ground zero for the topic. They’re the leading retailers, and while that has advantages in marketing and purchasing, it’s working against the perceived image of these chains today. It’s popular to diss McDonald’s. Whether or not this is playing a part in the sales declines being experienced at McDonald’s, it’s clearly not slowing down Jack in the Box.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and McDonald’s. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our newsletter services free for 30 days.
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Source: Investing
