McDonald’s US unit weakens

City A.M. Reporter
McDonald’s yesterday reported a weaker-than-expected rise in October sales at US established restaurants as high unemployment keeps plaguing the world’s largest hamburger chain’s key domestic market.

October sales at restaurants open at least 13 months were up 5.6 per cent in the US but missed some analysts’ estimates.

Despite the macroeconomic weakness that has dented overall demand, the company has been taking US market share from rivals like number two hamburger chain Burger King, which is now private after its sale to 3G Capital. The US market, which accounts for about 35 per cent of McDonald’s revenue, got some help in October from the Monopoly game promotion and popularity of core menu items.

Overall, McDonald’s reported a better-than-expected 6.5 per cent rise in global October sales at established restaurants, as its low-price Dollar Menu and restaurant renovations helped draw in more customers.

“McDonald’s continues to have solid traffic drivers and pricing power that can drive same-store sales... even if the consumer recovery remains sluggish,” Jefferies and Co analyst Andy Barish said. Barish sees same-store sales of five to six per cent in the fourth quarter of 2010 and three per cent in 2011.

October sales at restaurants open at least 13 months were up 5.8 per cent in Europe, which accounts for just above 40 per cent of revenue, and up 5.3 per cent in the Asia-Pacific, Middle East and Africa region (APMEA). Results for both Europe and APMEA topped analysts’ expectations.

The company cited healthy demand in France, the UK and Russia for the strong performance in Europe, while sales growth in Japan, China and Australia boosted the Asia/Pacific, Middle East and Africa unit. Systemwide sales, which includes those at restaurants operated by the company as well as franchisees, rose 7.4 per cent for the month.