Life

McDonald’s Stock Is SOARING, Plus Is Barnes & Noble Looking To Get Acquired?

#Morning Brew
by

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“His understanding of the subject is limited.”

Elon Musk referring to Mark Zuckerberg’s understanding of AI. Shots fired.

Market Snapshot

  • The S&P and Nasdaq closed at record highs on a strong earnings day.
  • Oil jumped on reports that Saudi Arabia and Nigeria will cut exports.
  • The VIX fell to a 23-year low during intraday trading.
  • Greece issued bonds for the first time in three years.

For the McWin

Life’s all about those big decisions.

“Should I put this paycheck towards my 401(k) or my kid’s college fund?”

“A 30-year fixed rate or a 15-year variable rate mortgage?”

“It’s 2:00am and I’m freakin’ hungry. McDonald’s or Domino’s?”

While you dig deep to find those answers, we’ve got a little something that might help with the last one…earnings.

McDonald’s chowed down

In mid-2015, with McDonald’s recouping from six straight quarters of falling same-store sales, its new CEO, Steve Easterbrook, revealed a plan to turn around the world’s biggest fast food chain.

Two years later, McDonald’s stock is up over 60% and yesterday’s earnings report was the cherry on top.

Same-store sales climbed 6.6% globally and 3.9% in the U.S, sending McD’s revenue to $6.05 billion. If you’re looking for the mouth-watering MVPs, look no further than $1 soft drinks and $7 Signature Crafted sandwiches.

Here’s how it all started

Initially, Micky D’s thought its pre-2015 customer exodus was fueled by a desire for healthier food choices, so it obliged with crispy chicken salads and buttermilk ranch snack wraps.

What it found was quite the opposite. Customers were actually leaving for other fast food chains en masse as a direct result of McDonald’s health shift.

With its menu now refocused towards more traditional offerings and an arsenal of new tech gadgets like self-order kiosks, McDonald’s has finally returned to its former gluttony glory.

As for Domino’s

The pizza came out fresh, but investors weren’t buying. Domestic same-store sales of company-owned locations (aka non-franchised) grew 11.2%. Revenue grew 15% to $628 million and net income rose to $65.7 million.

So, why did shares fall 9.9%? International sale fell short of expectations, led by Domino’s biggest franchise Domino’s Pizza Group (which operates over 1,000 stores in the U.K and beyond). Investors acted accordingly.

Of Kors

Ever since Michael Kors (+0.06%) decided to board up 125 stores this past May, the fashion-forward retailer has been looking to reinvent itself.

It wasn’t easy, but after a long (and very trendy) board meeting one question stood out above all others: “What goes better with a line of handbags than a pair of high stilettos?”

The execs nodded, threw each other a quick “blue steel” and agreed to purchase British luxury shoe retailer Jimmy Choo for $1.2 billion.

The deal fits like a glass slipper for Kors, which has watched luxury handbag sales slow from 19% annual growth in 2012 to 2%. Meanwhile, the luxury shoe business has grown 9% to $18.6 billion in sales.

But, don’t think that Kors is out of the woods yet.

E-commerce isn’t going anywhere and fashion industry consolidation has led to more competition (remember when Coach bought Kate Spade for $2.4 billion?).

Which is why having Choo in your corner is likely a good thing. The company recorded sales growth of 15% to $424 million and a 43% rise operating profit in 2016. If that’s not enough, maybe a pair of $4,000 high heels is.

Turning the Page

It might just be the beginning of a new chapter at Barnes & Noble (see what we did there? Books have chapters.)

Or so a top-ten stakeholder in B&N (+16.9%) hopes. Sandell Asset Management encouraged the bookseller to sell itself to a private equity firm or a larger internet company.

In a letter to the board, Sandell expressed optimism about the future of B&N, but felt the bookseller was at a disadvantage (it is) like most other traditional retailers. Why’s that? You-Know-Who.

