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Overseas sales help McDonald’s post big gain

Overseas consumers spent more at McDonald's Corp. in August, leading the nation's No. 1 hamburger chain to surprise investors by posting a big rise in global same-store sales.
/ Source: The Associated Press

Overseas consumers spent more at McDonald's Corp. in August, leading the nation's No. 1 hamburger chain to surprise investors by posting a big rise in global same-store sales on Tuesday.

The chain said its worldwide same-store sales, or sales at locations open at least a year, jumped 8.5 percent during the month.

Same-store sales are a key indicator of restaurant performance since they measure growth at existing locations rather than newly opened ones.

The increase follows a rise in global same-store sales of 8 percent in July and compares to a boost of 8.1 percent in August last year.

Analysts were largely expecting a lower increase, with U.S. consumers cutting back on spending, pockets of economic weakness appearing in some overseas markets and the dollar strengthening against currencies abroad.

"It's a real strong performance," said Morningstar analyst John Owens. "It's impressive."

Same-store sales grew in every region. In the U.S., the chain said they rose 4.5 percent, driven by the company's breakfast menu, a promotion tied to the Olympics for the Southern Style Chicken sandwich and biscuit, and "everyday affordability" with a focus on beverages. In August, McDonald's priced its Sweet Tea at $1 nationwide.

The rise in U.S. same-store sales, though, fell short of the 6.7 percent jump in July and the 7.4 percent rise the company recorded last August.

Most restaurant chains are seeing slower sales this year as consumers cut back on discretionary spending due to high gas prices, tight credit and the weak housing market. McDonald's — with its dollar menu and fast service — has fared better than most, but the chain has said it is not immune to the effects of the economic slowdown.

Still, the U.S. bump either met or beat the expectations of most Wall Street analysts.

Owens said the chain served more customers during the month and also may have benefited from price increases made during the last quarter.

The big surprise was the strong performance of the chain's overseas locations.

In Europe, where the economy is also slowing down in some areas, same-store sales climbed 11.6 percent. Performance was particularly strong in the U.K., France and Germany, McDonald's added. Same-store sales jumped 10 percent in the Asia-Pacific, Middle East and Africa division, helped by promotions tied to the Olympics in Beijing.

Most analysts had expected same-store sales overseas to rise by single-digit percentages.

Systemwide sales, which includes franchisees, rose 14 percent during the month worldwide and climbed about 5 percent in the U.S.

Several analysts, including Stifel Nicolaus' Steve West, raised their estimates for profit in the third quarter and full year based on the strong monthly sales.

"McDonald's solid results continue to have us, 'Lovin' It'," West said in a note to investors.

Buckingham Research analyst Mitchell J. Speiser, meanwhile, said in an analyst note that he expects the company to raise its dividend by at least 20 percent. Speiser also raised his price target by $2, saying there's "lots to look forward to in 2009," including the national rollout of espresso coffee beverages and an Angus burger sandwich in the U.S.

Shares of McDonald's rose $1.55, or 2.5 percent, to $63.97 in afternoon trading.