Same-store sales (comps) at McDonald’s Corp. (MCD) continued to decline even in the fourth month of the year as the company witnessed a downward movement in two of its geographical segments -- Europe and Asia/Pacific, Middle East and Africa (:APMEA) -- in Apr 2013.
Persistent global economic turmoil and peer pressure resulted in the comps decline in April. Comps at McDonald’s dipped 0.6% in Apr 2013 as against 3.3% growth in the year-ago quarter. However, the decline did not come as a surprise. Management had earlier anticipated April global comparable sales to be slightly negative.
System-wide sales increased 1.9% in constant currencies but fell 0.4% on a reported basis in the month under review.
In the U.S., comps nudged up 0.7% compared to 3.3% growth recorded in Apr. 2012 with the value-menu taking precedence. The national introduction of Premium McWraps, value options and McDonald's breakfast were the month’s highlights.
In Europe, comps fell 2.4% compared to an increase of 3.5% in the year-ago period due to sluggish performance in Germany and France. Stronger performance in U.K. and Russia in debt-ridden Europe and focus on a unique premium menu, value proposition and the expansion of Europe's breakfast and restaurant operating hours could not contain the downward drift in sales.
Comparable sales decreased 2.9% in Asia-Pacific, Middle East and Africa (:APMEA) compared to 1.1% growth in the year-ago month. The region was hurt by the outbreak of avian flu in China and continued sluggish performance in Japan. Performance in the Australian market was also not encouraging.
Although McDonald’s has been faltering for quite some time now, we still believe that the company has strong value. The company is consistently striving to bounce back amid a challenging macroeconomic environment by resorting to value-proposition and menu innovation.
The turnaround in the U.S. segment in April is a ray of hope. Some of its new menu offerings like premium Chicken McWraps; the Egg White Delight, which is a healthy breakfast offering; and the addition of blueberry pomegranate smoothies to McCafe line could stir up comps during the second quarter of 2013.
However, this Oak Brook, Ill.-based chain is still vulnerable to a fragile macro economy. The company has little pricing power in Europe due to wavering consumer confidence. We expect Asia-Pacific to lag in the near term due to the persistent crisis in Japan and the outbreak of avian flu in China.
McDonald’s currently retains a Zacks Rank #3 (Hold).
Other players in the same industry, which look attractive at current levels, include The Wendy’s Co. (WEN), The Cheesecake Factory Inc (CAKE) and Burger King Worldwide Inc. (BKW). While Wendy’s carries a Zacks Rank #1 (Strong Buy), Cheesecake Factory and Burger King carry a Zacks Rank #2 (Buy).
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