Why Are McDonald’s Margins FALLING?

Even though McDonald’s (NYSE:MCD) serves 69 million customers in 119 countries each day, the world’s largest fast food chain has suffered lagging sales as of late, including reporting its worst sales in nine years last quarter.

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But lagging sales have not caused analysts to downgrade the stock — in fact, stock prices are moving higher this week, and Bloomberg expects global comparable-store sales in August to rise to 3.9 percent, from 3.5 percent in the same period last year.

McDonald’s primary appeal to investors has always been the company’s consistent growth, strong cash flow, and industry-leading margins. But growth is slowing on a global level. The continued global economic slowdown, tougher competition from Wendy’s (NYSE:WEN) and Burger King (NYSE:BKW), and increasing food prices will continue to decrease margins. Last quarter, McDonald’s revenue of $6.92 billion missed analysts estimates and the operating margin increased by only $0.9 million, or practically 0.

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