) announced a tepid set of results, bogged down by weak comparable
store sales and unfavorable currency conversions. Total revenues
grew 1% to $7.1 billion while net income rose 4% to $1.4 billion.
McDonald's posted growth of 1% in its same-store sales.
The weak macroeconomic environment in Europe and the negative
impact of a weak yen in Japan are hurting sales. Moreover, the
management pointed out that the results for the remainder of the
year are " expected to remain challenged." McDonald's shares dipped
2.5% after the earnings release.
Comparable sales, or same-store sales, is an important measure
to gauge a restaurant's performance since it only includes the
restaurants open for more than a year and excludes the effect of
See full analysis for McDonald's Corporation
For the second quarter, the reported company-operated margins
declined 50 basis points to 17.7%.McDonald's derives almost 40% of
its sales from Europe and a weak economic climate in the region
does not bode well for the company's profitability. Furthermore, an
excessive reliance on value meals such as Dollar meals is hurting
the restaurant chain's margins in the U.S. For 2013, we expect the
company-operated margins to decline 40 basis points due to weak
We expect the cost of raw materials to rise at a moderate rate
of 1.5-2.5% in the U.S. and 2-3% in Europe while other expenses
such as selling, general and administrative expenses are expected
to remain flat.
The company's franchisee margins were under pressure due to a
weak yen. McDonald's has about a tenth of its stores in Japan and a
weak yen translates back to a fewer dollars, thereby impacting the
margins negatively.McDonald's franchised margins generally tend to
remain in a narrow range since the company doesn't have to incur
food and labor expenses for such restaurants.
Global Expansion On Track
McDonald's has more than 33,000 restaurants globally of which
about 80% are franchised. The company will be spending a
whopping $3.1 billion in 2013 to add 1,200 new stores and refurbish
1,600 of its existing ones. McDonald's still has a low penetration
in China, India, Russia and even Eastern Europe and the restaurant
chain will be looking to bolster its presence in developing
Increasing westernization, fueled by rising disposable incomes,
is boosting the demand of fast food chains in emerging markets.
Despite its ubiquity, we estimate that McDonald's be able to add
annually for the next few years.
We have revised our price to $99 price estimate for
McDonald's, which is in line with the current market price.
a Company's Products Impact its Stock Price at Trefis