McDonald's stock has plummeted by 34% from its all-time high in late February, making it the second-worst performing stock on the Dow Jones Industrial Average this year, behind Nike. This significant sell-off follows investor skepticism regarding the company's new "NEXT" strategy, unveiled during its recent investor day, which aims for a turnaround by 2030.
The new strategy includes a focus on growing chicken market share, with a target of increasing its current "high teens" share by 1.5 percentage points by 2030, in a nearly $130 billion category growing over 5% annually. McDonald's also plans to invest $8.5 billion to help franchisees modernize restaurants and scale AI for tasks like drive-through ordering. Despite these long-term goals, analysts from Morgan Stanley and Deutsche Bank express doubts, noting that the benefits of this investment program are seen as "distant and uncertain" and that the strategy does little to clarify when US same-store sales might rebound.
The primary driver of the stock's weakness is slowing US same-store sales growth, which reached an annual rate of just 0.8% in the second quarter, indicating an actual decline in sales volumes after price increases. The company anticipates a "slightly negative" third quarter for US same-store sales. Consumers are reducing spending due to resurging inflation, and the average price of a Big Mac has increased by a third since 2019, leading to customer pushback and a shift in dining habits exacerbated by factors like GLP-1 drugs.
McDonald's CEO Chris Kempczinski has acknowledged that high inflation and fewer diner visits are persistent challenges, with beef prices nearly doubling over the past five years and other operational costs rising. The company admits its previous value menu push did not attract as much traffic from lower-income consumers as hoped. Analysts estimate that achieving the 1.5 percentage point gain in chicken market share by 2030 could lead to 5-6% growth in McDonald's total system sales over the period, but investors are waiting for tangible sales improvements before re-engaging with the stock.
