McDonald’s Corp. (MCD) witnessed a 3.3% upside in global comparable sales (comps) for the month of April that lagged the year-ago level of 6% as well as the company’s expectation of 4%. The fast-food restaurant operator witnessed a relatively downward movement across all three geographical segments namely the United States, the U.K. and APMEA on a yearly basis. While the United States and Europe gave a similar performance, the Asia/Pacific, Middle East and Africa (APMEA) region was the main dampener in the month.
In the United States, comps grew 3.3% versus 4.0% in April 2011. The comps in April 2012 were backed by strong customer demand for Chicken McNuggets which was included in extra value menu. Core offerings like breakfast menu, the McCafe beverage line-up as well as premium chicken sandwich and Angus burger were the other major contributors in the month.
Europe saw a growth of 3.5% as opposed to 6.5% in April 2011. The growth was backed by stronger performance in the U.K., France, Germany and Russia. Promotional food events and a restaurant reimaging program were responsible for the month’s performance.
The reported month’s comparable sales nudged up 1.1% in Asia/Pacific, Middle East and Africa (APMEA) versus 6.5% in the year-ago month. A somewhat healthy performance was palpable primarily in China and some other markets. However, Japan continued to be a dampener. Continued focus on daypart value options, variety in menu as well as locally relevant items drove the segment.
System-wide sales increased 3.3% (5.5% in constant currencies) in the month under review.
Our Take
The Oak Brook, Illinois-based company’s recent comps came as a shock after continued comps strength. Management noted that Japan's results were not smooth as the country continues to recover after the natural calamities last year following which consumers are refraining from dining out.
McDonald’s has so far endured the recent economic turmoil in Europe. However, management believes the implementation of austerity measures could now put pressure on its sales and earnings. With the focus on value proposition along with less pricing power, margins will likely be hassled, going ahead. In addition, high levels of unemployment are projected to continue in the foreseeable future.
However, the company continues to strengthen its beverage offerings, which have become its growth engine. Beverages are also important outside the United States. Remodeling remains another bright spot on McDonald’s 2012 agenda.
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).
MCDONALDS CORP (MCD): Free Stock Analysis Report
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