McDonald’s sales climb, but gains weaken in May
Thursday, June 9, 2011
OAK BROOK, Ill. (AP) — Sales of McDonald’s fruit and maple oatmeal and drinks like frozen strawberry lemonade pushed the fast-food chain’s revenue at restaurants open at least 13 months up 3.1 percent in May.
Though that number would be enviable for many fast-food chains, it’s a slowdown from the 4.8 percent the company recorded a year ago.
Some analysts had been expecting more: 3.6 percent, according to Jefferies & Co., and 3.8 percent, according to Stifel Nicolaus & Co. McDonald’s stock rose 1 cent to close at $81.15 Wednesday.
Revenue at restaurants open at least 13 months is a key gauge of a restaurant chain’s health because it excludes the impact of restaurants that were recently opened or closed.
The figures are a snapshot of money spent on food at both company-owned and franchised restaurants and franchises. They do not reflect McDonald’s corporate revenue, which consists of revenue at company-owned stores plus fees and rents paid by franchisees.
Two regions weakened: the U.S., whose share of McDonald’s revenue has shrunk over the past several years, and Europe, which led revenue growth a year ago. Asia, the Middle East and Africa grew most quickly.
Wednesday, McDonald’s focused on the fact that growth is continuing, and said the most recent results were a testament to its low prices and the success of new products like frozen strawberry lemonade. McDonald’s has fared well throughout the recession and its aftermath, as customers flocked there for low-cost meals.
But at a meeting with analysts last week, CEO Jim Skinner was adamant that price isn’t the restaurant’s only virtue.
“A lot of people talk about the fact that people are trading down,” Skinner said at the conference, which was sponsored by Sanford C. Bernstein & Co. “They don’t trade down to McDonald’s; they’re trading in to McDonald’s.”
But he also said the economy “remains less than ideal,” citing a “slow and uneven” recovery, rising costs for ingredients, and fragile consumer confidence.
In the U.S., revenue at stores open at least 13 months grew 2.4 percent in May, compared with 3.4 percent a year ago. Revenue in Europe grew 2.3 percent, down from its fast clip of 5.7 percent a year ago. France, Russia and the U.K. drove Europe’s growth. Germany was weaker.
Revenue growth was strongest in Africa, the Middle East and Asia, which recorded 4.3 percent growth. Customers there were drawn to affordable meals as well as the convenience of drive-thru locations, delivery and extended hours, the company said.
The U.S. represents about 31 percent of McDonald’s revenue and Europe about 40 percent.
Analysts said higher gas prices, as well as the fact that this May had four Saturdays instead of five, were at least partly to blame for the slowing sales growth. But their reactions were varied.
Stifel Nicolaus analysts Steve West and Matthew Van Vliet raised their earnings predictions, saying they expect “new products and ongoing sales initiatives” to drive growth across all regions.
But Jefferies analysts Andy Barish and Alexander Slagle said the company “does not appear to have as much significant product news for 2011 in the U.S.” They also said that E. coli fears could hurt revenue in Europe.
For the year to date, revenue at restaurants open at least 13 months gained 4.4 percent. The figure rose 5.2 percent in Europe and 4.1 percent in Asia, the Middle East and Africa. The U.S. reported a 3.1 percent gain.
AP Business Writer Michelle Chapman in New York contributed.
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