McDonald's (NYSE:MCD) May comparable same store sales (comps) results were “well done”. In fact, the world-renowned Illinois-based burger chain turned in a global comps increase of 7.7% for the month!
The Numbers Look Appetizing
That 7.7% number is impressive in and of itself. However, I would contend that there are two things that make the figure even more appetizing. First, despite going against a strong comparison of May 2007 comps at 8.7%, McDonald's still served up a strong number.
To show such a healthy number is, I think, a testament to the popularity and success of its existing fare and newer menu items (such as the “McSkillet Burrito” or “Southern Style Chicken Sandwich”). Second, after drilling a bit deeper into the numbers, we note that the company continues to sizzle here in the domestic market - an incredibly important market. In fact, in May 2008 McDonald's saw its U.S. comps increase a healthy 4.3%. That's on top of a 7.4% comp increase in the same period last year.
I'd also point out that this (U.S.) number seemed to come as a bit of a surprise to at least one analyst from Deutsche Bank, Jason West. Reports suggest that West was expecting an increase of just 0.5%. And why is that worth mentioning? Because I suspect that he's not alone, and the upbeat domestic numbers may offer investors a value-meal deal on their stock. (For more on analyst expectations, see our related article Analyst Recommendations: Do Sell Ratings Exist?)
Cooking Across The Pond
It is important to note that McDonald's overseas business continues to heat up. In the May 2008 period, its European comp store sales rose 9.6%. And I think that's particularly noteworthy for two reasons: 1) The results come on top of a stellar 2007 performance. In the same period last year, its European comps were up 8.9%; and 2) The segment is important in terms of McDonald's overall operation. In McDonald's last 10-Q Europe accounted for some 42.3% of sales.
The Flip Side Of Flipping Burgers
McDonald's posted a terrific year-over-year improvement, but that means next year's comps will be a tough number to compete with. It may not be able to turn in a repeat performance.
Also, don't forget about the rising cost of food. In its latest 10-Q, the company said: “In 2008, U.S. beef costs are expected to be relatively flat and chicken costs are expected to rise about 5-6%. In Europe, beef costs are expected to be up 3-4%, while chicken costs are expected to increase approximately 6-8%.”
Finally keep in mind that other chains aren't sitting still. Burger King (NYSE:BKC) is coming off a solid third quarter where it reported a 5.8% jump in worldwide comp store sales and raised its yearly guidance. Wendy's (NYSE:WEN) hasn't been faring too well as of late, but with Triarc Companies' (NYSE:TRY) recent acquisition agreement, it looks like they will be calling the shots in the future and things are likely to change. (Comps aren't the only factor to consider. To learn more, see Are Same Store Sales Overrated?)
Food for Thought
McDonald's May comps were solid, and some would say sizzling. Next year may be a harder sell, but this year's numbers look tasty to me!
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