Results for the second quarter McDonald’s ( MCD 0.31% ) Suggested signs indicate that consumers may be reducing their spending. With the restaurant industry facing challenges, it is advisable for investors to continue supporting the current trend. This is undoubtedly the wise decision at present. Wingstop ( WING 0.62% ) .
Comparing sales figures
One significant difference between these two companies lies in their sales performance. McDonald’s is experiencing a flatlining in sales, whereas Wingstop has been experiencing a remarkable increase in sales.
In the second quarter, McDonald’s experienced a 1% decrease in total comparable-store sales. Systemwide sales also dropped by 1%, and consolidated revenue remained unchanged. This reflects a pattern of decreasing comparable sales growth for McDonald’s observed in recent quarters.
The sales performance of Wingstop and McDonald’s in the second quarter were quite contrasting. Wingstop experienced a significant boost in sales, with a 45.2% increase in systemwide sales amounting to $1.2 billion, and a 28.7% growth in domestic same-store sales. On the other hand, McDonald’s revenue remained relatively unchanged year-over-year, highlighting a stark difference with Wingstop’s impressive 45.3% total revenue growth in the same period.
McDonald’s profits decreased by 11% to $2.80 per share when adjusted for dilution, with a 2% drop to $5.46 over the six-month period. On the other hand, Wingstop saw a significant increase in earnings of around 72% compared to the previous year, reaching $0.93 per diluted share.
The overall view or perspective
While looking closely at a small aspect can be interesting, it is the overall view that holds greater significance. In this instance, Wingstop has revealed many reasons for enthusiasm beyond just a single quarter’s performance.
Over the recent years, McDonald’s has experienced fluctuations in its revenue and annual net income, whereas Wingstop has consistently achieved double-digit growth in annual revenue, with a significant increase of almost 29% in 2023. Wingstop’s strong revenue growth over the past five years indicates that it is surpassing McDonald’s performance.
One of the primary factors behind this is Wingstop’s relatively small size and recent establishment, however, this should not concern investors. Any kind of growth is positive, and Wingstop has consistently delivered impressive results that are difficult to overlook, especially during a period when other companies are experiencing declines.
What is the downside?
Put simply, the key factor is valuation. Wingstop’s current trading multiple is over 100 times its earnings over the past year, whereas McDonald’s multiple is around 23 times its earnings. Typically, I prioritize value in my investment approach and would not usually favor Wingstop over McDonald’s. However, it’s hard to overlook the impressive growth rates of Wingstop, especially when compared to the struggles faced by its competitors.
The performance of important competitors in the fast food and restaurant industry suggests that consumers may be beginning to spend less. McDonald’s specifically mentioned that consumers are becoming more price-conscious, resulting in the recent outcome. Starbucks , Wendy’s Additionally, Burger King, McDonald’s, and Wendy’s all noted a decrease in customer visits, suggesting that consumers may be cutting back on their spending.
In my opinion, it’s important to continue with what is currently successful, which in this case is Wingstop. The significant increase in value of Wingstop shares since its initial public offering in 2015, with gains exceeding 1,000%, supports the high valuation. Comparing the two stocks, I find the choice straightforward.
