US futures slide with well being of economic system in center of attention

Fast food stocks have been, well, ice cold.

The Street has really soured on the likes of McDonald’s (MCD), Restaurant Brands (QSR), Yum! Brands (YUM) and many others in recent months amid sticky inflation and new $5 price wars.

In short, there is just no catalyst in place to drive the stocks higher in the near-term.

This was underscored by EvercoreISI analyst David Palmer this morning, who has cut his same-store sales estimates for the aforementioned names.

I wanted to highlight two sections of interest from his report:

“US drive-thru chains are experiencing weakness across most income groups, but the weakness is most pronounced with households earning less than $50,000/year. This cohort is benefitting less from rising asset prices and suffering more from higher interest rates. Lastly, it is these consumers that most experience the regressionary tax of inflation itself with 30%+ COVID-era food cost inflation combining with the higher restaurant meal costs (over 4x higher than at-home prepared) to create an affordability problem. In addition, increased media and social media scrutiny of fast food pricing has added to pressure on McDonald’s, in particular.”

“In the past, compelling value menus were often anchored by a hero item — often viewed by the consumer as a loss leader. These included the $1 double cheeseburger (McDonald’s 2003- 2012), the $1 any size soft drink (McDonald’s 2017-2020), the $5 footlong (Subway), the $5 mixand-match (Domino’s), and the $1.50 hot dog (Costco). The question of the day — will a $5 bundle be enough to stabilize McDonald’s traffic and will the higher food cost of the meal prove worth it enough to keep around the rest of the summer (or longer)? If the $5 meal is not a long-term solution, will a BOGO $1 menu do the trick for McDonald’s? We suspect the answer will come in the advertising effectiveness — will it leverage McDonald’s $1 billion national advertising budget? Should McDonald’s be able to stabilize traffic with value in 3Q the steady stream of new products in 2H24 and 2025 should kick off a substantial brand recovery.”