March is a tough act to follow.
Mc Donald’s is expected to report its April sales before the market open on Monday. On a year-over-year basis, April 2010 has one less Wednesday, and one additional Friday, than April 2009. The impact from the Easter shift in school and business holidays from March 2008 to April 2009 positively impacted Europe’s comparable sales by approximately 2%.
Below, I am providing my view on comparable sales ranges for each of MCD’s geographic segments as indicators of what I would rate as GOOD, NEUTRAL, or BAD results based largely on 2-year average trends.
To recall, MCD management made the following comments about April trends on its 1Q10 earnings call:
- “Our momentum is continuing into April with comparable sales trending positive across all of our geographies.”
- “I think that the consumer is starting to feel a little bit better. We see consumer confidence scores getting better over the last couple of months. We see a little more spending in the marketplace and yet the stubborn unemployment being at 9.7% still is a factor, I think, relative to that overall spending and net confidence.”
- "For April, what we said in the release was that we expect April to be at least as strong as the quarter on a global basis. So what we’re setting there is a floor, saying that it won’t any lower than 4.2 is what our expectation is.”
U.S. (facing a 6.1% compare, including a calendar shift which impacted results by 0.0% to +0.4%, varying by area of the world):
GOOD: Any result greater than approximately 4% would be perceived as a good result because it would imply that the company was able to sustain its U.S. sales momentum from the outstanding print in March. Last month’s number resulted in a 2-year average trend of 4.9% (or 5.4% if you adjust for the negative calendar shift in March 2009), which was the best 2-year number since February 2009. In order for April’s number to imply a 2-year average trend in line with what was seen in March, the comparable store sales figure will have to be approximately 4%.
NEUTRAL: Roughly 3% to 4% implies 2-year average trends that are about even with March to slightly lower, but still remain above prior month trends, confirming a real rebound in MCD’s U.S. business.
BAD: Any comparable store sales number below 3% would imply a sequential slowing from March on a 2-year average trend basis. While this would not be a disaster in the context of the trends over the last couple of years, it would fail to confirm the resurgence that was seen in March. Given that many management teams have been making positive comments on April trends, I think it would be a disappointment to see 2-year average trends slow sequentially (especially given the run that the stock has been on since March trends were reported).
Europe (facing a 8.4% compare due to Easter holiday shift, which positively impacted April ’09 by 2% and a calendar shift which impacted results by 0.0% to +0.4%, varying by area of the world):
GOOD: Above 4% would signal a sequential improvement in 2-year average trends; despite improving last month, the 2-year average trends are still at historically low levels. A +4% trend would imply a return to 2-year average trends in the region of +6%.
NEUTRAL: +3% to +4% would signal that 2-year trends are roughly even with March levels. While this level is neutral with respect to sequential trends, it would indicate continued softness in the Europe business compared to the most part of 2009 when 2-year average trends were consistently in the 6.0% to 8.0% range.
BAD: Below +3% would indicate that trends have sequentially deteriorated further from March levels.
APMEA (facing a 6.5% compare, including a calendar shift which impacted results by 0.0% to +0.4%, varying by area of the world):
GOOD: Better than 6.0% would signal that 2-year average trends have rebounded strongly from last month’s (adjusting for the calendar impact on March) dip after a strong showing in the first two months of the year.
NEUTRAL: Roughly 3.0% to 6.0% would indicate that 2 year-trends were stable-to-slightly better on a sequential basis from March.
BAD: Below 3% would imply 2-year average trends that have either stagnated or slowed further from the level seen in March. Below 1% would point to trends in line with the trough 2-year average trends indicated in December.