McDonald's Corp. (MCD) posted global comparable sales growth of 6.0% in April, on the heels of strong beverage sales as well as new menu offerings and promotional activities. The fast-food restaurant operator witnessed a relatively upward movement across the board on a year-over-year basis. Comparable sales growth stepped upfrom 4.9% in April 2010 and 3.6% from March 2011.
Geographically, Europe and Asia/Pacific, Middle East and Africa (APMEA) were the major contributors to the month’s growth followed by the United States.
In the United States, comparable sales nudged up to 4.0% from 3.8% in April 2010. The uptick was aided by the popularity of McCafe premium beverages, including the recently launched McCafe shakes, Frappes and Smoothies, and featured core products like the Big Mac and Quarter Pounder with Cheese.
Europe sustained its momentum with 6.5% growth and was up 120 basis points year over year. Stronger performance in Europe came from France, Russia and the U.K. Unique premium menu offerings, including premium beef and chicken options, sustained focus on multiple-tier menus, new products across all price tiers, and a restaurant reimaging program contributed to the month’s performance.
Driven by healthy performances in China, Japan and Australia, the reported month’s comparable sales shot up to 6.5% in APMEA from 3.9% in April 2010. Continued focus on core value menu offerings, variety in menus as well as locally relevant items drove the segment.
System-wide sales increased 12.7%, or 7.5% in constant currencies, in the month under review.
Our Take
We are impressed with the company’s business in Europe, which remained unperturbed by the implementation of some austerity measures. Even value added tax increases in some European countries this January did not keep traffic away. Going forward, McDonald's U.S. plans to brew more McCafe options to become a beverage destination, and leverage core products like Chicken McNuggets and the burger line-up.
The company has pointed out that coffee represented only 2% of sales two years ago and now represents over 6% of sales with room for additional growth. Management plans to continue promoting the McCafe line-up with expectations for continued benefits from Frappes and Smoothies in 2011. This summer, the chain has Strawberry Lemonade Smoothie and another new flavor in the offing. Beverages are also important outside the United States. In China, the company had more than 145 McCafes and, in Europe, more than 1,350.
On the flip side, the competitive environment is heating up. Japan, one of the prime markets for McDonald’s, will also experience the re-entry of Wendy’s/Arby’s Group Inc. (WEN), with the first location expected to open in Tokyo later this year.
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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