McDonald’s Corp. (MCD) posted global comparable sales growth of 3.9% in February, riding on strong beverage sales as well as new menu offerings and promotional activities. Comparable sales growth registered a decline from 4.8% in February 2010 and 5.3% from January 2011. Barring the United States, the fast-food restaurant operator witnessed a relatively downward movement across the U.K. and APMEA on a year-over-year basis.
Geographically, Europe was the major contributor to the month’s growth followed by the Asia/Pacific, Middle East and Africa (APMEA) region and the United States.
Comparable sales in the United States climbed to 2.7% from 0.6% in February 2010 driven by impressive performances by McCafe premium beverages, including Frappes and Smoothies, and Chicken McNuggets. Breakfast remains a strong driver of same restaurant sales. The national launch of Fruit & Maple Oatmeal also boosted the U.S. comparable sales.
Europe sustained its momentum with a 5.1% growth, but was down by 30 basis points year over year. Stronger performance in Europe came from France, Russia and the U.K. Unique premium menu offerings, including new premium beef campaign in France and Big Tasty in the U.K., sustained focus on multiple-tier menus, new products across all price tiers, and a restaurant reimaging program contributed to the month’s performance. Germany, however, posted a poor score.
Driven by healthy performances in Japan and Australia, the reported month’s comparable sales increased 4.0% in APMEA, but were way below 10.5% in February 2010. Continued focus on core value menu offerings, variety in menus as well as locally relevant items, limited-time offers including the Big America 2 promotion in Japan and the Value Lunch program in Australia drove the segment. However, China was the dampener due to the timing of the Chinese New Year.
System-wide sales increased 8.1%, or 5.2% in constant currencies, in the month under review.
We are impressed with the company’s business in Europe, which remained unperturbed by the implementation of some austerity measures. Value added tax increases in January 2011 in some European countries did not keep traffic away.
McDonald’s effective tax rate for the first quarter is expected to be 27% to 29%, reflecting a deferred tax benefit related to certain foreign operations. Going forward, McDonald’s U.S. plans to brew more McCafe options to make it a beverage destination, and leverage core products like Chicken McNuggets and the burger line-up.
On the flip side, we also expect the company’s margin expansion to be limited in the upcoming quarters due to higher commodity costs. Moreover, the company functions in an intensely competitive market.
Japan, one of the prime markets for McDonald’s, will also experience the re-entry of Wendy’s/Arby’s Group Inc. (WEN), with first location expected to open in Tokyo later this year. Yet another peer Yum! Brands Inc. (YUM) continues to write a China-driven growth story. Hence, McDonald’s currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
MCDONALDS CORP (MCD): Free Stock Analysis Report
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YUM! BRANDS INC (YUM): Free Stock Analysis Report
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