The world's largest fast-food restaurant, McDonald's (MCD), released its monthly same-store sales figures this morning (sales at stores that have been open for more than 12 months). McDonald's said that same-store sales increased 3.3% during the month, but that was below the Street's 4.6% expected increase. Breaking it down by region, the U.S. was once again the growth engine, gaining 4.4% (still below the 5.3% consensus growth estimate). While in Europe, same-store sales rose 2.9% well below the 5.1% analyst estimate, as austerity measures offset the benefits of remodeling restaurants. McDonald's has said that it is seeing weakness in France, Germany and the U.K., as unemployment puts a damper on its sales.
MCD seems to be a victim of its own success this month as expectations were extremely lofty. European economies continue to struggle through difficult times, while even Germany has been showing signs of cracking. For expectations to be for 5.1% growth seems a bit high in my mind. Moving into the coming months, oil prices have been on the decline, so there is potential for growth as a result. The following chart outlines the Company's same-store sales growth since the beginning of 2010. The average over that time period has been for 5.4% growth in total.
(click to enlarge)
Over the past five years, the stock has appreciated almost 70%, while seeing its dividend almost double over the same time period. It has been a great purchase for investors looking for both capital appreciation and dividend growth. Historically, the Company increases its dividend following the September quarter, and with plenty of cash on hand, $2.3 billion as of the end of the first quarter, there is room for another increase. I expect the annual dividend rate to increase to $3.04 per share (or $0.76 per quarter).
The big question with McDonald's right now is China. International growth was a main reason for the strong growth over the past five years, but growth in China is waning. Earlier this week, China slashed its interest rate 25 basis points as economic growth has slowed. The worry is that the explosive growth (11% during the first quarter) will slow in China. Asia Pacific, Middle East, and Africa (APMEA) accounted for almost 25% of total revenue, while the U.S. accounts for 32% of revenue.
The stock price is down more than 13% year to date, and this weakness opens a buying opportunity. I would be looking to initiate a position in the $83-$84 range. Once back above the 20-day moving average (currently just under $90), the stock has no resistance to 50 and 200-day moving averages at $94 and then room to $98. The fears about a Chinese slowdown are overblown and with the same-store sales "disappointment" this month, I expect analysts' expectations to come down a bit.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
