McDonald's Defies Naysayers With November Same-Store Sales Rise

Chain Credits Breakfast, Value Menu and Promotions, Beating Analyst Estimates After October Falloff

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After McDonald's posted a drop in global sales for October, analysts and the media began projecting that the chain's better days were falling behind it. But McDonald's has proved them wrong: Its sales for November worldwide are up 2.4%, suggesting the chain's marketing tactics are working.

McDonald's burger
McDonald's burger

Beating Wall Street 's expectations, McDonald's posted an uptick in November sales of 2.5% in the U.S.,1.4% in Europe and 0.6% in Asia Pacific, Middle East and Africa. McDonald's sales results came as a shock to many analysts, who on average expected global sales to be up about 0.1%, with sales in the U.S. to be down 0.8%.

McDonald's cited its promotion of value items, and the chain credited its U.S. sales increase to "the ongoing popularity of McDonald's breakfast along with balance across everyday value offerings, premium menu options including the limited-time Cheddar Bacon Onion sandwiches, and the beverage lineup." Two of those came as rather a surprise, given reports that the company was struggling with its value meals and that its Cheddar Bacon Onion sandwiches were not performing as expected.

McDonald's is the world's ninth-largest advertiser, according to Ad Age 's DataCenter. It had measured media spending of $2.6 billion in 2011, up 12.8% from the prior year. In the U.S. in 2011, it spent about $963 million in measured media, according to Kantar Media.

Local advertising has helped drive the breakfast menu, and the company's increased emphasis on value seems to be helping bring in customers, said Bernstein analyst Sara Senatore in a note. McDonald's in September retooled its advertising to better promote its Dollar Menu in conjunction with the Extra Value Menu, a midtier a la carte menu that offers items like a 20-piece Chicken McNugget box for $4.99. Ms. Senatore said, "This change looks to be producing more-effective results."

Ad Age first reported that McDonald's was going to promote its Cheddar Bacon Onion sandwiches from Oct. 22 through Nov. 11 -- a marketing window that was originally slated for the McRib, which will now be promoted from Dec. 17 through Dec. 31 and will likely be offered nationally through January. McDonald's is promoting the Cheddar Bacon Onion sandwiches and the McRib in the fourth quarter with hopes it can match the unusually high monthly same-store sales that it reaped thanks to the unusually mild weather.

"We are strengthening our focus on the global priorities that are most impactful to our customers -- optimizing our menu, modernizing the customer experience and broadening accessibility to our brand to move our business forward amid today's broad-based economic and competitive challenges," said CEO Don Thompson in a statement.

Indeed, McDonald's has been getting hit from competitors such as Burger King, which unveiled its biggest menu expansion ever earlier this year, and Taco Bell, which introduced its Doritos Locos Taco, which the company has said is its most successful product launch ever, as well as its upscale Cantina Bell menu. Both chains have also been heavily promoting value. Burger King's new menu items have been a particular priority on the marketing calendar this year and received a hefty dose of couponing. Burger King and Taco Bell both started reporting positive sales this year after a protracted period of declines.

Analysts continue to be somewhat cautious about McDonald's in the next few months. Though the November sales give McDonald's some reprieve -- sales had been decelerating since February -- Jeffries analyst Andy Barish said in a note that fourth-quarter same-store sales "will still be challenged as McDonald's faces its toughest [comparisons] of the year in December. Heading into next year, [comparisons] will remain difficult (last year's mild winter) and we expect competitors to continue to play catch-up with innovation and value."

"November was a decent month for McDonald's, but combining October and November to smooth out calendar-shift impacts shows a trend roughly level with September," said Hedgeye analyst Howard Penney. "We believe that the business, on a global basis, did improve sequentially but by much less than the headline numbers might suggest. The true improvement was modest, in our view, and we would need to see several months of improvement for our skepticism to reverse."

The company's global October same-store sales fall of 1.8% marked its first decline in nine years. In the U.S., sales dropped 2.2%, and McDonald's announced the departure of U.S. President Jan Fields, who was replaced by 40-year McDonald's veteran Jeff Stratton. Mr. Thompson has been the company's CEO since July.

The negative sales in October and the subsequent appointment of Mr. Stratton left agencies watching closely to see what, if any, changes he would make in the marketing department.

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