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    MARKET EDGES

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MCD posted solid July comparable sales today. U.S. same-store sales grew 6.7% on top of a 4.3% increase last year. The question remains, however, how much of this top-line lift will be reflected in U.S. margins, which have declined for six consecutive quarters, as a result of the negative mix impact from customers trading down to the Dollar Menu and other lower priced menu offerings (average check at breakfast is lower than the rest of the day).

  • Currency Risk

    MCD’s July comparable sales were up 7.6% in Europe versus a 7.7% increase last year. MCD’s Europe division has posted consistently strong same-store sales results, which has translated to high operating income margins. Europe’s operating income growth, however, has been boosted by a growing foreign currency benefit for the last eight quarters. In 2Q, this currency impact helped by 16% in line with 1Q. As Keith McCullough highlighted earlier today, the U.S. Dollar Index is up 5% since July 14, which indicates the benefit MCD has seen from this currency cushion will begin to slow in the coming quarters. MCD’s Europe business has posted impressive operating growth in the double-digit range even excluding currency, but the incremental currency flow through has helped to offset U.S. margin weakness as it relates to the company’s consolidated operating income.