Same-store sales (comps) at
) continued to decline even in the fourth month of the year as
the company witnessed a downward movement in two of its
geographical segments -- Europe and Asia/Pacific, Middle East and
Africa (APMEA) -- in Apr 2013.
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Persistent global economic turmoil and peer pressure resulted in
the comps decline in April. Comps at McDonald's dipped 0.6% in
Apr 2013 as against 3.3% growth in the year-ago quarter. However,
the decline did not come as a surprise. Management had earlier
anticipated April global comparable sales to be slightly
System-wide sales increased 1.9% in constant currencies but fell
0.4% on a reported basis in the month under review.
In the U.S., comps nudged up 0.7% compared to 3.3% growth
recorded in Apr. 2012 with the value-menu taking precedence. The
national introduction of Premium McWraps, value options and
McDonald's breakfast were the month's highlights.
In Europe, comps fell 2.4% compared to an increase of 3.5% in the
year-ago period due to sluggish performance in Germany and
France. Stronger performance in U.K. and Russia in debt-ridden
Europe and focus on a unique premium menu, value proposition and
the expansion of Europe's breakfast and restaurant operating
hours could not contain the downward drift in sales.
Comparable sales decreased 2.9% in Asia-Pacific, Middle East and
Africa (APMEA) compared to 1.1% growth in the year-ago month. The
region was hurt by the outbreak of avian flu in China and
continued sluggish performance in Japan. Performance in the
Australian market was also not encouraging.
Although McDonald's has been faltering for quite some time now,
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
The turnaround in the U.S. segment in April is a ray of hope.
Some of its new menu offerings like premium Chicken McWraps; the
Egg White Delight, which is a healthy breakfast offering; and the
addition of blueberry pomegranate smoothies to McCafe line could
stir up comps during the second quarter of 2013.
However, this Oak Brook, Ill.-based chain is still vulnerable to
a fragile macro economy. The company has little pricing power in
Europe due to wavering consumer confidence. We expect
Asia-Pacific to lag in the near term due to the persistent crisis
in Japan and the outbreak of avian flu in China.
McDonald's currently retains a Zacks Rank #3 (Hold).
Other players in the same industry, which look attractive at
current levels, include
The Wendy's Co.
The Cheesecake Factory Inc
Burger King Worldwide Inc.
). While Wendy's carries a Zacks Rank #1 (Strong Buy), Cheesecake
Factory and Burger King carry a Zacks Rank #2 (Buy).