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    MARKET EDGES

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Today, McDonald’s reported global SSS of 6.0% in April, vs. 4.0% consensus estimate.  The US, Europe, and APMEA were up 4.0%, 6.5%, & 6.5%, respectively.  Every region was ahead of consensus of 3.3%, 5.1%, and 2.7%, respectively.  This month’s sales were helped by a 1% calendar shift and 1-2% of pricing taken in the first quarter. 

Our bearish thesis on MCD has been predicated on a slowing in the U.S. business which has not – as yet – materialized.  The strength in the USA comes on the heels of a strong year in 2010 and no new product momentum.  While MCD is not out of the woods yet, the momentum going into summer is far stronger than we had modeled.  However, the summer is the period where the validity of my bearish thesis will ultimately be determined. 

The U.S. business, on a calendar-adjusted basis, saw a slight deterioration in two-year average trends from March.  However, the level of sales growth has now been in excess of what we were modeling for two consecutive months.  Management highlighted the popularity of the McCafe beverage line-up, including the recently introduced McCafe shakes, the breakfast menu, and core products including the Big Mac and Quarter Pounder with Cheese as key drivers of the U.S. growth.

Europe’s print was ahead of consensus and implied a sequential acceleration in two-year average trends of 50 basis points.  In spite of concerns over unemployment levels and austerity measures in Europe, MCD’s business there is continuing its robust growth rate in 2011.  Beef and chicken options, dessert offerings, and the ongoing benefit of restaurant reimaging were highlighted as key drivers of the business’ growth.

APMEA offered the  most substantial upside surprise versus consensus.  Management cited strong consumer appetite for locally-relevant menu options and compelling value as two key factors.  Many countries in the developing world are seeing food costs spiral out of control.  To the extent that MCD continues to offer compelling value by leveraging their system, the robust top-line should continue in APMEA.

MCD and its franchisees are seeking to reimage the vast majority of its U.S. stores by 2015.  We will have additional thoughts on this, and the company’s broader U.S. business, following our trip to Tampa on Thursday where we will be joining the MCD Restaurant Reimaging Tour. 

“MCD – SAYING UNCLE (FOR NOW)” - MCD US

“MCD – SAYING UNCLE (FOR NOW)” - MCD Europe

“MCD – SAYING UNCLE (FOR NOW)” - MCD APMEA

Howard Penney

Managing Director