McDonald’s Loses Momentum

McDonald’s Corporation’s (MCD - Analyst Report) comparable sales growth lost momentum in the month of August 2009. After increasing 4.3% in the month of July, the rise in comps was restricted at 2.2%, exposing its sensitivity to rising unemployment, the economic downturn and the discount war amongst fast-food chains to lure consumers. Last year, comps had increased 8.5% in the month of August.

System-wide sales for the company’s worldwide restaurants climbed 1.1% for the month of August, after falling 0.3% in July. However, in constant currencies, the rate of increase in system-wide sales dipped to 4.1% from 6.2% in the month of July.

In the United States, comparable sales rose 1.7% in August (versus 4.5% increase last year for the comparable month), boosted by new product offerings -- new Premium products like Angus Third Pounders and Dollar Menu products like the Big Mac and McCafe premium coffees. However, the rise in comps for the month of August slid from 2.6% reported in July.

In Europe, comparable sales jumped 3.5% in August (versus 11.6% increase last year for the comparable month) driven by strong performance in the U.K., Russia and France. However, the rate of increase in comps decelerated. Earlier, in July, comps rose by 7.2%.

Comparable sales in APMEA fell 0.5% in August (versus 10.0% increase last year for the comparable month) adversely affected by China and Japan, but largely offset by robust performance in Australia. Earlier, comps had increased 2.1% in the month of July.

However, McDonald's and other fast-food restaurants, like Burger King Holdings (BKC), Krispy Kreme Doughnuts (KKD - Snapshot Report), Yum! Brands (YUM - Analyst Report), Papa John's International (PZZA - Snapshot Report) and Chipotle Mexican Grill (CMG - Analyst Report) are faring better than casual and upscale dining restaurants, as cash-strapped consumers are trending towards lower-priced dining options.

However, on a broader perspective, rising job losses have weighed on the restaurant industry, as consumers have now become more sensitive towards economic conditions. The current data reveals that the U.S. unemployment rate jumped to 9.7% in August from 9.4% in July.

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