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Michael Fu

 
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  • McDonald's: 8-9% Total Return A Year [View article]
    thanks my friend! operating leverage is a double edge sword though, but thankfully MCD's recent same store decline was just a blip (rebound the following month) and not long term trend. let's see if YUM China's recent decline is short term or long term. good luck!
    Jan 10 11:50 PM | Likes Like |Link to Comment
  • McDonald's: 8-9% Total Return A Year [View article]
    By adding McCafe to existing MCDs, they've essentially added additional non-peak hour sales to all their stores, without having to incur new store build out costs (if McCafe were separate stores). This helps MCD achieve increasing, same store sales year after year (which has consistently increased for +7yrs, except 1 month).

    all restaurants have 2 primary peak or rush periods during a given day (my dad owns a restaurant): lunch (11am-2pm) and dinner (5-9pm). McCafe addition (coffee, snacks, etc.) helps to add business during all non-peak hours (before 11am, 2-5pm, etc.), while all under the same roof (so no additional costs and get to leverage the existing rent, equipment, labor, etc.). starbucks get business all day long b/c of what the product category they sell, and McCafe adds that to existing MCD stores.

    this is extremely smart and very profitable from store ROI perspective, due to positive operating leverage (basically, once your turning a profit on a store and covering fixed costs (rent, mgmt labor, etc.), then incremental sales highly profitable due to operating leverage).

    also, here's graph explain the concept of operating leverage on restaurant business (as it relates to YUM's recent China woes): http://seekingalpha.co...
    Jan 10 10:30 PM | Likes Like |Link to Comment
  • McDonald's Has A Cultural Clash And May Soon Get Help In Solving It [View article]
    i think the solution is that MCD improves their operations to better incorporate McCafe into normal operations (and not spin off the business, which is probably easier, but less ROI friendly, than directly solving the operation issue). as you mentioned in point 2 of your article, MCD is known historically as best-in-class in terms of operations and efficiency in the QSR industry. if they do indeed have some recent service issues with mccafe, hopefully new CEO don thompson (former chief of operations) will address it directly and resolve, so they can continue to serve all their customers appropriately.
    Jan 10 08:55 PM | 1 Like Like |Link to Comment
  • McDonald's Has A Cultural Clash And May Soon Get Help In Solving It [View article]
    interesting article with good points to consider (i'm long MCD as well). the only thing with spinning off McCafe, is that it probably does not make sense from a return on store investment perspective. meaning, by adding McCafe to existing MCDs, they've essentially added additional non-peak hour sales to all their stores, without having to incur new store build out costs (if McCafe were separate stores). This helps MCD achieve increasing, same store sales year after year (which has consistently increased for +7yrs, except 1 month).

    all restaurants have 2 primary peak or rush periods during a given day (my dad owns a restaurant): lunch (11am-2pm) and dinner (5-9pm). McCafe addition (coffee, snacks, etc.) helps to add business during all non-peak hours (before 11am, 2-5pm, etc.), while all under the same roof (so no additional costs and get to leverage the existing rent, equipment, labor, etc.). starbucks get business all day long b/c of what the product category they sell, and McCafe adds that to existing MCD stores.

    this is extremely smart and very profitable from store ROI perspective, due to positive operating leverage (basically, once your turning a profit on a store and covering fixed costs (rent, mgmt labor, etc.), then incremental sales highly profitable due to operating leverage).

    btw, here is graph of MCD same-store sales every month for past 7 years for reference :http://seekingalpha.co...

    also, here's graph explain the concept of operating leverage on restaurant business: http://seekingalpha.co...
    Jan 10 11:07 AM | 2 Likes Like |Link to Comment
  • McDonald's: A Dividend Dream Stock That Has Growth Potential [View article]
    great article, here's one i did recently that provides a little more on the fundamentals of MCD: http://seekingalpha.co...
    Dec 31 02:14 AM | Likes Like |Link to Comment
  • McDonald's: 8-9% Total Return A Year [View article]
    YUM started in China 4-5 yrs before MCD (1986-87 vs. 1991-92). That may not sound like a lot of a head start, but China has done most of its development in only 20 years. (so 5 yrs out of 20 yrs is alot).

    I think there is also a local preference for chicken over beef (vs in the US, americans probably still prefer burgers for fast food). KFC brand is known for all chicken menu (MCD also has chicken products on their menu, but just not 100% known for chicken).

    Pizza Hut (for YUM) also does well in China. But their stores are much bigger than KFC stores. And I think alot of YUM's prime real estate locations (b/c they entered China so long ago) are probably near end of their lease (10-15 yr leases), and they will either be forced out or rent per sq meter will increase significant (by 2-3x). MCD tries to buy/own their real estate more than YUM, which is a strategic long term advantage.

    YUM also trades at higher multiple than MCD (18.5x vs. 15.5x). YUM is getting a China premium (50% of sales from China), but I think their past success in China will start to slow down somewhat (their valuation too dependent on China). YUM has recently turned to acquisitions in China (vs organic growth of existing brands) to keep growing (bought Little Sheep for $600mm).
    Dec 27 12:32 PM | Likes Like |Link to Comment
  • Avoid McDonald's As November Boost Seems Priced In [View article]
    "Revenues for MCD has shown a decline by 20% in Q32012 compared to Q32011". Wow, this is so inaccurately wrong I don't even know what to say. The sales decline is 0.02%, or basically flat: http://1.usa.gov/Rg0fES

    This is the type of terribly written SA articles that I cannot stand and really discredits the SA website. Before writing any more articles, author please learn the basics of how to look up company financials and calculate your own data (versus sourcing random 3rd party data sources and misinterpreting wrong conclusions).
    Dec 25 03:39 AM | 1 Like Like |Link to Comment
  • McDonald's: 8-9% Total Return A Year [View article]
    Hi Jan, I unfortunately have not looked into ARCO in detail, so hard for me to comment on it without the valuation basics. I agree ARCO would obviously provide full emerging market exposure (there's obviously good and bad to that), specifically Latin America. But in general, for successful global brands, I prefer being on the franchisor side (selling their brand and experience, highly profitable) versus the franchisee side (bear all the buildout costs). Best of luck.
    Dec 17 03:52 PM | 1 Like Like |Link to Comment
  • McDonald's: 8-9% Total Return A Year [View article]
    Thanks much for the comments! I own MCD not only in my own portfolio, but also for my parents (which I am very risk adverse in, given they are near retirement age). I sleep pretty well at night.
    Note, if MCD starts to show 3-4 months of same-store declines, then I will need to revisit the investment thesis. Still need to continue to do the homework on boring conservative stocks. Good luck!
    Dec 16 07:51 AM | 2 Likes Like |Link to Comment
  • McDonald's: An Income-Oriented Investor's Dream [View article]
    great, detailed article. i own MCD as well and you've hit on all the accurate points! only thing i would add is that in China, it's very difficult to expand now because finding real estate at reasonable rents is a huge obstacle. KFC and MCD have an advantage over new brands, but negotiating reasonable rents with landlords (so rent comes in at 15-20% of sales) is a long, long process. I've lived in China for past 5 years and have worked for a u.s. food and beverage brand that expanded into china, so know from first hand experience. MCD still a value stock at these prices, but I would temper China expectations (KFC wisely expanded quickly in China back 5-10 years ago, when real estate and rents were not so ridiculous).
    Nov 29 05:25 AM | Likes Like |Link to Comment
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