value menu McDonald's

McDonald’s franchisees expect value menu to lift sales

Analyst pares back 4Q sales estimate after survey

McDonald’s Corp. franchisees expect the chain’s new $1 $2 $3 value menu to lift same-store sales in fiscal 2018, but a recent survey has led a Nomura Instinet analyst to shave half a percentage point off his fourth-quarter 2017 U.S. same-store sales forecast.

Nomura Instinet analyst Mark Kalinowski said Tuesday that a franchisee survey indicated that McDonald’s U.S. same-store sales would be 4 percent for the fourth quarter. Oak Brook, Ill.-based McDonald’s is expected to report quarterly earnings before the market opens on Jan. 30. 

“While McDonald’s U.S. business likely outperformed many of its quick-service counterparts during Q4 in terms of same-store sales growth, perhaps consensus expectations for this key business segment may have gotten a touch too high in the near term,” Kalinowski wrote in an analyst note. 

Kalinowski’s forecast for earnings per share remained unchanged, but he raised his target price for McDonald’s by $8 a share, to $198.

Nomura Instinet surveyed 26 domestic franchisees with 286 locations and found that performance varied geographically. By region, the survey found franchisee expectations for the fourth quarter were: 

  • Northeast (51 units), up 4.2 percent
  • South (64 units), up 1.8 percent
  • Central (45 units), up 5 percent
  • West (81 units), up 5.1 percent 

Nomura Instinet also asked franchisees about the lift they expected in full-year same-store sales from McDonald’s introduction on Jan. 4 of its tiered $1 $2 $3 value menu. Of the 26 responses, the median was that the same-store sales would impact would be an increase of 1.5 percent. 

For the current first quarter, surveyed franchisees expected an aggregate increase of 3.5 percent in U.S. same-store sales. 

In October, McDonald’s said value promotions and a new Signature Crafted Recipes sandwich platform helped boost U.S. same-store sales 4.1 percent in the third quarter ended Sept. 30

Global same-store-sales rose 6 percent in that quarter, the company said.

McDonald’s third-quarter net income increased 48 percent, to $1.9 billion, or $2.32 per share, from $1.3 billion, or $1.50 per share, in the same period a year ago. Revenue fell 10 percent, to $5.8 billion, from $6.4 billion in the prior-year quarter, reflecting the impact of refranchising. 

McDonald’s has more than 37,000 restaurants, about 90 percent of which are franchised, in more than 100 countries.

Contact Ron Ruggless at [email protected]

Follow him on Twitter: @RonRuggless

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