Rebound In McDonald's Comps Continues To Accelerate

Following checks with several U.S. franchisees of McDonald's Corporation MCD, Credit Suisse’s Jason West said same-store sales appear to have accelerated further through March to-date.

The analyst maintained an Outperform rating on the company, with a price target of $137.

Accelerating Comps

“We spoke to several MCD US franchisees to gauge sales trends in 1Q to-date. Our last round of checks in late Dec. suggested that US SSS (same store sales) had bottomed in Oct. and accel. through Dec,” West mentioned.

The latest checks suggest that while U.S. system same-store sales remained flattish in January, they accelerated to the low single digits in February, a trend that continued in the first half of March.

Accordingly, the Q1 2017 U.S. same-store sales estimate was raised from -2.0 percent to +0.5 percent.

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Key Drivers

“Key sales drivers cited by franchisees incl.: (1) expansion of Big Mac platform (launched nationwide in ~late Jan.), (2) $1 drip coffee/$2 McCafe promo and (3) local McPick 2 deals,” the analyst stated.

However, winter storm Stella adversely impacted sales among franchisees in the Northeast, even resulting in store closures in some places.

West expects the storm to have impacted U.S. system same store sales only by about 50 bps in March and 15-20 bps in Q1.

“We are raising our 2017/2018 EPS to $6.08/$6.54 (from $6.01/$6.46), driven by (1) higher US SSS for 1Q, (2) higher Foundational segment SSS (cont. strength in Japan), (3) increased buybacks due to recent debt issuance, and (4) slight f/x improvement,” the analyst added.