International Markets Drive McDonald's April Comps - Analyst Blog

McDonald's Corporation's MCD comps grew 1.2% for the month of April, in line with management's expectation of modestly positive comparable sales (comps) provided during the first quarter earnings call. The increase was much better than a decline of 0.6% in the year-ago period. The improved comps reflect a good show in international markets, partially offset by a sluggish performance in the U.S.

U.S.

Comps in the domestic market remained flat year over year, which compared unfavorably with an increase of 0.7% in the year-ago period owing to difficult economic conditions, marked by a sluggish job environment and stiff competition.

Moreover, the introduction of too many items over the past year has complicated kitchen operations, thereby resulting in slower service and inaccurate orders. This resulted in lower footfall.

Meanwhile, according to Investment Technology Group, fewer customers visited McDonald's as its outlets offered very few items valuing less than a dollar. The company had raised prices last year by changing its "Dollar Menu" to the "Dollar Menu & More" in 2013.

The region had been posting year-over-year declines over the past few months. However, flat comps this past month could be seen as a turnaround driven by the company's focus on providing quality food and outstanding service to its customers. McDonald's has a strong breakfast lineup. Currently, the company is trying to boost breakfast revenues by introducing variations of items already on its menu instead of making new offerings. For a part of the month, the company offered a free coffee promotion. Meanwhile, it introduced new Clubhouse burgers and chicken sandwiches.

Like McDonald's other restaurant chains like Burger King Worldwide Inc. BKW, The Wendy's Company WEN and Yum! Brands, Inc. YUM are also busy introducing new items and achieving operational excellence in order to improve traffic trends.

Europe

Comps in Europe were up 0.3%, better than the year-ago decline of 2.4%. Comps in Europe benefited from strong performances in U.K. and France, which were largely offset by the ongoing weakness in Germany. The company continued with its strong promotional performance, menu innovations and growth at breakfast, which contributed to the segment's results.

Asia/Pacific, Middle East and Africa (APMEA)

Comps at APMEA were up 2.9%, far better than the year-ago decline of 2.9%. Strong results in China and Australia, mainly due to easy year-over-year comparisons drove the results. This was partially offset by the ongoing weakness in Japan.

Our Take

International markets made up for the sluggish comps in the domestic market, thereby leading to positive comps for the month. At its first quarter earnings call, the company indicated that it continues to see significant growth potential throughout APMEA. The company intends to register growth in this region by increasing restaurant visits, providing value, innovating new menu items, re-imaging its restaurants and market campaigns. It seems that the company is trying to offset weakness in the domestic market with growth in overseas markets. However, one cannot ignore the weakness in the U.S. economy, which is affecting consumer confidence. McDonald's presently has a Zacks Rank #3 (Hold).

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