McDonald’s Corp. (MCD) posted global comparable sales growth of 6.5% in October, on the heels of strong sales of beverage as well as core menu products. Comparable sales growth stepped up from 3.3% recorded in October 2009.
Barring Europe, the fast-food restaurant operator witnessed an uptrend across its domestic and international markets on a year-over-year basis. Geographically, however, Europe was the major contributor to the month’s growth followed by United States and the Asia/Pacific, Middle East and Africa (APMEA) region.
Comparable sales in United States climbed to 5.6% from a decline of 0.1% in October 2009 buoyed by the sale of core products including Chicken McNuggets, McGriddles, Big Mac and McCafe beverages.
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. Monopoly game promotion has also boosted the U.S. comparable store sales.
Driven by strong performance in Japan, China and Australia, the reported month’s comparable sales increased 5.3% in APMEA compared with 4.7% in October 2009. Continued focus on core value menu offerings, variety in breakfast menus as well as locally relevant menu items, promotional activities, easy comparison in some countries and reimaging programs remained sources of strength.
On the flip side, Europe saw a growth of 5.8%, which dropped from 6.4% in October 2009. Stronger performance in Europe came from France, the U.K. and Russia. Sustained focus on multiple-tier menus including high-priced premium products, longer operating hours and a restaurant reimaging program contributed to the performance. However, the year-over-year decline can be attributed to tough comparisons stemming from last year’s lower Value Added Tax.
System-wide sales increased 7.4%, or 7.8% 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, diners are becoming more comfortable with their discretionary spending. Nevertheless, the majority continue to remain prudent and seek value-based offerings.
We believe McDonald’s impressive global comparable store sales in October positions it on a strong footing for the fourth quarter. Moreover, blockbuster performance in the U.S. clearly points out the turnaround of consumer confidence, which has been faltering since the last couple of quarters. Demand is expected to be higher in the Asia-Pacific region, where the pace of economic recovery is faster.
However, business in Europe might be affected by the implementation of some austerity measures. Value added tax increases in January 2011 in some European countries like UK, Poland and Portugal will drive price increases to the consumer while providing no same store sales benefit. Consequently, company-owned restaurant margin expansion and overall European profit might be restricted in the near term.
McDonald’s currently retains a Zacks #2 Rank (short-term Buy rating). We are also maintaining our long-term Neutral recommendation on the stock.
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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