McDonald's is expected to report third-quarter earnings before the bell on Wednesday, and the bar set by Wall Street is low. Analysts surveyed by LSEG are expecting a weak result, and StreetAccount estimates put U.S. same-store sales down 0.5%. For a company of its scale, that is not a rounding error. It is a signal that the core domestic business is still losing ground.
Chief Executive Chris Kempczinski has already acknowledged the problem. Last quarter he said the chain's U.S. business fell short, pointing to uneven execution of its value offers and complicated launches of new menu items. Those are operational failures, not macroeconomic ones, and they are the kind of problem management controls. The company's answer was to tap Skye Anderson as its new U.S. president. A leadership change is a sensible step, but it is a promise, not a result. Investors should judge Anderson by whether value messaging and menu rollouts become simpler and more consistent in the quarters ahead.
The stock's decline makes the stakes clear. Shares have fallen about 11% over the last year, weighed down by concerns about the U.S. business, expensive plans to upgrade restaurants, and the broader economy. With a market capitalization of roughly $186 billion, McDonald's is still a giant, but investor patience is finite. Costly remodel plans are harder to justify when the restaurants that would receive them are not drawing the traffic that makes the spending pay off.
The real test will come from what executives say about the fourth quarter. Chipotle Mexican Grill's comments last Wednesday that the restaurant industry saw traffic soften in October suggest the slowdown is not confined to one brand. McDonald's should be direct about current trends rather than offering reassurance. Investors have heard enough optimism. What they need is specific evidence that value offers are landing and that the menu is easier to execute in restaurants.