Monday, August 16, 2010

Cold smoothies, hot July spike McDonald's sales

Cold smoothies, hot July spike McDonald's sales
McDonald's shares hit all-time high as smoothies, frappes offer big July sales jolt
Ashley M. Heher, AP Retail Writer, On Monday August 9, 2010

CHICAGO (AP) -- McDonald's lesson from July: If you want to start selling cold, fruity drinks, pick one of the hottest months in U.S. history.

The fast-food giant posted its biggest monthly increase in more than a year in an important U.S. sales figure as U.S. as the fast-food chain's new fruit smoothies and ice-cold frappes got a warm reception from customers.

The increase shows just how much the behemoth is outpacing its competitors as customers keep flocking to the world's largest hamburger chain while competitors post anemic U.S. sales. Shares touched an all-time high Monday morning.

"They were pretty impressive results," said Morningstar restaurant analyst R.J. Hottovy. "It just shows that the smoothies product has been a big win for the company and a big hit among consumers. They did well with the timing of the product."

July sales at restaurants open at least 13 months climbed 5.7 percent -- the biggest monthly increase since it recorded a 6.1 percent gain in April 2009. At the same time, the National Weather Service said the month was one of the the hottest on record nationwide, shatterring records in many East Coast cities.

Overall, McDonald's Corp. said the sales measure rose 7 percent around the globe and outpaced expectations. It climbed 5.3 percent in Europe and 10.1 percent in the rest of the world.

The figure is considered an important gauge of a restaurant chain's performance because it excludes the effects of restaurants that open or close during the year.

McDonald's said U.S. consumers flocked to its roughly 14,000 restaurants during the month, seeking its new drinks that are part of the restaurant chain's rapidly expanding beverage lineup.

In addition to the highly profitable smoothies, which launched nationwide in mid-July and cost a little over $2 for a small, and frappes, customers also sought out the company's value meals.

It's those type of menu items that have kept McDonald's a step ahead of competitors in recent years, particularly in the U.S. where its value menu helped insulate it from much of the economic weakness that hurt Burger King Corp. and Wendy's/Arby's Group Inc.

Even the company's stock price has shown steady gains -- climbing about 9 percent in the past two years. That compares with a 13 percent decrease in the S&P 500 during the same period and even larger declines by the other two restaurants.

And the company has raised its dividend every year since 1976 and is expected to raise it again this year. The company has boosted the cash payout in the fall for the past three years.

R.W. Baird analyst David E. Tarantino told investors in a research note Monday that based on the fast food chain's strong July figures, he is boosting his earnings forecast.

He now expects the company to earn $1.24 per share in the third quarter, up from his earlier estimate of $1.23 per share, the same figure expected by Wall Street analysts.

McDonald's is based in the Chicago suburb of Oak Brook, Ill. It has more than 32,000 restaurants around the world in 100 countries.

Its shares rose to an all-time high Monday, climbing to $73.33 before falling off slightly. The stock closed up $1.18, or 1.6 percent, to close at $72.92.

AP Retail Writer Mae Anderson contributed to this report from New York.

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