Here’s How Hurricanes Harvey And Irma Could Impact McDonald’s
As Texas and Florida recover from the impact of the recent hurricanes, restaurant stocks such as McDonald’s (NYSE:MCD) and Restaurant Brands International (which owns Burger King) are likely to feel the impact of this extreme weather in their third quarter results. Data science tracker M Science recently said that its sales forecast for McDonald’s for Q3 2017 is lower than what most analysts are estimating and the company is likely to miss revenue and comparable sales estimates in this quarter. Florida is a big restaurant market with nearly 39,000 restaurants of which McDonald’s operates 900 and Burger King has more than 700 restaurants. Dunkin’ Brands has nearly 800 restaurants in the state. Similarly, Texas is a big market for McDonald’s where it operates nearly 1200 restaurants. Heavy rainfall and lack of power supply led to shutting down of restaurants in the regions for a few days and all McDonald’s restaurants in Florida are not yet operational. While the damages would be covered by insurance, restaurants are less likely to see normal traffic for a few weeks even after opening due to extreme weather conditions and the focus on rebuilding efforts. This would lead to lower revenues for McDonald’s in Q3 2017
Closures And Lower Traffic Can Impact Quarter Revenues By 1-2%
According to our estimates, the average spend per customer at a McDonald’s franchisee restaurant is around $3.50 and each McDonald’s franchisee restaurant gets around 631,000 customers annually or around 1,728 customers each day.
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If 2,000 restaurants (approximate number for Florida and Texas) are closed for one day, the company can lose around $12 million in revenues – assuming the average spending rates and average number of customers per restaurant.
However, both Florida and Texas are “high spending” markets for the company (the average is calculated based on global spend and emerging markets spend would be lower) and the customer spend in these restaurants will be higher than the average. Also, the aftermath of the hurricane is expected to last for weeks before customer visits return back to normal and during this period, McDonald’s will continue to lose revenues. The company generates nearly $6 billion in revenues every quarter, and a $12 million revenue loss per day for 10 days translates into $120 billion. While this assumes that all 2,000 restaurants will be shut for 10 days (which will not be the case) and the spending at these restaurants is equal to the average spending (the spending could be higher than the average spending), it gives an approximated estimate of the quantum of revenue loss. Based on these approximations, we estimate that slower business in nearly 2,000 restaurants for around 2-3 weeks till normalcy is achieved can impact McDonald’s revenues by 1-2% in Q3 2017.
While hurricanes Harvey and Irma will impact McDonald’s in the short term, we believe the company’s turnaround efforts are showing results and the company will continue to grow revenues as it focuses on McCafe and menu innovation to adapt to customer preferences.
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