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Despite relatively strong labor market data and the Bloomberg Consumer Comfort Index rising to a five-year high, top line trends in the restaurant industry remain choppy, at best.

First, Knapp reported weak casual dining sales and traffic trends for July, and now, underlying trends in the July sales numbers reported by MCD confirm that the company continues to struggle amidst a difficult macro and increasingly competitive environment.

This morning, MCD reported July system-wide and global same-store sales growth of +1.6% and +0.7%, respectively.  While these results appear positive relative to expectations, the two-year average trend for global same-store sales was a mere +0.4%, representing a sequential decline of -230bps from June.  Perhaps more importantly, we believe that the current level of system-wide sales growth is below what the company must generate in order to hit estimates for the quarter.


Segment Breakdown

While expectations were for flat July same-store sales growth in the U.S., the region surprised to the upside by increasing +1.6%.  The two-year average, however, moved lower by -60 bps sequentially to +0.8%.

Europe same-store sales disappointed, contracting -1.9% versus expectations of +0.1% growth in the region.  On a two-year average basis, Europe sales moved lower by -390 bps sequentially to -1.3%.

The APMEA segment continues to struggle, posting same-store sales of -1.9% versus expectations of -0.7%.  And, on a two-year average basis, the region fell -400 bps sequentially to -1.7%.

In aggregate, McDonald’s July comparable sales numbers were uninspiring and consistent with our bearish thesis on the company.  Rapidly decelerating sales trends now suggest, as we have been, that management must respond with a viable plan to improve operational efficiencies and spur long-term, sustainable sales growth.


Howard Penney

Managing Director