MCD: GLOBAL SALES SLOW

McDonald’s sales results were announced this morning and while trends were maintained in the United States, they flattered to deceive.  Europe and APMEA showed softness.

 

In my preview note posted early yesterday, I outlined some GOOD, BAD, and NEUTRAL ranges for MCD same-store sales in August.  It is worth noting that a calendar shift from August 2009 to August 2010 (one less Saturday and one additional Tuesday) adversely affected results by approximately -0.6% to -1.2%, varying by area of the world.

 

In the U.S., August sales increased 4.6%.  In my preview, I wrote that any print between 4 and 5% would be a NEUTRAL result because two-year average trends would be roughly in line with those in July.  The print of +4.6% implied a sequential slowdown in reported two-year average trends, however, on a calendar-adjusted basis, top-line performance actually accelerated sequentially in August by ~58 bps.  Looking forward to September, a result of approximately +4.5% in the U.S. would be required to maintain two-year trends when adjusting for calendar shifts.  September 2009 included no meaningful calendar shift and I would expect the same in 2010 (although this may vary by area of the world).

 

Europe is undoubtedly the fly in the ointment for August results; same-store sales came in at +2.2% versus consensus +5.2% and my NEUTRAL range of +5.5% to +6.5%.  This is certainly a concern for investors given the renewed attention on Europe’s sovereign debt and financial sector woes.  On a calendar adjusted basis, two-year average trends sequentially decelerated by ~185 bps.  Tellingly, the reported same-store sales number for MCD was the worst since February 2009.  Looking forward to September, a result of roughly +0.5% in the U.S. will be required to maintain two-year trends, on a calendar-adjusted basis, since August was so weak. 

 

APMEA’s same-store result came in at +7.8%.  This was slightly below my NEUTRAL range of 8 to 10% and above the Street at +7.4%.  Two-year average trends in August decelerated, on a reported basis, to +3.7% which is considerably below the +6.1% two-year average trend in July and just above the disappointing +3.2% two-year average trend in June.  Looking forward to September, a result of roughly +3.7% in APMEA will be required to maintain two-year trends next month when accounting for calendar shifts.

 

All in all, MCD’s results in August were disappointing.  Despite +4.6% being a decent number in this retail environment, it is important to note the composition of the results – particularly in the U.S. – being levered to smoothie sales which are likely to slow as we move into fall and colder weather.  Comparisons in September step up sequentially from August in all three geographical areas; it will be interesting to see whether the company can bounce back in September.

 

Howard Penney

Managing Director


Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more