MCD is scheduled to report its February sales results before the market open tomorrow, the 8th of March.  There was no difference in the number of weekdays and weekend days in February 2011 versus February 2011. 


Below I go through my view on what sales results the Street will receive as “GOOD”, “BAD”, and “NEUTRAL” for each region.  To recall, January’s U.S. result was a mere 10 basis points above my expectation and represented a slowdown for the company’s domestic business.  I expect this slowdown to continue in February.  There is plenty of time for my thesis on MCD in 2011 to play out, so I will not be discouraged by an upside surprise in February.   I am below the Street’s estimate and would note that a miss in February may spur the sell-side to rethink expectations ahead of 1Q results.  As gas prices creep higher, putting pressure on casual dining chains, MCD may actually benefit slightly but certainly not enough to dissuade me from my bearish thesis on 2011.  After all, as I noted in last month’s sales preview, drive-thru sales are important for MCD’s sales, so any share gained from casual dining may be offset, likely depending on just how high gas prices climb.


Below I go through my take on what numbers will be received by the street as GOOD, BAD, and NEUTRAL, for MCD comps by region.  For comparison purposes, I have adjusted for calendar and trading day impacts. 



U.S. – Facing an easy +0.6% compare (there was no calendar shift in February 2010):


GOOD: A print of roughly 3% or higher would be perceived as a good result, implying that the company has improved two-year average trends from January.  I believe that any improvement in two-year average trends would be met positively by investors.  I believe a result in the NEUTRAL range – closer to the lower end of roughly 2% - is most likely.  To reiterate, I expect a greater proportion of the slowing in top line trends that I have projected for the U.S. business in 2011 to take place after compares step up in difficulty from March onward.  At that stage, I expect a more obvious divergence to emerge between my projections and those of the sell-side.  Of course, weak results tomorrow may precipitate a correction in Street expectations ahead of 1Q results but, given the darling status currently enjoyed by MCD on Wall Street, I anticipate some stickiness in current consensus.


NEUTRAL: Roughly 2% to 3% implies two-year average trends that are approximately in line with the calendar-adjusted two-year average trend in January.  I would add that, in reality, a result towards the lower end of this range will not be received well and that is where I expect the U.S. comp to come in. 


BAD: Below 2% would imply a significant deceleration in two-year average trends on a calendar-adjusted basis.  Headline comps for the U.S. were low for December and January with similarly easy compares.  A further deceleration in two-year average trends would likely call into question the direction of the U.S. business for 2011.


MCD: FEBRUARY SALES PREVIEW - mcd preview february



Europe – Facing a compare of +5.4% (there was no calendar shift in February 2010):


GOOD:  A print of approximately 6% would imply two-year average trends significantly higher than those see in December and marginally better than the strong two-year average trends in January.  An improvement, or even maintenance, of trends from January would be well-received given that the compare in February is significantly more difficult than that of January.


NEUTRAL: Between roughly 5% and 6% would imply a two-year average trend slightly below January’s trend.  While a deceleration is usually received negatively, a slowdown is almost expected following a sharp gain in two-year average trends in January. 


BAD: Below 5% would imply trends significantly below January’s and, while I believe some allowance will be made for a deceleration given the improved levels of two-year average trends on an absolute scale, the perception of January’s Europe result as being anomalous will likely drag sentiment.



APMEA – Facing a difficult 10.5% compare (there was no calendar shift in February 2010):


GOOD:  Any positive same-store sales result from APMEA would be well-received by investors.  Given the difficulty of the compare from February 2010, +10.5%, a same store-sales print of roughly 0.0% would imply two-year average trends approximately in line with January’s result.   Additionally, a third consecutive month of strong two-year average trends flowing November’s disappointing number would bolster confidence in the APMEA business.


NEUTRAL: Between -1% and 0% would imply two-year average trends roughly in line with January. 


BAD: Below -1% would obviously look bad from a headline perspective but, also, on a two-year average basis, this would imply a significant deceleration in two-year average trends from January.



Howard Penney

Managing Director

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more