MCD – U.S. SSS SLIGHTLY BELOW EXPECTATIONS

MCD reported January same-store sales that came in a little light in the U.S. relative to expectations but outperformed in Europe and APMEA.  MCD’s U.S. comparable store sales declined 0.7%, implying a 60 bp sequential decline in 2-year average trends from December, on a reported basis.  A calendar shift/trading day adjustment by area of the world, ranging from approximately -0.4% to 1.0%.  Even excluding this negative calendar shift impact, 2-year trends slowed somewhat from December. 

Management stated on its 4Q09 earnings call that underlying trends were looking better in January, but that weather had a big negative impact on trends in January.  Specifically, management said, “We don't normally like to talk about weather, but we can't avoid it when you look at the first 14 or 15 days of the month. And the severity of the weather, I think it was impacting us at probably around 3% a day in the sales because whenever we had a weather that was normalized, we saw much better results. And so if anything, I would say that the trends are a little bit better than they were in December.”

Regardless of the weather impact in January, top-line trends continue to slow in the U.S., with the company reporting negative comps for three out of the last four months.  For reference, MCD had not reported consecutive monthly declines since early 2003.  MCD launched the Dollar Menu at breakfast nationally in January and the company is facing an easier comparison in February of +2.8% (relative to +5.4% from January 2009), but as management also pointed out on its last earnings call, it does not expect to see a big improvement in trends until we see a recovery in jobs.  “When you look at trends in the industry and you look at the spending of our consumers and the consumer confidence, even though it's edged up over the last couple of months, with the unemployment where it is, until we start to see job creation and we start to see people get comfortable with the fact that they have a place to go to work and have a steady income, we're not going to see, in my opinion, enormous pickups or a big change relative to the trends in consumer spending.”

MCD reported a 4.3% increase in same-store sales in both Europe and APMEA, which signals an improvement in sequential 2-year average trends in both segments.  In Europe, 2-year average trends improved by 45 bps while APMEA’s number got better by nearly 400 bps from December on a reported basis.  Despite these sequentially better results, MCD still highlighted weakness in Germany and a tough comparison in China.  It will be important to see whether the better trends in January, particularly in APMEA, continue as we trend through 2010.

MCD – U.S. SSS SLIGHTLY BELOW EXPECTATIONS - MCD US

MCD – U.S. SSS SLIGHTLY BELOW EXPECTATIONS - MCD Europe

MCD – U.S. SSS SLIGHTLY BELOW EXPECTATIONS - MCD APMEA

Howard Penney

Managing Director