MCD SALES PREVIEW

McDonald’s will release sales tomorrow before market open.

McDonald’s remains one of our favorite stocks in the restaurant space as the company continues to outmatch the competition in the United States (where the company derives almost 45% of its operating income) as it executes on its remodel program. 

Within the earnings, we will be focusing on management’s forward looking statements around 2012 guidance; in particular, commodity basket inflation and any update on capex related to the reimaging program for the next 12-24 months.  While additional pricing may need to be added to help the company absorb inflation, we expect December comps to impress once again and the top-line remains the primary focus for investors.

Below we go through our take on what numbers will be received by investors as good, bad, and neutral MCD comps numbers by region.  For comparison purposes, we have adjusted for historical calendar and trading day impacts (but not weather).

Compared to December 2010, December 2011 had one less Wednesday and one additional Saturday.  We expect a slight positive calendar shift as a result.

U.S.: facing an easy compare of +2.6%, including a calendar shift of between +0.4% and 0.7%, varying by area of the world and a negative impact of -2% related to weather:

GOOD:  A print of 8% or higher would be received as a good result.  Despite implying sequentially lower same-store sales on a two-year average basis, an 8% print would be a positive headline number and would beat consensus of 6.5% by a significant margin.  We believe that the company continues to capture share in the domestic business and macro trends in the U.S. from December point to a continuation of the positive momentum in MCD U.S. sales.   Our estimate is +8%.

NEUTRAL: A print of 7-8% would be received as a neutral result given that, on a calendar-adjusted basis, it would imply a significant sequential decline in two-year average trends while still coming in slightly above consensus.  With the stock having traded up 15% during 4Q11, investors are pricing in a strong top line and we believe that consensus is conservative for December U.S. comps.

BAD:  A result of less than 7% would disappoint investors as it would imply the lowest calendar-adjusted two-year average trends since May.  And the steepest sequential decline in calendar-adjusted two-year average trends since December 2010 (which was largely caused by weather).

MCD SALES PREVIEW - mcd sales chart

Europe: facing an easy compare of -0.50%, including a calendar shift of between +0.4% and 0.7%, varying by area of the world and a negative impact of -2% related to weather:

GOOD: A print of 11% or higher would be received as a good result for MCD Europe.  We are setting the bar a little higher than the Street, which is at +8.4%.  Our estimate for December is +11%.

NEUTRAL: A result of between 9% and 11% would be received as a neutral result for Europe as it would imply a print just above consensus but also a sequential decline in calendar-adjusted two-year average trends. 

BAD: A print of less than 9% would imply a steep decline in calendar-adjusted two-year average trends.

APMEA: facing a difficult compare of +8.90%, including a calendar shift of between +0.4% and 0.7%, varying by area of the world:

GOOD:  A result above +4.5% would be received as a good number as it would imply a sequential acceleration in calendar-adjusted two-year average trends. Our estimate is 4%.

NEUTRAL: A print of between 3.5% and 4.5% would be received as a neutral result as it would imply calendar-adjusted two-year average trends.

BAD: A print of less than 3.5% would imply a deceleration in calendar-adjusted two-year average trends.

Howard Penney

Managing Director

Rory Green

Analyst