McDonald's (MCD) said its comparable sales in February were negative for the third time in five months, extending a run of subpar showings for the fast-food chain going back to the second half of last year.
Even the adjusted results that exclude an extra day in 2012, which would haven given McDonald's a positive reading, aren't particularly impressive when viewed in the context of the past half-decade. During that time, sub-2% numbers were almost unheard of, until recently.
Last month, global same-store sales fell 1.5%, the second consecutive decline in a critical measure for the Oak Brook, Ill.-based burger and fries (and, of course, salads, shakes and Fish McBites) seller. The U.S. was down 3.3%, and Europe was off 0.5%. The Asia-Pacific, Middle East and Africa region saw comps fall 1.6%. The overall change was better than the consensus estimate of a 1.6% drop. As noted, the decrease was influenced by the comparison with a year ago. February in the prior year took place during a leap year, giving McDonald's an extra day of sales and making that month the second-strongest of 2012, up 7.5%. Without that added day, comp sales would have climbed 1.7% this time around.
Traders were fine with all this, lifting the stock 1.5% to $98.53, a percentage gain that made McDonald's the top performer on the Dow Jones Industrial Average for the session Friday.
However, even using that normalized figure, going back five years shows that only two of the positive months for McDonald's have had less growth. One of those was February 2009, which, like the just-reported month, was up against a leap year. Four years ago, McDonald's still managed to raise comps 1.4% from what is the strongest of the 62 months tracked in the chart below. In February 2008, same-store sales surged 11.7%, thanks to the added day vs. 2007. Here, it also should be noted that, in February 2009, were the year-over-year comparisons identical, same-store sales would have risen 5.4%, three times the rate of this year. The worst showing for a positive, non-leap month of the past five years was November 2009, with same-store sales gaining 0.7%. [For a larger view, click on the chart below.]
Source: McDonald's company reports, SEC filings.
Every month is different, every year is different. The point is that, on a longer-term trend line, McDonald's is failing to keep up with the results it produced for a very long and impressive stretch. Those sales certainly contributed to giving it the best stock appreciation on the Dow from February 2007 to February 2012, when it advanced more than 100%.
In the eight months back to last July, McDonald's has recorded three negative months, two that were flat, and three positives, making for the weakest stretch of that length in the survey. Until comps were negative in October, one had to search nearly 10 years to find the last underwater month.
Comparable sales include company-owned and franchised stores open at least 13 months, and the figure excludes currency translation. It is a measure of diner counts and the size of the average bill. Systemwide sales, which include sales at all restaurants, slipped 0.9% but would have increased 1.1% using constant currency rates.
Worries about spending in an uncertain economy have undoubtedly kept some consumers away recently. Competition from the likes of Burger King (BKW), Wendy's (WEN) and Yum! Brands (YUM), the owner of Taco Bell, Pizza Hut and KFC, have kept McDonald's on its toes pricing-wise, but no one should pretend they weren't there before. In the months ahead, the company will start to get easier comparisons. That's when it gets to incorporate the sluggish late 2012 numbers in its reports. It needs to deliver and use this to its advantage. Other restaurant chains aren't going to disappear, and it's a stretch to think the average McDonald's eater is going to feel flush with cash between now and year-end.
In other words, McDonald's has to produce positive results with growing sales if investors are going to keep feeling generous about the stock. There's no leap year to compare to in October.
Agree? Disagree? What are your thoughts on McDonald's comp sales and stock price?