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McDonald's Price Hike Helps To Boost April Sales

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MCDONALDS SALES

LOS ANGELES/CHICAGO (Lisa Baertlein and Jessica Wohl) - McDonald's Corp posted a better-than-expected 6 percent rise in April sales at established restaurants, helped by menu price increases that helped offset higher costs for beef and other ingredients.

Shares in the world's biggest hamburger chain rose almost 1 percent in early trading on Monday, after it reported that April sales at restaurants open at least 13 months were up 4 percent in the United States.

Same-restaurant sales rose 6.5 percent in Europe and 6.5 percent in its Asia/Pacific, Middle East and Africa (APMEA) unit, reflecting strong results from China and Australia and a surprise rebound in Japan -- which is still recovering from a massive earthquake.

Analysts were expecting U.S. sales to rise 3.3 percent. They also expected a 5.1 percent rise in Europe and a gain of 2.7 percent in APMEA, Jefferies & Co analyst Andy Barish said in a client note.

The company in March put through a 1 percent menu price rise in the United States, where it plans additional increases. Prices in Europe are up by the same amount, and the company plans to raise prices in China.

"McDonald's top line momentum is going to hold up just fine," especially with the price increases, said Morningstar analyst R.J. Hottovy.

The bigger question, he added, is how much the aggressive rise in food costs will pressure margins.

McDonald's expects food costs to rise between 4 percent and 4.5 percent in the United States and Europe this year.
Europe is McDonald's biggest market, contributing roughly 40 percent of sales, and the United States is a close No. 2 at around 35 percent of sales.

McDonald's generally has an edge over rivals when it comes to raising prices because it attracts a higher-income diner than other fast-food chains -- particularly in Europe. Analysts say it would have the least resistance if it boosted prices on premium burgers and McCafe drinks that appeal to those customers.

In addition to advertising pricier products such as new beverages, McDonald's has been catering to budget-conscious diners with its value menu. The chain's broad appeal may give it an edge over smaller chains, such as Wendy's/Arby's Group Inc or Jack in the Box Inc, Hottovy said.

Many analysts believe that the company's top priority is getting more customers through the door.

"We believe the company will be judicious with menu pricing and focus on traffic gains," Barish said.

McDonald's shares were up 68 cents at $79.38 in morning trading on the New York Stock Exchange.

(Reporting by Brad Dorfman, Lisa Baertlein and Jessica Wohl; Editing by Derek Caney and John Wallace)

Copyright 2011 Thomson Reuters. Click for Restrictions.

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