The aggressive value message MCD has been communicating to its consumer may have put a band-aid on sales trends in December and January but, it seems, the impact may be waning in February. We estimate that McDonald’s is likely to miss current consensus expectations by 100-200 bps in 1Q13. We are adding MCD to the short side of our Position Monitor.
As we have discussed in prior notes, the Street is anticipating an inflection point in McDonald’s sales trends in 2013. In late 2003, the aggressive push for positive comparable sales growth via the dollar menu did not fix the underlying problems with the business. The 2013 rehash of this strategy is also unlikely to work. Sustainable top line growth will be achieved through driving efficiency in the stores; this was the core objective of the Plan to Win. Changes in this regard will also address operational issues that are having a negative impact on store-level margins.
In February, the company moved fish bites onto the dollar menu to help sales gain traction in the U.S. but the consumer response has been disappointing. We are now looking for MCD U.S. same-restaurant sales trends to be down -3.5% in 1Q13 versus consensus at -1.2%.
Howard Penney
Managing Director
Rory Green
Senior Analyst