Same-store sales (comps) at
) continued to decline even in the second month of the year as
the company witnessed a downward movement in all its geographical
segments in Feb 2013.
Apart from the persistent global economic turmoil and peer
pressure, a tough year-over-year comparison resulted in the comps
decline in February. Comps at McDonald's dipped 1.5% in Feb 2013
as against 7.5% growth in the year-ago quarter and a decline of
1.9% in Jan 2013.
However, the decline in comps was less than anticipated.
Management expected comps to suffer by approximately 3 percentage
points in February. Excluding the negative calendar shift of 3.2
percentage points, as the year-ago period had an extra operating
day due to the leap year, global comparable sales were up 1.7%
System-wide sales inched up 1.1% in constant currencies and fell
0.9% on a reported basis in the month under review.
In the U.S., comps fell the most by 3.3% compared to 11.1% growth
recorded in Feb. 2012 mainly due to negative calendar shift.
Excluding this impact, comps in the U.S. were flat against robust
prior-year performance. The new Grilled Onion Cheddar burger, the
Hot 'n Spicy McChicken, McDonald's value lineup and the
limited-time Fish McBites were the month's highlights.
In Europe, comps fell 0.5% compared with an increase of 4.0% in
the year-ago period. Excluding the adverse calendar shift due to
the leap year, comps grew 2.7%. Strong performance in U.K., and
Russia was the high point in debt-ridden Europe. Focus on unique
premium menu as well as value proposition and the expansion of
Europe's breakfast and restaurant operating hours drove the
Comparable sales decreased 1.6% in Asia-Pacific, Middle East and
Africa (APMEA) as against 2.4% growth in the year-ago month.
Excluding the tough comparison arising out of leap year 2012,
comps were up 1.5%. The sluggish performance in Japan was offset
by a much better performance in China and Australia.
The shift of the Chinese New Year in February this year boosted
sales in the month. We believe the negative perception of the
consumers about the quality of chicken offered by U.S
restaurateurs like McDonald's and
Yum! Brands Inc.
) did not seem to affect sales at McDonald's this time.
Notably, in Dec 2012, Yum! Brands faced an allegation regarding
the quality of chicken supplied to its KFC unit. Although food
safety regulators in Shanghai cleared Yum!, McDonald's
apprehended that the incident shattered consumer confidence about
the quality of food offered by U.S. restaurateurs.
Although McDonald's has faltered in the recent past, we still
believe that the company has strong value. The company is
consistently striving to bounce back amid a challenging
macroeconomic environment by resorting to value-proposition and
However, McDonald's is still vulnerable to a fragile macro
economy. The Oak Brook, Ill.-based chain is facing extreme
challenges on its home turf. Some of its new menu offerings like
Fish McBites, which the company relied heavily on, could not stir
The company has little pricing power in Europe due to wavering
consumer confidence. With increased focus on value proposition
along with less pricing power and increasing investments toward
media, margins might suffer, going ahead. On a positive note,
Asia-Pacific appears to be better placed. McDonald's currently
retains a Zacks Rank #3 (Hold).
Some restaurateurs that are worth a look at the current level
Chuy's Holdings Inc.
Burger King Worldwide Inc.
) with a Zacks Rank #2 (Buy).
BURGER KING WWD (BKW): Free Stock Analysis
CHUYS HOLDINGS (CHUY): Free Stock Analysis
MCDONALDS CORP (MCD): Free Stock Analysis
YUM! BRANDS INC (YUM): Free Stock Analysis
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