McDonald’s Keeps $5 Meal, but Does It Make Money?

24/7 Wall St. Insights

• The McDonald’s Corp. (NYSE: MCD) $5 meal was supposed to bring back the “value-minded” customer. Has it worked?
• Also: Dividend legends to hold forever.

The McDonald’s Corp. (NYSE: MCD) $5 meal was supposed to bring back the “value-minded” customer, which was one foundation of its success. It has not been entirely clear if that worked. It has certainly not been very profitable. One analyst said McDonald’s only makes about $0.10 on each one. While people outside McDonald’s can’t measure its success precisely, the program has brought in enough business to be extended until the end of the year.

The $5 meal includes a McDouble or McHenry sandwich, small fries, four pieces of Chicken McNuggets, and a small soft drink. The price is low enough; McDonald’s management has reasoned that people who cannot afford much more for a meal will view McDonald’s as it has been for years–the only place they can get food on a rock-bottom budget.

McDonald’s needs to jump-start growth. In the most recent quarter, its revenue was $6.5 billion, nearly the same as in the year before. Comparable store sales were close to flat. EPS dropped 12% to $2.80. McDonald’s CEO spoke extensively about capturing diners in a world where inflation robbed lower-income people of their buying power. “We are confident that Accelerating the Arches is the right playbook for our business and as consumers are more discriminating with their spend, we are focused on the outstanding execution of delivering reliable, everyday value and accelerating strategic growth drivers like chicken and loyalty,” Chairperson and CEO Chris Kempczinski said when earnings were released.

Skeptical investors must decide if it is worth adding back past meals if there is no profit.