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Despite recession, McDonald’s sales still rise

McDonald's Corp. said Monday its same-store sales climbed 5.1 percent in May, boosted by strong international sales but seeing slower sales growth in the U.S.
/ Source: The Associated Press

McDonald’s Corp. said Monday its same-store sales climbed 5.1 percent in May, boosted by strong international sales but weighed down by slower sales growth in the U.S.

The Oak Brook, Ill.-based company said U.S. same-store sales climbed 2.8 percent, helped by classic menu items and its new McCafe espresso-based coffees. The espresso drinks are now being rolled out to all the company's U.S. restaurants.

In May last year, the company's same-store sales rose 4.3 percent in the U.S., aided by the launch of the company's Southern Style Chicken Sandwich and the government stimulus checks that began appearing in consumers' mailboxes and bank accounts.

The fried chicken sandwich was a popular new menu item, boosting the company's sales in the U.S. for months. Stimulus checks, meanwhile, helped add to sales at most restaurant chains as thrifty consumers treated themselves to a few meals out.

Morningstar analyst R.J. Hottovy said the lack of those two events may have slowed sales gains in the U.S.

Mintel analyst David Morris said it's possible that steep discounts at competitors may have also weighed down U.S. sales at McDonald's. Other fast-food chains and sit-down chains have all heavily promoted discounted offerings to bring customers through the doors.

Investors appeared disappointed with the May sales results, with shares down $1.48, or 2.5 percent, to $58.39 in afternoon trading. The stock fell as much as 3.5 percent earlier in the day.

McDonald's, with its dollar menu and value meals, has kept sales rising even as its sit-down restaurant chain competitors report steep declines. Consumers looking to save cash have increasingly been turning to fast-food chains to take the place of a pricier meal out or a homemade meal.

But although the company was able to increase its sales despite, or perhaps because of, the economy, the boost in U.S. same-store sales was not as high as some analysts on Wall Street had expected.

Deutsche Bank North America analyst Jason West said in a note to investors he had expected U.S. same-store sales to grow 3 percent for the month.

Overseas same-store sales were strong in virtually every region of the world. European same-store sales surged 7.6 percent on strong results from France, Germany, Russia and the U.K. while same-store sales for Asia Pacific, the Middle East and Africa rose 6.4 percent.

Same-store sales, or sales at locations open at least a year, are a key indicator of restaurant performance because they measure growth at existing locations rather than newly opened ones.

Overall sales fell 0.4 percent during the month, the company said. The dip was the result of the stronger dollar, which has hurt companies which sell their goods and services overseas. Most U.S. companies that sell goods internationally convert those sales from foreign currencies into dollars. If the dollar is stronger than those currencies, the translation results in fewer dollars in revenue.

Excluding the effect of the dollar, sales climbed 7 percent overall.

McDonald's added that if exchange rates stay at current levels, its profit will be hurt by 8 cents to 9 cents per share in the second quarter and about 20 cents per share for the year.

In April, when the company reported its fiscal first-quarter financial results, it said its second and third quarter earnings could each take an 11-cent-per-share hit from the dollar.

The company does not offer specific guidance on profit, but analysts expect the company to report profit of 95 cents per share for the second quarter and $3.81 per share for the full year.