McDonald’s Same-Store Sales Growth Continues Slide in 1Q15

McDonald's 1Q15 Earnings Leave Markets Hungry for More (Part 2 of 5)

(Continued from Part 1)

Declining same-store sales

McDonald’s (MCD) same-store sales growth in its major market, the US, continues its declining trend. In the last part of this series, we learned that McDonald’s EPS (earnings per share) declined 16.5% YoY (year-over-Year), which is a result of this negative same-store sales growth trend.

McDonald’s (MCD) revenues declined 11% YoY. Revenues in a restaurant industry are primarily driven by same-store sales and unit growth. Global same-store sales were down 2.3% YoY from 0.5%. McDonald’s reports its same-store sales growth under four segments, as you can see in the chart below.

The US

During the quarter, McDonald’s management simplified the menu in the US and improved operational efficiencies. However, same-store sales in the US declined 2.6% in the first quarter, down from -1.7% in the corresponding quarter in 2014. With an operation the size of McDonald’s, any changes will take time to show.

Europe

Same-store sales disappointed in Europe as well, declining by 0.6% instead of growing by 1.4% the way they did in the corresponding quarter a year ago. During the earnings call, management said that the German market’s negative same-store sales growth has moderated. Meanwhile, management blamed low customer confidence and difficult macroeconomic conditions in France and Russia for less-than-robust same-store sales.

The Other Countries & Corporate segment

Same-store sales growth in this segment was positive, with a growth of 10.4%. In the corresponding quarter a year ago, same-store sales grew by 6.9%.

Asia-Pacific, Middle East, and Africa

The APMEA (Asia-Pacific, Middle East, and Africa) market experienced the biggest decline, reporting same-store sales of 8.3% compared to 0.8% in the same quarter a year ago. Same-store sales growth was dragged down by markets in Japan and China, which experienced a decline of 32.3% and 4.8%, respectively.

This market continues to be affected by the meat-supplier scandal, which also affected Yum! Brands (YUM), Burger King (QSR), and Starbucks (SBUX ). SBUX makes up 3% of the Consumer Discretionary Select Sector SPDR Fund (XLY). XLY has 4% of its portfolio holdings invested in MCD. The ETF also invests in fast-casual restaurants such as Chipotle Mexican Grill (CMG), which makes up 1% of XLY.

Continue to Part 3

Browse this series on Market Realist:

• Part 1 - McDonald’s Earnings per Share Decline 16.5% in 1Q15

• Part 3 - McDonald’s Unit Growth in Question in 1Q15

• Part 4 - McDonald’s Management 2015 Initiatives and Outlook