McDonald's (NYSE:MCD) gave no guidance following its terrible earnings report. Instead, the company will be unveiling a turnaround plan along with guidance on May 4.
The earnings report itself was the usual, that left a lot to be desired. Revenue dropped 11% (but only 1% excluding weak currencies), same-store sales slipped 2.3%, and earnings per share were crushed 31% as the pain was felt throughout the organization.
Management, especially new CEO Steve Easterbrook, did their best not to reveal any info about what is coming or what will be announced on May 4. The company is almost begging the world to tune in but there were perhaps a few clues dropped here and there about what's in store.
At the end of the earnings release, Easterbrook stated,
McDonald's founder, Ray Kroc, made a statement about our business that is as relevant today as it was 60 years ago: 'Take calculated risks. Act boldly and thoughtfully. Be an agile company.' McDonald's is employing these timeless business philosophies as we embark on a turnaround to drive momentum in our business. We are committed to making McDonald's a modern, progressive burger company delivering a contemporary customer experience.
During the conference call that followed, the 60-year tradition was mentioned three more times. It got me thinking a bit in terms of calculated risks and references to Ray Kroc. If you turn to the start of the Egg McMuffin sandwich which led to MCD's near-monopoly on fast-food breakfast to this very day, the history is very interesting, and I highly recommend a read here. The short version of what sold Kroc on the idea to move forward: After ignoring the economic charts and presentations, Kroc simply ate two of the sandwiches, was blown away by the concept, and basically said, "Let's go." Talk about a calculated high risk, being agile, and being bold. It paid off.
Speed from innovation to rollout seemed to have been what Kroc was good at. Easterbrook may be looking to take a page out of Kroc's book on that. He stated during the call,
Where we need to fix the fundamentals, we need to act now; and where we need to make an impact, I'm not looking for incremental steps. We intend to make meaningful impact with customers and how they perceive our brand and our food.
Later on that urgency and speed was even more precise when he said,
We will try new things, move fast with what works and even faster from what doesn't. And when we find winning plays, we'll be more nimble, much like we did with the rollout of Apple Pay this last fall, from first contact to going live to 12 weeks. We can make meaningful changes for customers in weeks. We just have to do it more often.
So what does he have in mind? Is it a new chicken idea? New breakfast items? New Mexican or Asian dishes? The answer seems to be none of the above. Breakfast by the way, at least in the U.S., was actually up during the quarter. It is lunch and dinner that's hurting. Easterbrook mentioned the 100% sirloin burger several times throughout the call as an example.
You probably have heard by now of the Create Your Own Taste concept being rolled out but I think Easterbrook has something different in mind. He almost downplayed it in the Q&A session by saying,
How that then works through the drive-through, and time will tell, but we have a number of other ways that we can perhaps customize our menu or personalize our menu, that we're also are working on.
What made it clear, at least for me, is what Easterbrook stated not once but twice during the call, "I am confident in our ability to make the right move to reset McDonald's as a modern, progressive burger company that provides a contemporary experience for our guests." During the Q&A he also added, "Simply put, we want to sell more hamburgers to more customers, more often, around the world."
Not an everything company. Not a salad or chicken or burrito company. But a burger company selling more burgers. I speculate that what will be revealed on May 4 is some bold, fresh ideas for new burgers in a big way that we haven't seen from MCD in years if not decades and going back to its roots. And why not? It's worked for Wendy's (WEN) and Burger King the last few years, both have which have been consistently growing from their new burgers offerings (such the Wendy's pretzel bun burger and Burger King's Big King sandwiches).
I could feel Easterbrook's energy in the call. I think he's going to pull it off. My plan is to listen carefully to the ideas on May 4th and, if I like them, attempt to pull what Kroc did with the McMuffin - make my own calculated risk by betting on the sandwich(es) unveiled only in my case it would be by buying MCD stock.
