Friday morning, fast-food restaurant giant McDonald’s (click ticker for report: ) announced lackluster same-store sales results for the month of January. Global same-store sales fell 1.9%, while total sales increased 0.7% year-over-year.
Results showed a fairly significant geographical bias. Same-store sales in the US grew 0.9% year-over-year thanks to the addition of the Grilled Onion Cheddar burger to the dollar menu. Total system-wide sales jumped 1.9% year-over-year, and we think the company will continue to struggle with the competitive landscape in the US. New product innovation such as the Egg Whites McMuffin may boost sales slightly, but we think 2013 could be a struggle. The firm also faces secular headwinds from higher input costs and a shift away from unhealthy fast foods.
Same-store sales growth in Europe was not good, falling 2.1% during the quarter, though system-wide sales grew 0.6% excluding the impact of currency. Breakfast items and expanding hours of operation are expected to be the major growth drivers in the region going forward. Such endeavors worked exceptionally well in the US, and we think the strategy will be successfully transferred to the region.
Asia-Pacific, Middle East, and Africa (APMEA) experienced very poor performance. Same-store sales slid 9.5% year-over-year, while system-wide sales dipped 5.1% year-over-year. A lot of the blame was placed on the chicken issues throughout China, which also led to a material sales decline at Yum! Brands’ (click ticker for report: ) KFC. We’re a bit fearful that the negative sales trends in China will be a short-term headwind for the entire quick service industry, but we assume the news will eventually blow over (especially since McDonald’s hasn’t been implicated at all).
Overall, January wasn’t a strong month for McDonald’s, and we think such lackluster performance will continue through the course of 2013. The firm’s fundamental momentum seems to have slowed following the tremendous run that it experienced under the stewardship of Jim Skinner. Still, McDonald’s is a solid company, and if shares were to pull back from current levels to the lower end of our fair value range, the company could make a compelling addition to the portfolio of our Dividend Growth Newsletter.