McDonald's Corp. (MCD) has posted global comparable sales (comps) growth of 5.5% in October on the back of strong beverage as well as core menu sales. However, the fast-food chain operator witnessed a relatively downward movement on a year-over-year basis across all regions but for the Asia/Pacific, Middle East and Africa (APMEA). Overall comps were down from 6.5% in October 2010.
In the United States, comps growth of 5.2% was less than 5.6% recorded in October 2010. The growth in October 2011 was buoyed by the sale of McCafe beverages. Core offerings like Big Mac, Chicken McNuggets, breakfast menu and Fruit & Maple Oatmeal were the other major contributors in the month. The enthusiasm among consumers around the monopoly game promotion also drove the monthly same-store sales.
Europe saw a growth of 4.8% as opposed to 5.8% recorded in October 2010. The growth was backed by stronger performance in France, Russia and the U.K. Locally relevant menu choices, promotional food events, everyday value options, sustained focus on multiple-tier menus, and a restaurant reimaging program contributed to the month’s performance.
The reported month’s comparable sales increased a handsome 6.1% in APMEA versus a growth of 5.3% realized in the year-ago month. The earthquake-ridden Japan seemed to overcome the turmoil. Healthy performances in China and Australia also deserve a special mention. Continued focus on daypart value options, variety in menu as well as locally relevant items drove the segment.
System-wide sales increased 7.7%, or 7.6% in constant currencies, in the month under review.
Our Take
The Oak Brook, Illinois-based company continues to strengthen the McCafe line-up with expectations for further benefits from Frappes and Smoothies throughout 2011. Beverages are also important outside the United States. While internationally, McCafe is focused on hot beverages at the present, McDonald’s has identified a number of markets to test or add Real Fruit Smoothies and Frappes over the next few years, starting with Australia.
The company will continue to evaluate additional price increases in light of this inflationary environment.
On the flip side, a fragile environment in Europe owing to sovereign debt crisis will likely dent its quarterly earnings to some extent. All of the company’s major markets in Europe continue to look for value in offerings. Further, given increased commodity pressures, we expect fourth-quarter consolidated margin to remain under pressure.
McDonald’s currently retains a Zacks #3 Rank (short-term Hold rating). We are maintaining our long-term Neutral recommendation on the stock. The company’s competitors include The Cheesecake Factory Inc. (CAKE) and Yum! Brands Inc. (YUM).
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