This post is part of the On the Margin blog.
Burger chains had a real good first quarter, especially the “big three” of McDonald’s Corp., Burger King and The Wendy’s Co.
Consider this: Burger chains in the first quarter reported average same-store sales growth of 3.5 percent. By comparison, the rest of the quick-service universe reported same-store sales of just 1.7 percent.
But that gap is even wider when you look at those big three: Their same-store sales averaged a 4.5-percent increase.
That level appears to have slowed down. Indeed, quick-service same-store sales fell 0.3 percent in May, for instance, while traffic was down 1.8 percent. Anecdotal evidence from operators and others suggest that same-store sales at some of the big burger chains fell in April and May.
Nomura Analyst Mark Kalinowski this week downgraded a handful of quick-service stocks, including both McDonald’s and Wendy’s.
Kalinowski downgraded McDonald’s to Neutral and lowered his projections of its same-store sales to 2.4 percent — below the Street’s prediction of 3.8 percent same-store sales growth.
He also downgraded Wendy’s to Neutral and reduced his same-store sales forecast for the chain to 1.7 percent.
He wasn’t the first. Last month, Stifel Analyst Paul Westra lowered his predictions for McDonald’s same-store sales, saying that quick-service category same-store sales were “sluggish.”
McDonald’s stock unsurprisingly fell 1.6 percent yesterday and going into today had been down 2.7 percent over the past month. It is also down 8.3 percent since hitting $131 per share in May.
Wendy’s, meanwhile, fell 1.8 percent yesterday and is down 4.4 percent over the past month.
Burger King operator Restaurant Brands International has escaped the downgrades, and is up over the past month.
Still, burger chains used discounts early this year to generate customers and traffic to great effect. Winter is a traditional time for such discounts. They shifted away from that strategy in the spring, and customers have apparently responded by eating elsewhere.
And so expectations for these chains on Wall Street are diminished heading into the final weeks of the second quarter. Based on the industry numbers out there so far, they’ll be hard pressed to beat those expectations.