July 28, 2012

Honesty is the Best Policy

This week saw further fallout from the strong winter 2011/2012 sales at McDonald's
USA. On Monday morning Oak Brook announced earnings for the second quarter
and revealed sales in the USA were up 3.9% for the 2nd Quarter and up 2.9% for
the month of June causing Nation's Restaurant News to report:

With same-store sales slowing sequentially from an 8.9-percent increase in the 
first quarter of 2012 to a 3.6-percent gain in the second quarter, McDonald’s 
would need to hit value harder in its domestic marketing, Thompson said.

But for the past several years sales increases in the USA of 3% or 4% have kept
investors quite happy and the share price hit historical highs.  Because of Oak
Brook's lack of candor about how much the warm winter helped sales new
expectations have been set among investors and the media.

A word search of the earnings call transcript shows the word "Value" is used
over 60 times in a one hour discussion!

To be sure there were other issues with corporate earnings but this lack of under -
standing will become an even bigger problem during the winter of 2012/2013 when 
McDonald's USA will be up against those great numbers from last winter.

And yet McDonald's management refuses to warn investors that it's going to be
a cold winter no matter the reading on the thermometer.

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