McDonald's Sales Climb As Consumers Seek Deals
NEW YORK — Consumers hungry for cheap meals boosted worldwide sales at McDonald's Corp.'s established locations by 7.7 percent in November, more proof of how the fast-food leader is thriving in a downturn that has eaten into sales at its competitors.
Even recession-weary consumers in the U.S. were enticed by the Golden Arches during the month. U.S. same-store sales _ or sales at locations open at least a year _ rose 4.5 percent from the same month a year earlier, the company said Monday.
The Oak Brook, Ill.-based chain said the increase came from strong sales of breakfast items, chicken sandwiches and the chain's value menu options. It comes even as U.S. consumers increasingly opt for eating at home to conserve cash.
"I think what you're seeing is that McDonald's has so far been relatively immune to the recession," said David Morris, senior analyst at consumer research firm Mintel.
The past few months have been difficult ones for the restaurant industry as the now yearlong recession deepened. Restaurants have seen traffic decline traffic as consumers curb their spending, and have faced higher ingredient costs that have shrunk margins.
McDonald's has largely been able to keep its profits intact despite the higher costs. But the chain has had to make changes to its menu to protect its margins, including raising the price of its popular Double Cheeseburger and replacing the sandwich on the Dollar Menu with a new double burger that has one slice of cheese instead of two.
Although the November sales exceeded most analysts' expectations, the rise was slightly lower than the 8.2 percent increase in global same-store sales that the company in October.
Morningstar analyst John Owens said the company had a higher baseline to overcome in November, since sales had gained so much a year ago during that month. Same-store sales jumped 8.2 percent worldwide in November last year. In October of 2007, same-store sales rose 6.9 percent.
Same-store sales are a key indicator of restaurant performance since they measure sales at existing locations rather than newly opened ones.
Morris noted that McDonald's positioned itself well even before the economy took a turn for the worse by adding healthier options and enhancing the quality of its food. Those changes have helped the chain expand its sales ahead of the rest of the industry for months by helping to make the chain more palatable to consumers looking for good food at lower prices.
Total sales worldwide for the month ending Nov. 30 rose 1.9 percent. The increase would have been higher but a stronger dollar ate into gains. McDonald's, like other U.S. companies that operate overseas, translates its revenue from other currencies into dollars, so a stronger dollar can hurt revenue. Excluding currency effects, worldwide sales climbed nearly 10 percent.
McDonald's shares fell $1.80, or 2.9 percent, to close at $60.92 after rising slightly earlier in the day. Owens said some investors may have been disappointed to see the worldwide sales be affected so much by a stronger dollar.
International same-store sales were strong, rising 7.8 percent in Europe and 13.2 percent in the Asia/Pacific, Middle East and Africa division. Overseas sales gains came from the chain's open early and close late _ if at all _ mantra and its breakfast menu.
"Convenient locations, extended hours and quality food at an outstanding value are all reasons why people are choosing McDonald's," said Chief Executive Jim Skinner.
McDonald's has been focusing on staying open longer to gain customers during the late-night and early morning hours. The company has also added Southern Style chicken sandwiches and breakfast biscuits as well as espresso-based lattes and other drinks in a bid to gain more customers. The espresso drinks _ called McCafe _ are now being added to the menu at McDonald's locations across the U.S. Many European locations already offer them.
Stifel Nicolaus analyst Steve West said in a note to investors that the results for the month beat his expectations of a 3 percent to 4 percent increase worldwide.
West, who has a "Buy" rating on the stock and a $70 target price, noted that the U.S. boost proved "the Arches are still golden even in a recession."
But Owens said McDonald's may be becoming a victim of its own success, since investors expect phenomenal gains each month.
"The expectations for the company are very, very high," he said.
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LAUREN SHEPHERD | December 8, 2008 06:46 PM EST |
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