about 3 years ago • 3 mins
McDonald’s reported quarterly earnings on Thursday that were below expectations, but there’s a light at the end of the golden arches.
What does this mean?
Europe was crippled yet again by another wave of lockdowns last quarter, and McDonald’s felt the impact: it sold fewer Big Macs and McFlurries, and spent more on safety equipment and marketing itself as a home delivery go-to. That one-two punch hurt its revenue and profit, which came in below analysts' forecasts.
But there was better news on home turf: the company’s sales in the US jumped to 5.5% from the previous quarter’s 4.6%. That might have something to do with the fact it has more drive-throughs than it does in Europe, making it a whole lot easier to maintain social distancing rules. Its promotional pushes seemed to be working too, with long-standing favorites and newfangled crowd-pleasers alike selling like hotcakes.
Why should I care?
The bigger picture: Drive-throughs never looked so good.
Big chains like McDonald’s and Starbucks – which reported strong earnings of its own earlier in the week – are doing better than the rest of the restaurant industry. That might be because of their sheer size: they can adapt to social distancing guidelines more easily than their independent rivals, and offer cheap, no-frills food in these tough economic times. And the future looks bright: analysts reckon McDonalds will dominate the restaurant industry even once the pandemic's lifted.
Zooming out: Americans are turning to burgers and booze.
Americans weren’t just tucking into fast food last quarter: the world’s biggest spirit maker Diageo reported a surprise surge in sales for the six months till January compared to the previous year. Turns out Americans have been drinking more tequila at home than Europeans aren’t drinking in bars. And that’s in keeping with wider drinking trends during the pandemic: everyone is choosing spirits over beer and wine during the pandemic, and trying to turn nights in into… well, nights out.
Keep reading for our next story...
GameStop and AMC Entertainment really got investors’ juices flowing this week, and it’s largely down to one thing: a “short squeeze”.
What does this mean?
First, the “short”: an investor can borrow shares from an owner for a fee and sell them on the stock market, hoping to profit by later buying them back at a lower price. That means they’re effectively betting against the stock.
Now for the “squeeze”. Other investors’ purchases of highly-shorted stocks drives their prices up, so short-sellers – who see their potential losses racking up – might then try to reverse their bet by buying the shares they’d initially sold. But if the sheer volume of buyers limits the supply of shares, short-sellers’ sudden demand for them will just push prices even higher – until they’re high enough to convince someone to sell. And since there’s no telling what price that’ll be, short-sellers’ losses are potentially infinite.
Why should I care?
For you personally: Easy come, easy go.
It can be wildly profitable to buy into the first throes of a short squeeze: early investors in GameStop, AMC, and BlackBerry have shown as much. But the positive momentum can turn on a dime, and you might be caught out if you’re a late-to-the-game buyer. If, for instance, short-sellers do get their hands on enough shares to undo their bets, their desperate demand for shares will vanish as quickly as it appeared. And if no one else is willing to pay what they did, you might have to accept large losses when you sell up…
The bigger picture: The money has to come from somewhere.
If investors unexpectedly caught in a short squeeze need to repurchase their shorts, they might have to fire-sell some of their stocks to free up cash. And fresh data from Bloomberg this week suggests that’s exactly what happened: some of hedge funds’ most popular stocks saw their prices tumble, likely contributing to all this week’s volatility.
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