Barnes & Noble could fare better than most, though. It’s the only nationwide bookseller, operating over 600 stores in strategic locations across the country. And that’s not the whole story. Paperback sales were up 7.5% during the first months of 2016, while ebook sales dropped almost 20% during the same time frame.

To Sandell’s credit, these promising industry trends and B&N’s low debt load could make it an attractive acquisition for a company seeking a retail presence.

While not the fairytale ending B&N might have hoped for, this may be best case scenario for the weathered bookseller.

Gone in a Flash

Well, not quite. Flash is an Adobe (-0.88%) company acquired in 2005. It’s technology has been a staple for developers for over 20 years and yet by 2020, it’s finally being booted down.

You might not think you know Flash, but let’s be real, you know Flash.

How many times have you spaced out in Spanish class playing Icy Tower? Most likely powered by Flash.

How many times have you illegally tried to stream No Strings Attached? Once again, probably Flash (also, it’s time to talk about your movie tastes).

Flash has played such an integral role in our digital ecosystem that at one point the software touched 98% of personal computers connected to the internet.

Google Chrome, the most popular internet browser, only touches 17% of desktops each day.

Adobe Flash is being swapped out for newer, safer technologies like HTML5, but for the true gamers at heart, its legacy will last forever.

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What Else Is Happening…

  • Fresh off a $2.5 billion round of funding with Grab, Softbank is looking for a multibillion dollar stake in Uber.
  • Facebook (-0.43%) is working on its very own home assistant.
  • President Trump said Apple (+0.43%) will build three manufacturing plants in the U.S.
  • Blue Apron’s (+1.21%) cofounder Matthew Wadiak is stepping down as COO into a senior advisory role.

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Economic Calendar

Water Cooler

Gimme 2… Financial Concepts

We got a TON of feedback last week asking for more “brewified” terms. Today, as you requested, we’re back at it.

Call Option

A contract between a buyer and a seller that allows the buyer to purchase an agreed upon number of shares at a specific price (the strike price) before a certain date (the expiration date) for a fee (the premium).

Try this example on for size:

Fidget spinners are currently sold at $5 apiece. Alex thinks demand will push the price to $10. Therefore, he purchases a call option, giving him the right to buy 100 fidget spinners at a strike price of $8 before the year ends. But, this right comes at a cost, in the form of a premium.

If the price rises to $10, Alex will choose to buy 100 fidget spinners at $8 and can sell them at the market price of $10, pocketing a $200* difference. However, if prices drop to $3, then Alex does not have to exercise the option. His only loss is the premium he paid.

this does not include the cost of the option premium. To dive deeper check [this](https://www.fidelity.com/viewpoints/active-investor/how-to-buy-calls) out.*

Put Option

A put option allows the buyer to sell goods at a strike price before a set expiration date. It can be used to hedge (hmmm where have we heard this term before…) an investment.

Here’s Alex again to show us how it works:

Say Alex owns 100 fidget spinners at $10 apiece, but he’s worried those prices will fall. To protect against this risk, Alex hedges by purchasing a put option with a strike price of $8. Now, even if the price of his precious fidget spinners fall, he can still sell each fidget spinner for $8, protecting against further downside. If the price doesn’t fall, he only loses the premium he paid for that right to sell.

The Breakroom

Question of the Day

In a certain corporation, there are 300 male employees and 100 female employees. It is known that 20% of the male employees have advanced degrees and 40% of the females have advanced degrees. If one of the 400 employees is chosen at random, what is the probability this employee has an advanced degree and is female?

(Give Up?)

Who Am I?

  1. I served as the 74th Secretary of the Treasury.
  2. Prior to that, I was the CEO of Goldman Sachs.
  3. I am now a fellow at the University of Chicago, where I founded my own institute in 2011.
  4. I received an honorable mention for all-American offensive lineman, while at Dartmouth.

(Any guesses?)

Stat of the Day

75,606

The number of Alphabet employees. That’s almost double what they had in 2013.