• It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

MCD is scheduled to report December same-store sales numbers in conjunction with its 4Q09 earnings results before the market opens on Friday.  Contrary to the last two months, there should not be any significant calendar shift/trading day adjustment as December 2009 included the same number of weekends as the prior year; though Christmas did fall on a Friday in 2009 versus a Thursday in 2008.  It is important to remember that the reported numbers in December 2008 did include a calendar shift, which negatively impacted comparable sales growth by 0.5% to 3.2%, varying by area of the world.   

Taking that into consideration, I wanted to provide comparable sales ranges for each geographic segment as a benchmark of what I think would be GOOD, NEUTRAL, or BAD results based largely on 2-year average trends. 

U.S. (facing +5.0% comparison from last year; calendar shift hurt result by 0.5% to 3.2%): 


MCD removed the Double Cheeseburger from the Dollar Menu in December 2008 and raised the price to $1.19 (the Double Cheeseburger was replaced by the McDouble on the Dollar Menu). The YOY pricing favorability associated with this menu change went away in December 2009.


GOOD: Any positive result would reverse the prior two months of declines.  Looking at the October and November results together to normalize the impact of the calendar shift in both months, a positive result in December would signal a slight acceleration in 2-year average trends.  For reference, a 0.5% or better would point to a return to 3.0%-plus 2-year average trends on an underlying basis.  Although 3%+ 2-year average trends are not that impressive for MCD, it would imply a pick-up in trends relative to October and November.

NEUTRAL:  -1% to flat implies 2-year average trends that are in line with what we saw in October and November on a normalized basis.  Like last month, this range of results, though neutral from an investor sentiment perspective as it relates to expectations, is not a favorable sign for current trends.  Before October, MCD had not reported a decline in U.S. same-store sales growth since March 2008 so three consecutive months of declines would not be good.  Prior to November, MCD had not reported consecutive monthly declines since early 2003. 

BAD: Below -1% would signal a slight deceleration in 2-year average trends from October and November.  MCD has not reported a monthly comparable sales decline of greater than 1% since March 2003.

Europe (facing a relatively easy +5.4% comparison from last year; calendar shift hurt result by 0.5% to 3.2%):


GOOD: Better than +6% would signal a sequential acceleration in 2-year average trends from November.  To recall, November sales trends in Europe were not good as 2-year average trends decelerated rather significantly on a sequential basis from October (even after adjusting for the calendar shift).  MCD attributed the slowdown to continued weakness in Germany and more broadly, to the sluggish economy.  A +7% or better is needed to show that the November weakness was only a 1-month occurrence.

NEUTRAL: +5% to +6% would imply that 2-year average trends are about even with November levels.  Like in the U.S., this range is neutral relative to expectations, but would point to continued softness in top-line trends in Europe relative to results for the better part of 2009.

BAD: Below +5% would highlight that trends have not improved in Europe, but instead, have actually decelerated on a 2-year average basis from the already depressed November level.

APMEA (facing a relatively easy +5.7% comparison from last year; calendar shift hurt result by 0.5% to 3.2%):


GOOD: Better than +4.5% would signal that 2-year average trends have remained strong and actually accelerated sequentially from October and November on a normalized basis.

NEUTRAL: +3% to +4.5% would imply underlying 2-year average trends that are about even with what we saw in October and November on a normalized basis.

BAD: Below +3% would point to 2-year average trends that have slowed somewhat from the prior 2 months and would likely be a sign of continued weakness in Japan and China.