McDonald’s Corporation (NYSE:MCD) certainly needs something to bring up same-store sales. US same- store sales in July were up 1.6%, credited to its Monopoly promotion and breakfast menu. Last January, Jack Russo, analyst for Edward Jones, speculated the new wings could bring in dinner business for McDonald’s,typically a weaker time of day accounting for 20% of sales, according to Bloomberg Business Week.
A food blogger for Serious Eats was seriously in love with the Mighty Wings and said they were “perhaps on par with what the big chicken shacks are cranking out.” He noted it took 10 minutes for an order of 18 wings.
Many McDonald’s Corporation (NYSE:MCD) orders are drive through, so there is merit when he wrote, “They need to speed up the process so I can be back home with the grub before kickoff.” The nationwide roll-out on September 9 better show McDonald’s more prepared than in test-market Atlanta.
Flour plus batter = profits
AFC Enterprises, Inc. (NASDAQ:AFCE) has a sweet operating margin of 28.7% and quarterly EPS growth (year-over-year) of 28.8%. But the run in share price is making it a little rich, with a price to sales of 5.1 and a trailing earnings multiple of 34x.
Meanwhile at McDonald’s Corporation (NYSE:MCD) the stock is virtually flat, up only 5% over the last year. Unsurprising when quarterly earnings growth is an anemic 3.7%. To be fair, McDonald’s operating margin at 30.8% is higher than AFC Enterprises, Inc. (NASDAQ:AFCE) and the trailing earnings multiple lower at 17.3.
What must Yum! Brands, Inc. (NYSE:YUM) think of these wings on its own turf? Yum! Brands offers wings not only at its KFC locations but also at Pizza Hut. Yum! Brands has 39,000 locations globally in 125 countries and over 80% of Yum! restaurants, including Taco Bells, are franchised.
Yum! Brands, Inc. (NYSE:YUM) reported a similar lackluster US sales rise of 1% in its July 10 earnings release. Yum! has now reported three consecutive disappointing quarters, taking the quarterly EPS growth rate down to -15.1% year-over-year.
Hoping to boost US sales, the company debuted a new menu item at Taco Bell, the fiery Doritos loco taco, and boneless wings at KFC.
Yum! Brands, Inc. (NYSE:YUM) has a lower operating margin than these other two at 15.7% and a lower yield than McDonald’s Corporation (NYSE:MCD) at 1.8%.
Gentleman, to your fryers!
Will the Mighty Wings take share from both AFC Enterprises, Inc. (NASDAQ:AFCE) and Yum! Brands, Inc. (NYSE:YUM)? It just may but Popeye’s customers are quite loyal and the restaurants offer Cajun style sides unavailable at these fast-food giants. AFC Enterprises has better growth prospects but a lot of that potential has been reflected in the share price.
McDonald’s Corporation (NYSE:MCD) may see rising comps from Mighty Wings and improve its dinner sales. For the income focused, it’s dividend aristocrat title is attractive as well, and it is more conservatively valued that AFC Enterprises, Inc. (NASDAQ:AFCE).
As for Yum! Brands, Inc. (NYSE:YUM), it could see the most market share taken away. I would be careful with any position in Yum!, especially if McDonald’s Corporation (NYSE:MCD) drives up the wings’ commodity costs and causes domestic weakness.
The article Does This Company Still Have the Secret Sauce? originally appeared on Fool.com and is written by AnnaLisa Kraft.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends McDonald’s. The Motley Fool owns shares of McDonald’s.
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