On the Margin
McDonald's Corp.

Irma dents McDonald’s stock

Blog: Investors overreact to storm-related sales worries.

This post is part of the On the Margin blog.

McDonald’s Corp. stock has been on an amazing winning streak over the past year, rising nearly 40 percent as investors cheered improving sales and the company’s plans to remain on top of the restaurant world.

But a pair of storms ended that streak this week, at least for one day.

On Wednesday, the data tracking firm M Science told Bloomberg that its sales estimates for McDonald’s are below estimates from Wall Street analysts. That sent the stock down more than 3 percent on Wednesday.

The stock recovered some on Thursday, but it was the worst single day showing for the Oak Brook, Ill.-based burger giant in more than a year.

Concern about the chain’s same-store sales is certainly understandable. Hurricanes Harvey and Irma hit two of the nation’s three biggest states. And both are huge restaurant markets. The storms closed lots of McDonald’s locations, at least for a time.

Florida is home to 900 McDonald’s. And at least 130 locations were closed in the Houston area as it recovered from Harvey.

About two-thirds of the Florida McDonald’s locations have since reopened, the company said on Wednesday.

Hurricanes impact restaurant sales, as we’ve said far more times than we really should have over the past two weeks. Closed locations cannot sell hamburgers, after all. And in the case of Florida, some of those McDonald’s locations could be out for some time because they don’t have power.

Indeed, Black Box Intelligence said this week that same-store sales in Texas were down 15 percent in the last week of August, during Harvey, pulling down same-store sales by 1 percentage point during the week.

Florida and Texas are two of the three biggest restaurant markets and are expected to generate about 12 percent of U.S. restaurant sales this year, according to the National Restaurant Association. 

But sales also recover quickly, especially at limited-service chains, because recovery workers, construction crews and insurance adjusters all descend on an area and they need to eat. Indeed, Florida is expecting to import thousands of utility crews to essentially rebuild parts of its electrical grid.

That said, smaller chains, especially those based in the Southeast, are far more vulnerable to hurricane-related problems than the 37,000-unit McDonald’s.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

TAGS: Operations
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