Janney Capital Markets raised its estimates for McDonald’s Corp.’s September same-store sales and third-quarter earnings per share, based on the bank’s quarterly McDonald’s Franchisee Survey.
McDonald’s, which operates or franchises more than 14,000 restaurants in the United States, will report its third-quarter earnings Friday morning before the stock market opens.
Janney Capital Markets surveyed 29 domestic franchisees controlling 208 McDonald’s restaurants, both of which reflected increases from the second quarter’s survey of 28 franchisees and 166 domestic restaurants.
The owner-operators participating in this quarter’s survey reported a collective same-store sales increase of 5 percent for September, Janney found. They also gave a collective outlook of a 5.9-percent gain in same-store sales for October.
McDonald’s franchisees in the West reported the best September same-store sales to Janney, as the 93 units in that region collectively logged an 8-percent hike. The 38 restaurants in the Central region reported a 4.2-percent collective increase in same-store sales, while the 77 locations in the East boosted their same-store sales a collective 1.7 percent.
“All in all, we continue to believe that McDonald’s is generating some of the very best U.S. same-store sales trends out of the top seven burger brands in the country,” Kalinowski wrote.
Survey respondents from around the country cited in anonymous comments several factors affecting their results in September and October, including what they saw as being the most prevalent driver: the Monopoly promotion.
However, some franchisees differed in their views of the campaign. While one remarked that “Monopoly always drives sales,” another called the game “a tired promotion that does not generate the excitement that it once did, but the corporation does not have a replacement for it. There are no big, new product introductions.”
Franchisee sentiment also was mixed for other initiatives enacted by McDonald’s Corp. Some said price increases taken this year by McDonald’s Corp. were helping them maintain sales levels, while others noted that the price hikes were the only thing that was offsetting stagnant traffic.
McDonald’s raised menu prices 1 percent in March and another 1.4 percent in May.
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Other franchisees said difficult comparisons with last year’s strong same-store sales results were exerting pressure on this quarter’s sales results.
September 2010 and October 2010 resulted in last year’s two highest monthly same-store sales increases for McDonald’s, at 5.7 percent and 5.6 percent, respectively.
Many owner-operators were optimistic that a calendar shift would benefit October same-store sales, as that month has five full weekends.
Survey respondents also were asked whether changes to Happy Meals, which now include smaller servings of French fries and mandatory servings of apple slices, would have any effect on orders. Two franchisees reported that they expect an increase in Happy Meal orders, while nine expect a decrease. Sixteen said they expect no change.
Janney also surveyed the franchisees’ outlook for the next six months of business, and the rating came to an average of 3.11, between an aggregate “3” rating for “good” and “4” for “very good.” The average for the entire history of the survey is 3.0, but last quarter’s result was 3.41, near the all-time high of 3.46 from February 2004.
The franchisees also rated their relationship with the franchisor at an average of 2.22, between “2” for “fair” and “3” for “good.” Kalinowski noted that the score is right on the average for the lifetime of the survey and above the 1.94 result from last quarter’s survey.
“In general,” he wrote, “we argue that corporations who have franchisees on board and enthusiastic about senior management’s plans and strategy tend to fare better than those that don’t enjoy this type of a situation.”
In the 48 previous times Janney conducted the McDonald’s Franchisee Survey, actual U.S. same-store sales for the McDonald’s system were within 1 percentage point of the survey’s estimates on 35 occasions and within 2 percentage points 43 times.
The survey covers a small percentage of McDonald’s domestic franchise system, which has more than 2,500 owner-operators.
Oak Brook, Ill.-based McDonald’s operates or franchises more than 33,000 locations worldwide.