McDonald’s (MCD) July Sales Climb

McDonald’s Corp. (MCD) posted better-than-expected global comparable sales growth of 7% in July, a step up from 4.3% recorded in July 2009, on the heels of strong beverage sales.

The fast-food restaurant operator witnessed an uptrend across its domestic and international markets. Geographically, APMEA (Asia/Pacific, Middle East and Africa) was the major contributor to the growth followed by United States and Europe.

July comparable sales leapt 10.1% in APMEA driven by strong performance in Japan, Australia, China and most other countries. Continued focus on core value menu offerings and variety in breakfast menus remained a source of strength.

Comparable sales in United States surged to 5.7% from 2.6% witnessed in July 2009 buoyed by the recently launched McCafe Real Fruit Smoothies and Frappes along with value-based drinks. The performance of the McCafe beverage line launched last year is ahead of management’s expectation of incremental sales of $125,000 per unit per year. Core products and a value-oriented menu have also boosted the U.S. comparable-store sales.

However, Europe saw a growth of 5.3%, which dropped from 7.2% in July 2009. This decline was due to tough comparison stemming from last year’s lower Value Added Tax (VAT) in France. Growth was predominant in France, the U.K. and Germany. Sustained focus on multiple-tier menus including high-priced premium products, longer operating hours and a restaurant re-imaging program contributed to the performance.

System-wide sales increased 6.8%, or 8.3% in constant currencies in the month under review.

Comparable sales of McDonald’s, the world’s largest hamburger chain, are 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 offerings.

We believe McDonald’s impressive global comparable store sales in July positions it on a strong footing for the third quarter. From a margin perspective, beverages are more supportive to margins. Additionally, the recent Euro strength is also expected to pay off in the near future.

With moderate growth prospects and an exposure to faster-growing international markets, we think McDonald’s is a relatively safe investment. We currently have a Zacks #3 rank on McDonald’s which translates into short-term Hold rating.

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.

MCDONALDS CORP (MCD): Free Stock Analysis Report

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