Benzinga - by Zaheer Anwari, Benzinga Contributor.
- McDonald's has announced a strategic decision to increase franchisee royalty charges from 4% to 5%.
- Franchisees operate 95% of McDonald’s 40,000 global locations.
- McDonald’s stock is undergoing challenges, witnessing a 4% decline this month.
Starting next year, these charges will increase by 1%, from 4% to 5% of sales. This decision is particularly significant since franchisees manage an impressive 95% of McDonald's 40,000 global locations.
McDonald's franchisees are crucial to the company's financial success, as their fees made up 61% of the $23 billion revenue last year.
The impending royalty hike will have a big impact on both the franchisees and the company's overall revenue trajectory.
The choice to raise royalty fees is a significant one, representing the first increase in nearly thirty years.
It is expected to face opposition, highlighting the tumultuous connection between the company and its U.S. franchisees.
The complex dynamics between McDonald's and its franchisees have been marked by a succession of disputes and talks, rendering the announcement a potential trigger for renewed conflicts and dialogues.
Meanwhile, McDonald's stock is facing challenges as well, with a 4% decrease this month.
The stock price has breached a significant support level at $271, which was the highest point in January 2022.
This level held strong until September 22nd, but the beginning of this week marked a breakthrough, indicating possible volatility in the stock's future trajectory.
In July of this year, the stock price came within a dollar of reaching $300, but ultimately fell short, leading to a subsequent decline of 10%.
Despite this weakness, the stock has managed to show a year-to-date increase of 1.49%.
However, if this downward trend continues, it could potentially undermine this growth, introducing an element of uncertainty to the stock's performance.
The outlook for McDonald's stock remains uncertain. A strong rebound could drive the price back above $271, reigniting the long-term bullish trend.
Regardless, the current situation is ambiguous, with the stock's trajectory hanging in the balance, poised to swing either way.
After the closing bell on Tuesday, February 26, the stock closed at $267.72, trading down by 0.76%.
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