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McDonald's Comps Fall 0.3% in May, Lower than Expected - Analyst Blog

Burger giant McDonald's CorporationMCD recently posted lower-than-expected comparable sales (comps) decline for the month of May 2015. Comps for the month of May fell only 0.3%, lower than analysts' expectation of a decline of 0.9% as well as April comps decline of 0.6%. Comps decline in the Asia/Pacific, Middle East and Africa (APMEA) region and U.S was overshadowed by recovery in Europe.

However, this marked the 12th straight monthly drop. Moreover, comps compared unfavorably with comps growth of 0.9% in the year-ago month, which indicates that the company has not been able to reap the full benefits of its turnaround efforts.

Beginning July, the company will begin reporting through its new segments. Moreover, the company will provide its June comps along with its second quarterly results in July. Thereafter, it will no longer provide monthly sales data.

Europe

Comps in Europe went up 2.3% that compared favorably to comps growth of 1% in May and 0.4% growth in the year-ago month. Strong performance in the UK and a slightly positive performance in Germany and France were partly offset by slightly unfavorable results in Russia. As market dynamics remain challenging, the company continues to focus on driving sales and guest count by providing promotional offers, aggressively pursuing growth opportunities within the family and breakfast businesses and advertising its core and premium products.

Asia/Pacific, Middle East and Africa (APMEA)

The region continued to remain a weak link for the company. Comps declined 3.2%, comparing unfavorably with comps growth of 2.5% in the year-ago period. Continued challenges in Japan and negative performance in China due to the food safety issues since Jul 2014 were partially offset by strong performance in Australia. However, comps compared favorably with comps decline of 3.8% in Apr 2015.

U.S.

Despite the company's efforts, domestic market comps tumbled 2.2% in May - marking the fourth consecutive monthly decline. Though it was better than a decline of 2.3% in Apr 2015, it compared unfavorably with 1% decline in the year-ago period due to lower traffic. The downside also reflects an extremely competitive environment as some food chains provide healthier options and fresh ingredients compared to the processed food offered by McDonald's.

Turnaround Plans - The Last Resort

Newly appointed Chief Executive Officer (CEO) Steve Easterbrook has said, "Turning around the U.S. business is a "burning priority" for McDonald's". The company has taken initiatives to reinvigorate sales. From trimming complicated menus to speeding up service to testing customized burgers and sandwiches to competing with other popular restaurants, the company is leaving no stone unturned to regain consumer confidence at all its key operating regions. In fact, just after his appointment, Easterbrook announced the company's plans to stop serving chicken treated with antibiotics at its U.S. restaurants within the next two years. Recently, the company also announced the restructuring of its worldwide operations and increased franchising.

However, as per market analysts, the U.S. turnaround will take time and therefore they do not project a material change in sales trends in the near term. We therefore need to wait and see when these initiatives turn around the fortunes of this Zacks Rank #3 (Hold) company.

Stocks to Consider

Some better-ranked stocks in the restaurant industry include Restaurant Brands International Inc. QSR , Dave & Buster's Entertainment, Inc. PLAY and Zoe's Kitchen, Inc. ZOES . All these stocks sport a Zacks Rank #1 (Strong Buy).

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MCDONALDS CORP (MCD): Free Stock Analysis Report

RESTAURANT BRND (QSR): Free Stock Analysis Report

DAVE&BUSTRS ENT (PLAY): Free Stock Analysis Report

ZOES KITCHEN (ZOES): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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