May comps at McDonald’s expected to rise

McDonald’s Corp. is scheduled to release May same-store sales results Tuesday morning, which analysts expect to show continued industry-leading numbers despite economic headwinds in Europe and continued unemployment challenges in the United States.

McDonald’s May promotions included a focus on $1 breakfast items, Angus burgers and Frappes, which have been introduced nearly systemwide. In addition, $1 drink promotions returned in some markets in May, which had helped drive traffic last summer. Some franchisees in Southern California have even cut drink prices to 79 cents, according to reports.

"McDonald's and its franchise group have delivered several consecutive months of accelerated market share gains and we fully expect this trend to continue in May," securities analyst Jeff Farmer at Jefferies & Co. said in a research note last week.

"With the real fruit smoothie launch in July, Angus Snack Wrap launch in August, and easier comparisons over the next quarters, we expect MCD's mid single-digit same-store sales trend to continue for the balance of the year," he said.

McDonald’s is expected to post a global same-store sales increase of between 3.5 percent and 4 percent, and a U.S. same-store sales increase of about 4 percent, according to analyst reports released last week.

The largest fast-food chain is one of few restaurant players that release monthly same-store sales numbers, providing a rare month-by-month glimpse at a recovery that many restaurants began to feel in March. At the Sanford Bernstein investor conference last week, McDonald’s said it would continue to seek to win market share, reimage locations and drive same-store sales in an effort to be a better, not bigger.

Oatmeal, which has been in test in certain markets, is on tap for a national debut in 2011, the chain said. McDonald’s also is looking at family meal packs and pricing. It will continue to push McCafe coffees and beverages, as well. At the investor conference, McDonald’s said its U.S. coffee sales jumped 38 percent through April of this year, following a 25 percent increase in 2009.

Still, in addition to new products and premium offerings, McDonald’s said it would maintain a focus on value, which has helped drive 28 quarters of positive same-store sales.

With unemployment still high in the United States – the national unemployment rate dipped to 9.7 percent in May from 9.9 percent in April, the federal government reported last week – McDonald’s said it was not ready to change its core messaging surrounding value pricing.

"We are holding the line on pricing during this environment, because the most important thing is to continue to maintain guest counts and traffic in your restaurants during downturns, which we have done very successfully," said McDonald’s chief executive, Jim Skinner.

The economic challenges in Europe may hurt the company’s earnings through negative currency translation, analysts noted, but a change in consumer spending has yet to be seen. John Glass at Morgan Stanley reduced his full year earnings expectations by 10 cents per share because of the drop in the Euro.

Sales initiatives are still moving McDonald’s forward, he noted.

"Global same-store sales are still best in breed, but are settling in at a lower level," Glass said.

Contact Sarah Lockyer at [email protected]