(MCD) McDonald’s Reports 4.8% Sales Growth in November

McDonald’s Corp. (MCD) posted global comparable sales growth of 4.8% in November, on the heels of strong sales of beverage and core menu products. Although comparable sales growth stepped up from 0.7% recorded in November 2009, the momentum slowed down sequentially. Last month, McDonald’s recorded a 6.5% growth in comparable sales.

The fast-food restaurant operator witnessed an uptrend across its domestic and international markets on a year-over-year basis. Geographically, Europe and the U.S. performed alike in November 2010 while lesser contribution came from the Asia/Pacific, Middle East and Africa (APMEA) region.

Comparable sales in the United States climbed to 4.9% from a decline of 0.6% in November 2009 buoyed by the sale of McRib sandwich 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 also boosted the U.S. comparable store sales.

Europe also saw a growth of 4.9% from 2.5% in November 2009. Stronger performance in Europe came from France, Germany, Russia and the U.K. Sustained focus on multiple-tier menus including high-priced premium products such as the McWraps in Germany, longer operating hours and a restaurant reimaging program contributed to the performance.

Driven by stronger performance in China and Australia, the reported month’s comparable sales increased 2.4% in APMEA compared with a decline of 1.0% in November 2009. Continued focus on core value menu offerings, variety in breakfast menus as well as locally relevant menu items, promotional activities, and reimaging programs remained the sources of strength. However, results were partially offset by the weakness in Japan.

System-wide sales increased 4.7%, or 6.1% in constant currencies, in the month under review. Weaker currency will remain a concern for the company affecting its fourth quarter earnings by 1 to 2 cents per share.

Comparable sales of McDonald’s, the world’s largest hamburger chain, have been on the rise in recent months. The significant growth in the U.S. was predominantly driven by an economic improvement in the country. However, the majority of consumers still continue to remain prudent and seek value-based offerings.

We believe McDonald’s stable global comparable store sales in recent months, positions it on a strong footing for the fourth quarter. Moreover, blockbuster performance in the U.S. clearly points out the turnaround in consumer confidence, which has been faltering since the last couple of quarters. 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 U.K., 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.

The company’s competitors include The Cheesecake Factory Inc. (CAKE), Yum! Brands Inc. (YUM) and Wendy’s/Arby’s Group Inc. (WEN).

CHEESECAKE FACT (CAKE): Free Stock Analysis Report

MCDONALDS CORP (MCD): Free Stock Analysis Report

WENDYS/ARBYS GP (WEN): Free Stock Analysis Report

YUM! BRANDS INC (YUM): Free Stock Analysis Report

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