MCD – PICKING FIGHTS

McDonalds is certainly not afraid of competition and some news items over the past couple of days underscore this fact.  However, if you were an executive from MCD - the world quick service leader - and you were listening to YUM's presentation last week, you would have been embarrassed at YUM's dominance in the Chinese market.  MCD is now moving into China more aggressively, seemingly picking a fight with YUM as it has with some other competitors this year. 

 

MCD has outperformed its competitors on a top-line basis by providing compelling value and also offering innovative product which drives incremental sales.  Often this involves stepping into the domain of competitors but MCD has done this with some success of late.

  • Frappes and smoothies were a homerun for MCD during the summer months and were a significant reason why the rest of QSR struggled to keep up in 3Q
  • As I wrote in a note entitled “CMG: IN MCD’S CROSSHAIRS?” in September, MCD has been testing a larger burrito-like version of its Chicken Snack Wrap which could take share from CMG as a more affordable alternative
  • News emerging last night of MCD’s increasing growth in China by 40% next year.  YUM has a formidable system established in China but MCD clearly is seeking a share of the growth that YUM is touting in China
  • This morning news hit the tape that MCD will launch delivery on a trial basis in Tokyo and expand if the test succeeds.  The service will initially be rolled out in Japan.  Globally, McDonalds delivers in just 18 countries and this could indicate the beginning of a broader expansion.  YUM highlighted the success of their delivery service in China during their recent Analyst Day in New York.

This past month MCD's 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.  While we are refining the model it continues to look like MCD could fall out of "Nirvana" (same-store sales positive and margins expanding) in 1Q11, for the first time since 1Q09.

 

So far in December, MCD's USA same-store sales have slowed sequentially from the levels seen in November.

 

MCD – PICKING FIGHTS - MCD matrix

 

Howard Penney

Managing Director


Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more