) witnessed global comparable sales (comps) growth of 3.7% in
August 2012, as against the year-ago level of 3.5% and a flat
performance in the previous month. The fast-food restaurant
operator witnessed a relatively upward movement in all geographical
segments except the United States on a yearly basis.
The improved performance was led by easy comparison as well as
focus on value options along with some premium products and
reimaging program. System-wide sales nudged up 1.2% but grew 6.2%
in constant currencies in the month under review.
In the United States, comps growth of 3.0% was less than 3.9%
recorded in August 2011. Continued focus on value menu helped drive
segmental revenue. However, comps in the reported month were hit by
the persistent economic turmoil.
Europe witnessed a growth of 3.1% compared with 2.7% in August
2011. Stronger performances in UK, France and Russia were partially
offset by a weaker show in Germany and most of the Southern
European markets. UK benefited from the London Olympics. However,
German traffic still remains extremely value sensitive in a
cutthroat competitive setting.
The reported month's comparable sales surged 5.7% in APMEA
versus a decline of 0.3% in the year-ago month. China and Australia
put up a somewhat healthy performance in APMEA. Continued focus on
daypart value options, variety in menu as well as locally relevant
items tried to drive the segment. Moreover, the favorable impact
from the shift in timing of Ramadan in July led to an easy
comparison. Ramadan was entirely in August last year.
However, Japan continues to be a dampener as the country is
struggling to recover from the after-effects of last year's natural
calamities restricting consumers to dine out.
After a discouraging comps performance for quite some time, Oak
Brook, Illinois-based McDonald's seems to inch forward towards
improved results. Although emphasis on extra-value proposition and
easy comparison benefited its monthly performance to a great
extent, we remain impressed with the company's consistent efforts
to emerge out of its tough time. Its recent announcement of posting
calorie content on restaurant and drive-through menus to attract a
more health-conscious traffic is one such effort.
However, we prefer to remain on the sidelines until we find some
evidence of continued same store sales momentum. Besides, we
believe that it will be difficult to maintain the impetus as the
company will lap much stronger year-ago comps in late 2012.
Management had also noted that some of its measures are
short-term and could prove detrimental to margins if exercised on a
long-term basis. With the focus on value proposition along with
less pricing power and increasing investments towards media,
margins will likely suffer, going ahead.
Presently, the company has little pricing power in Europe due to
the wavering consumer confidence and shrinkage in the Europe's IEO
industry. In Europe, the company will overlap lower pricing in the
latter half of the year with year-ago level price increases.
In the U.S. too, the inflationary environment constricts the
company's ability to exercise pricing action due to an increasing
food-away-from-home inflation index.
Hence, the implementation of austerity measures in Europe owing to
the sovereign debt crisis, commodity cost inflation in the U.S.,
decelerating growth in Asia and currency headwinds compel us to
have a bearish outlook on the stock, at the current level.
McDonald's currently retains a Zacks #3 Rank (short-term Hold
rating). We are maintaining our long-term Underperform
recommendation on the stock. The company's competitors include
The Cheesecake Factory Inc.
Yum! Brands Inc.
CHEESECAKE FACT (CAKE): Free Stock Analysis
MCDONALDS CORP (MCD): Free Stock Analysis
YUM! BRANDS INC (YUM): Free Stock Analysis
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