Investors Salivate Over the McRib

McRib mania has spread to the investment world.

Wall Street is drooling over next week's return of McDonald's (NYSE: MCD  ) BBQ-slathered pork sandwich. The Wall Street Journal calls the McRib a potential "savior," citing an investment manager who says it could help the company "end the year on a solid note." CNBC wondered whether the McRib could "save Christmas" by boosting sales for the fast-food chain. Can one sandwich have that much of an impact on a $90 billion business?

It's not hard to see why McDonald's investors are looking for some salvation. The bad news has been piling up. First, the company reported its fourth straight quarter of falling same-store sales growth in Q3, warning that the tough retail environment could represent a new normal. Next, McDonald's announced a drop in global same-store sales in October, led by a 2.2% fall in the U.S. market. It was the first monthly sales drop for the fast-food king in nine years.

This week the company reported an encouraging bounce back to sales growth for the month of November. But long-term sales growth trends are what's worrying. On a yearly basis, comparable sales were up about 4% in 2009, 5% in 2010, and nearly 6% last year.

Yet the last few quarters tell a different story:

 

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Comparable Sales

7.5 %

7.3 %

3.7 %

1.9 %

Source: McDonald's financial filings.

But there's plenty of reason to be optimistic about the McRib's impact on sales this quarter. When the sandwich hit the menu in the U.S. last year, it helped McDonald's log a huge revenue bump, including a 7.1% jump in comparable sales. More recently, the company's strong sales growth in November was at least partially thanks to the limited-time offer of another popular sandwich, the Cheddar Bacon Onion Burger.

And one hit product definitely has the power to move the needle at fast-food joints. Doritos Locos, the Doritos-wrapped taco sensation, is a big reason Yum! Brands (NYSE: YUM  ) has been able to ignite sales growth in its Taco Bell chain. Thanks to the success of that product and its Cantina Bell premium burrito line, the company booked 7% comparable-sales growth for Taco Bell in the third quarter, even beating out Chipotle and its 5% growth on the quarter.

Still, even if McDonald's manages a BBQ-fueled sales increase in December, the company isn't likely to repeat last year's fourth-quarter success, even in the U.S. The first two months of the quarter have seen a 2.2% fall and a 2.5% rise in domestic comparable sales. Those same figures for October and November 2011 were 5.2% and 6.5% jumps. The McRib should make for a tasty December bonus, but it won't be enough to save McDonald's winter quarter from a tough comparison with last year's record.

McRib sandwich or not, McDonald's has been one of the worst-performing blue chip stocks this year. Our top analyst on the company will tell you whether you should be worried by this trend, and he'll shed light on whether McDonald's is a buy at today's prices. Click here now to read our premium research report on the company.


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