After a relatively decent performance in the fourth quarter of
2012, same-store sales (comps) at
) dipped in Jan 2013, as expected by management. Apart from the
persistent global economic turmoil and peer pressure, a tough
year-over-year comparison resulted in the comps decline.
McDonald's witnessed a downward movement in all its
geographical segments apart from the U.S. on a yearly basis,
especially in Asia.
Comps at McDonald's dipped 1.9% in Jan 2013 as against 6.7%
growth in the year-ago quarter. System-wide sales inched up 0.3%
and 0.7% in constant currencies in the month under review.
In the U.S., comps advanced 0.9% compared with 7.8% growth
recorded in Jan 2012. Sustained focus on value as well as premium
menu, breakfast offerings and the inclusion of the new Grilled
Onion Cheddar burger to the Dollar Menu pushed up the comps.
In Europe, comps slumped 2.1% compared with an increase of
4.0% in the year-ago period. Strong performances in U.K., and
Russia were overshadowed by a much weaker show in Germany, France
and some other markets.
Comparable sales plunged 9.5% in Asia-Pacific, Middle East and
Africa (APMEA) as against 7.3% growth in the year-ago month.
Japan continues to be a dampener as the country is still
recovering from the aftermath of last year's earthquake with
consumers dining out less frequently.
China made things worse for the company during the month. The
shift in timing of the Chinese New Year from the prior-year
quarter and the negative perception of the consumers about the
quality of food offered by U.S restaurateurs dragged down January
Notably, in Dec 2012, another U.S.-based eatery
Yum! Brands Inc.
) faced an allegation regarding the quality of chicken supplied
to its KFC unit. Although food safety regulators in Shanghai
cleared Yum!, McDonald's apprehends the incident shattered
consumer confidence about the quality of food offered by U.S.
restaurateurs. In fact, decent performance from Australia could
not contain the downward drift of the APMEA comps.
Going forward, management expects comps to suffer by
approximately 3 percentage points in February since there was one
extra operating day in the year-ago period due to the leap year.
However, Chinese New Year should act as a tailwind in February
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.
The company's future menu innovations that are expected to hit
the market in 2013 include Fish McBites, new beef and chicken
products, a revamped breakfast menu as well as beverages.
BURGER KING WWD (BKW): Free Stock Analysis
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YUM! BRANDS INC (YUM): Free Stock Analysis
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One of the company's recent products, "Mighty Wings", currently
on a test run, can see a national rollout in the near future.
This is expected to provide the company with a shot in the arm.
However, McDonald's is still vulnerable to a fragile macro
economy. 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.
McDonald's currently retains a Zacks Rank #3 (Hold).
Some restaurateurs that are worth a look at the current level
The Cheesecake Factory Inc.
Burger King Worldwide Inc.
) with a Zacks Rank #2 (Buy).