Conclusion: Same-store sales growth held up in the U.S. but trends slowed in Europe and seemingly fell off a cliff in APMEA.  I think it is only a matter of time before trends slow in the U.S. as well, particularly as comparisons get more difficult come March 2011.


McDonald’s reported its November sales trends this morning, posting +4.9% comp growth in both the U.S. and Europe and +2.4% comp growth in its APMEA segment.  Relative to the ranges we provided in our preview note yesterday, we would characterize the U.S. results as GOOD and both Europe and APMEA results as BAD.  I would call the November trends in APMEA really BAD.  Looking at these reported results in terms of the street’s estimates, same-store sales growth in the U.S. came in just below the expected +5.1% growth, Europe was in line and APMEA again, missed by a wide margin relative to the street’s 6.4% estimate.


Relative to the fourth quarter, MCD also reported today that as a result of current foreign exchange rates that currency translation is expected to negatively impact earnings by $0.01 to $0.02 per share.


U.S.:  I was expecting comp trends to again slow in the U.S. in November, after decelerating in October about 250 bps on a two-year average basis from the prior month (adjusting for calendar and trading day impacts).  Instead, two-year average trends improved an impressive 140 bps from October levels.  Despite these improved trends, the reported two-year average growth of about 3.2% (again, on a calendar adjusted basis) remains below levels reported during July, August and September.  I would expect this lower level of growth to continue to be the trend in the colder months as I do not think sales of hot McCafe beverages will make up for the considerable slowdown in frappe and smoothie sales. 


Europe:  Although the +4.9% comp growth was in line with street expectations, I view the November results as BAD as they point to another month of sequential deceleration in two-year average trends after a strong September (adjusting for calendar and trading day impacts).  Two-year average trends slowed about 40 bps in November after declining about 60 bps in October.  Furthermore, two-year average growth fell below 5% in November, which, with the exception of August, has not happened since February.


APMEA:  The reported +2.4% comp growth in APMEA was both surprising and disappointing as it implies a 230 bp deceleration in two-year average trends from the October level, which had already slowed about 160 bps from September (adjusting for calendar and trading day impacts).  On a one-year basis, the +2.4% growth is the lowest reported result since December 2009.  On a two-year average basis, however, the +1.8% growth pales in comparison to the more typical +5% growth reported on average in 2010.  Prior to November, APMEA reported its lowest two-year average growth of 2010 in June (+3.5%).



Howard Penney

Managing Director

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