Will McDonald's Sales Freeze See a Thaw?

The restaurant industry is making the most of warmer spring weather, but the burger joint is still on ice.

Apr 18, 2014 at 10:00AM

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The restaurant industry says higher same-store sales in March are lifting it out of winter's deep freeze, but McDonald's (NYSE:MCD) may not similarly enjoy the spring thaw. In fact, I'd question whether the fast-food industry as a whole will find the balmier temperatures enough to change its outlook.

Black Box Intelligence and People Report said restaurant comps rose 0.7% in March, up 1.4 percentage points from February's 0.7% decline, but that's less than half the rate other surveys found --  the MillerPulse report found sales 1.8% higher last month. Still, since they're both reporting things are trending higher now, that's good, right?

Not so fast. The weather shouldered a lot of blame for the poor showing restaurants recorded this past winter, but both surveys also show that store traffic is still falling. That means it's likely higher average check values, which themselves are up as a result of higher prices, that are driving the growth. Restaurants aren't pulling in customers.

McDonald's has recorded months of steep declines despite making rebuilding foot traffic a priority. It admits both guest counts and pricing have a greater impact on the average check size than any mix of products it may sell in driving comps at its restaurants. If industry peers continue having problems attracting customers, then McDonald's is sure to have another disappointing month.

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Source: McDonald's SEC filings.

According to Janney Capital Markets, however, a survey of the restaurant operator's franchisees show they're hopeful that March comps -- and April's, too! -- will be positive, a welcome trend from the four-straight months of falling comps they've endured thus far (80% of McDonald's restaurants worldwide are franchised).

On the whole, they're looking for a 0.6% rise in March; it's not evenly distributed, as stores on the East Coast forecast a 1.3% increase while those in the West see flat sales and the central division is looking for sales to creep just 0.4% higher. A 1.5% increase is expected for April, but that could be a lot of wishful thinking.

Nation's Restaurant News said franchisees aren't happy with the free coffee promotion McDonald's started as a means of fending off encroachment by rival chains on its breakfast daypart. The Janney survey found it was a failed effort that didn't drive sales, similar to the $5 20-piece chicken nugget campaign during the Olympics that also did not lift sales.

There may be a thaw coming for restaurants that caught the winter blues, but investors ought to be prepared for McDonald's failure to bloom with the rest.

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