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Mighty Wings not mighty enough to lift McDonald’s stock

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After months of sluggish results, McDonald's reported a 1.9 percent increase in global sales at established restaurants in August.

Although same-store sales came in just 0.2 percent higher in the U.S. (compared with a 1.6 percent rise in July); the big jump came from Europe. The world's biggest fast-food chain said comparable sales in Europe rose 3.3 percent in August, helped by new blended-ice beverages.

Bryan Elliott, senior restaurant analyst at Raymond James, said menu innovations, such as its new Mighty Wings, might pop sales for a while but will not fundamentally alter customer demand.

McDonald’s is depending on consumer purchasing power to help lift sales and revenue, according to Elliott.

“Every restaurant chain has aspirational customers, someone who wants to go there but for whom it’s an economic decision,” said Elliott. He said McDonald’s aspirational customers are in the lower and middle-income bracket, and what they need now are meaningful wage increases or a reduced cost of living.

Fifteen to 20 percent of consumers are feeling the “wealth effect” but that isn’t the McDonald’s customer, according to Elliott. “Consumers are not eating a second Big Mac because they have extra money, they’re spending elsewhere,” he said.

Elliott said in order for McDonald’s stock price to rise, it requires a better customer demand environment in the U.S. and Europe. McDonald’s outlook is good as long as it maintains the broad position of good-quality low-priced food. In the meantime, McDonald’s dividend yield will protect on the downside.

Disclosure: Elliott does not own shares of McDonald’s.

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