McDonald’s Corp. (MCD) posted global comparable sales growth of 4.9% in August thanks to strong beverage sales. Comparable sales growth stepped up from 2.2% in August 2009.
Barring Europe, the fast-food restaurant operator witnessed an uptrend across its domestic and international markets. Geographically, APMEA (Asia/Pacific, Middle East and Africa) was the major contributor to growth followed by the United States.
Driven by strong performances in Japan, China and Australia, the reported month’s comparable sales surged 7.8% in APMEA, compared with a decline of 0.5% in August 2009. The improvement can be attributed to its continued focus on core value menu offerings, a variety in breakfast menus as well as locally relevant menu items, promotional activities, easy comparison in some countries and reimaging programs.
Comparable sales in the United States climbed to 4.6% from 1.7% in August 2009, buoyed by the recently-launched McCafe Real Fruit Smoothies and Frappes along with other value-based drinks. The performance of the McCafe beverage line launched last year remained ahead of management’s expectation of $125,000 per unit incremental sales per year. Core products and value-oriented menus have also boosted U.S. comparable store sales.
On the flip side, Europe saw a growth of only 2.2%, which dropped from 3.5% in August 2009, mainly due to softer performance in France. The decline was partially offset by impressive growth in the U.K. and Russia. The U.K.’s summer barbecue food event contributed to that country’s comparable sales growth. The weaker performance in France was due to tough comparisons stemming from last year’s lower Value Added Tax and promotions that were not as successful as last year’s.
System-wide sales increased 4.7%, or 6.2% in constant currencies in the month under review.
Comparable sales of McDonald’s, the world’s largest hamburger chain, have been on the rise in recent months. With signs of improvement in the economy, people are becoming more comfortable with their discretionary spending. Nevertheless, the majority continues to remain prudent and seek value-based offerings.
We believe McDonald’s impressive global comparable store sales in August positions it on a strong footing for the third quarter. New beverages also appear more supportive to margins. Demand is expected to be higher in the Asia-Pacific region, where the pace of economic recovery is faster. However, business in Europe will likely face some headwinds in the near future due to the ongoing macro uncertainty.
With moderate growth prospects and an exposure to faster-growing international markets, we think McDonald’s is a relatively safe investment. It currently retains a Zacks #3 Rank (short-term ‘Hold’ rating).
McDonald’s currently operates more than 32,000 restaurants in more than 100 countries. Over 80% of McDonald’s restaurants worldwide are owned and operated by franchisees.
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