Operating as an asset-light, highly franchised model with an attractive property component, the Golden Arches monetise their global brand through royalties, rent and a smaller base of directly operated restaurants. Following a recent drop in share price, we have been considering whether McDonald’s have made some recoverable executional missteps, or are facing a more structural setback. 

McDonald’s has over 45,000 restaurants globally, 95% of which are franchised. Around 60% of McDonald’s revenues come from rent and royalties from these franchised restaurants, who pay a percentage of their sales for the right to use the McDonald’s brand and operating system. As the restaurant franchisee bears most of the operating costs, McDonald’s margins are north of 80%. The remaining 40% of revenues come from a more traditional company-operated restaurant model with lower margins, but the overall picture means that McDonald’s margins are approximately 46% versus the industry average of less than 10%.

McDonald’s shares are down 25% from their peak in February 2026 and are trading on their lowest multiples for a decade. Shares are weak for three reasons. The first is a decline in customer traffic. The company’s revenues are growing, but are being driven by higher average spending per visit rather than an increase in customer numbers. Secondly, their substantial price increases during the inflationary period pushed away lower-income consumers. The final reason comes down to poor management execution, with inconsistent pricing, removal of digital offers and menu changes across the restaurants. The share price is now discounting that like-for-like-sales will remain poor and that recent issues persist.

McDonald’s has also experienced periodic GLP-1-related share-price concerns. The market has worried that appetite suppression through drugs like Ozempic may deter customers from visiting their restaurants or lead to lower spending. This was addressed by management at their investor day last month, who noted that the impact of weight loss drugs are being factored into their menu; they are considering products such as grilled chicken, egg bites, snack wraps and chicken/burger bowls to satisfy GLP-1 user’s requirements for more protein and smaller portions.  

For the stock to rebound, McDonald’s will have to convince investors that the recent slowdown in same-store-sales can be recovered and restore confidence in long term growth. Their investor day outlined the ‘McDonald’s NEXT’ game plan. By 2030 management believe they can improve overall margins from 46% to low-to-mid 50s, by driving growth in chicken and beverages, improving efficiency, and opening new restaurants. Rather than a broken model, we feel that McDonald’s have taken a misstep but in time they will get back into their stride. 

In a world of rising rates, squeezed consumers trade down to budget friendly restaurants. Franchise economics are well suited to tricky macro conditions as inflationary pressures can be softened by utilising local supply chains. Consumer discretionary is a beaten-up sector and we would rather own McDonald’s at these levels than competitors like Starbucks who are trading on much higher multiples. We’ve added to our position and We’re Lovin’ It. 
 

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note that the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.