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McDonald’s cautions on October sales

OAK BROOK Ill. After posting another quarter of positive sales trends and profit growth, McDonald’s Corp. said October could be the month when its momentum finally falters in the face of the U.S. recession.

Chief executive Jim Skinner said domestic same-store sales for October would be flat or slightly negative, mainly because of tough comparisons from a year earlier, as well as a suboptimal operating environment and bad weather last week in the eastern United States. McDonald’s U.S. same-store sales rose 5.5 percent in October 2008.

“The only person who won in New England last Sunday was Tom Brady [of the New England Patriots],” Skinner told investors in a third-quarter conference call on Thursday. He said the weekend’s snowy weather contributed to a slow start for that region’s same-store sales in October, which so far this month have fallen between 10 percent and 11 percent.

Skinner said McDonald’s sales are recovering, thanks to the chain’s traffic-driving “Monopoly” promotion. Skinner and chief operating officer Ralph Alvarez also told investors that McDonald’s major product rollouts of this year, the Angus Third Pounder burgers and McCafé espresso beverages, have continued to outperform expectations.

The next phase of the McCafé rollout will be frappes and fresh-fruit smoothies, which currently are being tested in a few thousand stores, Alvarez said. Some delays in further adoption have been based on sourcing equipment and whether enough fresh fruit can meet demand, he said.

“These are really in our wheelhouse,” Alvarez said. “They’re cold, portable products that our customers want and can’t get anywhere else at the speed and price of McDonald’s.”

Coffee now accounts for about 5 percent of the chain’s sales, Alvarez said, while the premium Angus products have been driving up check averages in the United States, Australia and New Zealand. While the sandwiches may hold a lower profit margin, about three-fourths of the Angus Third Pounders sold go out in value meals, which have been accretive to overall margins and check averages, Alvarez noted.

Net income for the quarter ended Sept. 30 totaled $1.26 billion, or $1.15 per share, up 6 percent from earnings of $1.19 billion, or $1.05 per share, in the same quarter a year ago.

Latest-quarter revenue totaled $6.05 billion, a 4-percent decrease from $6.27 billion in the third quarter of 2008. Revenue was hurt by unfavorable currency exchange rates.

Third-quarter global same-store sales rose 3.8 percent, including gains of 2.5 percent in the United States, 5.8 percent in Europe, and 2.2 percent in the Asia-Pacific, Middle East and Africa region. Domestic same-store sales rose 3.2 percent in September.

McDonald’s operates or franchises about 32,000 restaurants worldwide.

Contact Mark Brandau at [email protected].

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