McDonald’s Corp. (MCD) posted global comparable sales growth of 5.3% in January, on the heels of strong sales of beverage and core menu products. Comparable sales growth stepped up from 2.6% in January 2010.
The fast-food restaurant operator witnessed an uptrend across its domestic and international markets on a year-over-year basis. Geographically however, Europe was the major contributor to the month’s growth followed by Asia/Pacific, Middle East and Africa (APMEA) region and the United States.
Comparable sales in the United States climbed to 3.1% from a decline of 0.7% in January 2010 driven by the sale of Chicken McNuggets and hot McCafe premium beverages partially offset by a severe winter. However, performance of the McCafe beverage line launched last year continues to surpass all sales targets despite a severe winter.
The company still sees some benefit from Frappes and Smoothies in 2011. The national launch of Fruit & Maple Oatmeal also boosted the U.S. comparable store sales.
Europe saw a massive turnaround of 7.0% from 4.3% in January 2010. Stronger performance in Europe came from France, Germany, Russia and the U.K. Sustained focus on multiple-tier menus, new products across all price tiers, longer operating hours and a restaurant reimaging program contributed to the performance.
Driven by healthy performance in China, Japan and Australia, the reported month’s comparable sales increased 5.2% in APMEA as against 4.3% in January 2010. Continued focus on core value menu offerings, variety in breakfast menus as well as locally relevant menu items, promotional activities and reimaging programs contributed to the strength.
System-wide sales increased 7.4%, or 6.7% in constant currencies, in the month under review.
Comparable sales of McDonald’s, the world’s largest hamburger chain, have been increasing in the recent months. Steady growth in the U.S. clearly points to the return of consumer confidence in the country.
We remain impressed as business in Europe did not seem to be affected by the implementation of some austerity measures. Value added tax increases in January 2011 in some European countries did not impact the traffic count. However, there may still be causes for concern.
We also expect the company’s margin expansion to be limited in the upcoming quarter due to higher commodity costs as well as tax rate. In the past couple of years, the company’s effective tax rate benefited by approximately 2 percentage points owing to certain foreign tax credits. With a recent change in tax law these credits are no longer available to McDonald’s.
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.
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