McDonald’s Corporation (MCD) is planning to boost its investment in China by 40% in the next year, as compared with 25% in 2010. The Oak Brook, Illinois-based company will primarily invest in opening 175 to 200 new restaurants in the world’s fastest growing economy. The company will also use the fund in renovating existing restaurants.
The world’s largest hamburger chain now operates 1,100 outlets in China, where the company opened its first store in 1990. McDonald’s growth was quite fast and it aims to almost double its outlets by 2013 in China. As one of the world’s largest emerging markets, China provides immense expansion opportunities. In the third quarter of 2010, China achieved 12.7% comps against a decline of 10.7% last year, backed by a pickup in economy.
We believe that with expansion in China, the U.S. fast-food giant will be able to compete with one of its biggest competitors, Yum! Brands Inc. (YUM), as the company’s China division offers immense growth potential with its two leading brands KFC and Pizza Hut. Additionally, Yum! remains on track to achieve its annual earning per share growth target of at least 10%, mainly driven by robust performance in its China division.
The company’s other renowned peer California Pizza Kitchen Inc. (CPKI)is also planning to expand in China in the long term, as a result the company recently opened its first company-owned restaurant and first international office in the country.
McDonald’s is expected to grow revenues and margins over the next few quarters through unit expansion and strong comps momentum, driven by value offerings as well as the roll-out of premium product.
The company also remains on track to open 1000 new restaurants in 2010. Approximately half of these openings will be in Asia/Pacific, Middle East and Africa (APMEA), including 150 to 175 in China. Another 250 new restaurants will be open in Europe and 150 in the U.S.
McDonald’s currently retains a Zacks #2 Rank (short-term Buy rating). We are also maintaining our long-term Neutral recommendation on the stock.
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