) witnessed a 3.3% upside in global comparable sales (comps) for
the month of May that nudged up from the year-ago level of 3.1% but
remained flat sequentially.
The fast-food restaurant operator witnessed a relatively upward
movement in two geographical segments namely the United States and
the U.K. on a yearly basis. While the United States and the Europe
performed managed to surpass year-ago performance, the
Asia/Pacific, Middle East and Africa (APMEA) region was the main
laggard in the month, recording a decline in comps.
In the United States, comps grew 4.4%, quite higher than 2.4%
recorded in May 2011. The comps in May 2012 were buoyed by strong
customer demand for the newly launched Blueberry Banana Nut
Oatmeal. Core offerings like breakfast menu, the McCafe beverage
line-up, especially the Cherry Berry Chiller along with everyday
value-menu were the other major contributors in the month.
Europe saw a growth of 2.9% as opposed to 2.3% in May 2011. The
growth was backed by stronger performance in the U.K., France and
Russia offset somewhat by a weaker show in Germany. The efficient
mix of premium as well as value-menu and a restaurant reimaging
program were responsible for the month's performance.
The reported month's comparable sales dropped 1.7% in APMEA
versus a growth of 4.3% in the year-ago month. A somewhat healthy
performance was palpable primarily in Australia. However, Japan
continues to be a dampener in the month. Slowdown in China also
accounted for lackluster performance in APMEA. Continued focus on
daypart value options, variety in menu as well as locally relevant
items are the strategies McDonald's is using in APMEA.
System-wide sales increased 1.2% (5.6% in constant currencies)
in the month under review.
The Oak Brook, Illinois-based company's recent comps performance
were not on par with investors' hope. Management noted earlier that
Japan's results were not smooth as the country continues to recover
after last year's natural calamities and consumers are less dining
According to management, the company is caught up with
difficulties like implementation of austerity measures in Europe,
increasing commodity costs in the US and decelerating growth in
Asia. McDonald's has so far efficiently endured the recent economic
turmoil in Europe. However, management believes the implementation
of austerity measures will now put pressure on its top and bottom
lines. With the focus on value proposition along with less pricing
power, margins will likely be hassled, going ahead. In addition,
high levels of unemployment are projected to continue in the
The apprehension can be validated by the cut in analysts'
estimate for the upcoming quarter as well as fiscal year's
earnings. Over the last 7 days, 5 out of 23 analysts deducted their
estimates while 6 out of 25 analysts cut the same for fiscal 2012.
No upward movement in estimates was seen in that period.
McDonald's currently retains a Zacks #3 Rank (short-term Hold
rating). We are maintaining our long-term Neutral 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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