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Is McDonald's Back on Track?

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After a dismal performance so far in the year, McDonald’s Corp.’s (MCD - Free Report) same-store sales (comps) increased in May as the world’s biggest burger chain witnessed positive comps growth in all three geographical segments – U.S., Europe and Asia/Pacific, Middle East and Africa (APMEA).

Among the three, the U.S. segment led the positive momentum. Menu-innovations, value-options and breakfast offerings did the trick across the globe. The recent upside came as a pleasant surprise, although the rate of growth was lower than the year-ago level in the U.S. and Europe. The persistent global economic turmoil and peer pressure led to the year-over-year decline in comps.

Global comps grew 2.6% in May 2013 as against 0.6% decline in the previous month and 4.4% growth in the year-ago month. System-wide sales were up 3.6% and 5.2% in constant currencies in the month under review.


In the United States, comps advanced 2.4% compared with 4.4% growth recorded in May 2012 and 0.7% growth in Apr 2013. Sustained focus on value menu, solid breakfast offerings, and a variety of chicken options bolstered the comps.

The new menu including Egg White Delight sandwich, which is a healthy breakfast offering and the premium chicken McWraps delighted consumers. Strategic expansion of its four pillars – chicken, beef, breakfast and beverages helped the Oak Brook, Ill.-based company drive sales.


In Europe, comps grew 2.0% compared to an increase of 2.9% in the year-ago period and a decline of 2.4% last month. Strong performances in UK and Russia were partially offset by a rather tepid show in Germany and France.

Summer-time promotions featuring premium burgers and specialty menu options in UK and Russia were the high points in the month. Also, value messaging and the breakfast lineup enjoyed their share of success.


Unlike U.S. and Europe, growth in APMEA was meager with just 0.9% increase. However, on a year-over-year basis, comps bounced back from the last year’s decline of 1.7% and last month’s fall of 2.9%. Decent performance in a number of markets offset the avian flu-ridden weak Chinese performance. Japan was flat in the month as the country is still recovering from the aftermath of last year’s earthquake with consumers dining out less frequently.

Our Take

Although McDonald’s has been faltering for quite some time now due to fragile macro economy, changing eating habits and cutthroat competition, we still believe that the company has strong value. It is consistently striving to bounce back amid a challenging macroeconomic environment by resorting to value-proposition and menu innovation.

With two major regions including the U.S. and Europe gaining considerable growth momentum, things are looking up for McDonald’s. The burger chain is also taking every required step to score on profits as well. The recent elimination of the Angus burgers from the U.S. menu in the wake of escalating beef prices is such an attempt.

Currently carrying a Zacks Rank #4 (Sell), McDonald’s is slowly but steadily moving in a positive direction and might breeze past investor expectation in its second quarter of 2013, results of which are expected on Jul 22.

Other players in the restaurant industry, which look attractive at current levels, include The Wendy’s Co. (WEN - Free Report) , The Cheesecake Factory Inc (CAKE - Free Report) and Burger King Worldwide Inc. , all carrying a Zacks Rank #2 (Buy).


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