McDonald's (MCD) May Comps Outperform Amid Strong Europe Results - RBC Capital

RBC Capital comments on McDonald's (NYSE: MCD) following the fast-food giant's May 2015 sales results issued earlier Monday.

McDonald's reported a 0.3 percent in global comparable-store sales last month, while RBC was looking for a decline of 1.2 percent.

Analyst David Palmer noted, US SSS declined -2.2 percent (RBCe -1 percent, cons -1.7 percent), Europe SSS growth was 2.3 percent (RBCe 0.5 percent, cons. 0.6 percent), and APMEA declined -3.2 percent (RBCe -6 percent, cons -3.8 percent). Sales in APMEA continue to be hurt by Japanese SSS declines (-22.3 percent SSS decline in May), but were partially offset by strong growth in Australia. SSS trends in China were slightly worse on a sequential basis, but positive trends are still expected mid-year. Better than expected SSS growth in Europe was largely the result of ongoing strength in the UK and slightly positive performances in Germany and France, but partially offset by slightly negative results in Russia. Strength in the Other Countries & Corporate segment, which primarily includes Canada and Latin America, also added to global SSS growth.

On U.S comps, Palmer said, In the US, the chain's SSS deficit to chain sandwich fast food peers narrowed to -590bps from -780bps last month. While advertising was largely on premium items (e.g. Sirloin burger), our guess is that share losses continue to be the result of direct competition on value. The company is planning an aggressive relaunch of its value offering during the second half of this month and supporting it with national advertising. We wonder what McDonald’s value strategy will be—especially in the key summer selling season--though we expect the company to layer in regional offerings that complement its national strategy. We believe this approach makes sense, given aggressive value promotions from both national (e.g. Burger King, Taco Bell) and regional chains alike. Value remains a key pillar of McDonald’s brand, and the US division's struggles have coincided with a shifting away from the Dollar Menu over the last 2+ years./q>

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