Leading Indicator: McDonald’s Sales Results Show Low-end Retail Growing
Thursday, December 8th, 2011
By Michael Lombardi, MBA for Profit Confidential
This morning, the world’s largest restaurant chain, McDonald’s Corp. (NYSE/MCD), reported that stores open at least one year in November saw sales rise 6.5% in the U.S. McDonald’s, with over 33,000 stores worldwide, is often referred to as a benchmark stock; a leading indicator of consumer spending behavior.
As a leading indicator, McDonald’s 6.5% year-over-year U.S. sales increase tells me two things:
The low-end consumer market is spending and the middle-end consumer is curbing expenses and turning to low-priced food alternatives such as McDonald’s. The results of many retail companies, again all leading indicators of consumer spending, are telling us the same story.
Look at the post-recession environment and you will find that the high-end retail sales market is doing well and the low-end retail sales market is doing well. The middle-market, the average Joe American, is the one who has been experiencing the most post-recession pain.
Nearly 15% of the U.S. population is using some form of food stamps; that’s 45.8 million people (Source: Wall Street Journal, 11/1/11). When you hear such a statistic, it’s easy to see why McDonald’s business is doing so well. In 2003 McDonald’s stock sold at close to $10.00 a share. This morning, it opens at $96.45—a leading indicator of more profits lying ahead.
We need to keep in mind that raw food prices have been skyrocketing. McDonald’s has been raising its prices to consumers as McDonald’s cost of goods has risen. Hence, as a leading indicator, McDonald’s results signify that, as food costs rise, consumers are turning more and more to low-end restaurants like McDonald’s.
I believe that 2012 will be another very difficult year for the U.S. consumer. Companies like McDonald’s that cater to the low-end retail market, while increasing the nutritional value of their product, will continue to perform well.
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
