The Exchange

McDonald’s: Comp Sales Seen Improving, but Still Down for 1Q

The Exchange

Shares of McDonald's (MCD) are the highest they've ever been, a fact that's especially impressive considering all hasn't necessarily been well in the land of Ronald and friends of late.

McDonald's remains a gigantic company with ample devotees, but the last few months have been a little odd for the Oak Brook, Ill., fast-food chain. That's largely because the consistently positive monthly same-store sales numbers the company turned in for nearly a decade came to an end last fall. Since the streak was halted, comparable sales have continued on a disappointing path.

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Source: McDonald's

While that trend contributed to a 12% drop in the stock last year, it clearly hasn't discouraged investors entirely, considering where the shares are now. So far this year, monthly comps have been negative for January and February, though the stock is up nearly 14% year to date, outpacing the Dow Jones Industrial Average, of which McDonald's is a component. On April 12, it closed at a record high of $103.59.

The good news for the company is that it's set to post its first positive comp sales reading in 2013 with its March data, if Janney Capital Markets is correct. The firm put out a research report ahead of McDonald's first-quarter earnings, scheduled for release Friday morning, in which it offers an estimate of 0.9% overall growth in global same-store sales for the final month of the quarter. Asia-Pacific, Janney believes, will be the top performer, with an advance of 2%.

Even so, that won't make up for the downbeat first two months of this year, leading to a negative comp showing of 0.8% for the quarter, the firm expects. (The consensus on FactSet is even worse, forecasting a 1.1% drop.) That said, Janney is a bit more upbeat about the remaining months of the year, and says shareholders have adopted a mindset that will let them look on the bright side.

"[W]e believe that investors are more prepared today than they were in September for the tough sales comparisons," the firm says.

Shareholders who have shown their loyalty for the company's approach have seen it pay off -- McDonald's shares doubled between the spring of 2007 and early 2012 -- but last year did have those rocky times. Offsetting that decline somewhat is the 3% dividend yield.

For the first quarter that will be reported in just a few hours, Wall Street is looking for sales of right under $6.6 billion and earnings of $1.26 a share. As they have been in the past, the effects of discounting and value-menu offerings likely will factor in heavily to the discussion, in particular during the conference call that will follow the release of the earnings themselves. CEO Don Thompson, who hasn't yet completed a full year at the helm, regularly details the company's "barbell" strategy of getting customers in the door with low-priced items and hoping to get them to trade up on the menu once they're there.

Investors also will get a better sense of how special, limited-time or new items such as the Fish McBites and chicken Premium McWrap -- the "Subway buster" -- performed.

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Source: FactSet. Sales in billions of $.

Don't forget, McDonald's is McDonald's. As sure as the sun rises, it's steadily building out new restaurants and marching higher into the mid-30,000s in terms of locations worldwide. Most of those are operated by franchisees, but either way, you don't go a lot of places where you're far from McDonald's.

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