MCD AUGUST SALES PREVIEW

McDonald’s is scheduled to report its August sales numbers before the market open tomorrow.  August 2010 had one less Saturday, and one additional Tuesday, than August 2009. 

 

Below, I go through my take on what numbers will be received as GOOD, BAD, and NEUTRAL, for MCD comps by region.  For comparison purposes, I have adjusted for calendar and trading day impacts.  To recall, July same-store sales exceeded street expectations and I fully expect that August will also surprise to the upside.   

 

 

U.S. (facing a relatively easy 1.7% compare, including a calendar shift which impacted results by -0.7% to -0.8%, varying by area of the world): 

 

GOOD:  5% or greater would be perceived as a good results because it would imply that the company was able to improve U.S two-year average same-store sales (by ~30+ bps) on a sequential basis.  This would be a strong number in light of the average same-store sales figures for 2010, but it is clear that McDonald’s top-line has stepped up meaningfully and I actually expect a print of 7% or more for August.  This would be far in excess of the current consensus same-store sales number of 4.4% for the U.S. August results.  Smoothie sales continue to be strong; while a result of 5% or greater would be received positively by the Street, a number of 7% or more is in play. 

 

NEUTRAL:  Roughly 4% to 5% implies two-year average trends that are approximately in line with those seen in July.  I would view this range with a positive bias and expect any neutral result to fall in the upper quintile.  Lower than that would be slightly disappointing. 

 

BAD:  Below 4% would indicate that two-year trends have deteriorated on a sequential basis.  Following two consecutive strong months of top-line performance in the United States, it would be disappointing if two-year trends were to slow from here.  Sales of smoothies, said on the 2Q earnings call to be “blowing away high-end projections”, remained “top contributors” to sales growth in July.  I expect that sales of smoothies and core products improved on a sequential basis in August.

 

 

Europe (facing a relatively easy 3.5% compare, including a calendar shift which impacted results by -0.7% to -0.8%, varying by area of the world):

 

 

GOOD:  6.5% or better would be a good result for MCD’s Europe operations as it would imply a level two-year trend following a strong month in June.  While a print of 6.5% would actually be a sequential slowdown in trends of approximately 10 bps, it would represent the highest same-store sales results since September 2009.

 

NEUTRAL:  5.5% to 6.5% would imply two-year average trends that had declined slightly below those seen in July.  This would be received as NEUTRAL because July trends were particularly strong on a two-year basis, therefore a deceleration, provided it is only marginal, would not be viewed with much disappointment.

 

BAD:  Below 5.5% would imply two-year average trends that have declined sharply from July’s results.  The Street is expecting a number of 5.2%, but it seems that the global business has been performing strongly and exceeded expectations in July – I believe it will once again do so in August.

 

 

 

APMEA (facing a relatively easy -0.5% compare, including a calendar shift which impacted results by -0.7 to -0.8%, varying by area of the world):

 

GOOD:  A print of 10% would imply trends roughly in line with those seen in July.  Any improvement would, of course, be well-received, but a print that sustains the strong improvement in July from June’s poor number would be viewed positively.  

 

NEUTRAL:  Comparable-store sales of 8% to 10% would result in two-year average trends slightly below those seen in July but still above the lower level implied by June’s result.  On a one-year basis, this range also implies a number far in excess of the disappointing APMEA sales results of March, April, and May.   

 

BAD:  Same-store sales of 8% or less would imply a significant sequential slow down from July’s trends.  Additionally, if the result is in the region of 7.5% or lower, it would imply results even worse than June on a two-year average basis.  The Street is expecting a number of 7.4%.  I believe this is conservative given that a print of 7% would yield a two-year average number of 3.6% - a mere 20 bps over the trough December two-year number. 

 

MCD AUGUST SALES PREVIEW - mcd SSS AUG PV

 

Howard Penney

Managing Director


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more