April 19 - McDonald's first-quarter same-store sales unexpectedly fell and will fall again in April, the company warned, setting the stage for what could be a disappointing reporting season for the fast-food dining sector. Conway G. Gittens reports.
Sales at McDonald's restaurants opened at least a year surprisingly fell in the first quarter and McDonald's is predicting sales will stay down in April. That key sales measure was weaker in every major region, leading to a smaller-than-expected rise in profits. RJ Hottovy at Morningstar sees three key take-aways for the industry: SOUNDBITE: RJ HOTTOVY, SENIOR RESTAURANT ANALYST, MORNINGSTAR (ENGLISH) SAYING: "In the U.S. we are seeing no signs of a lot of the industry competition, as well as the aggressive discounting - that's not going away. That's going to continue to remain strong. That could pressure top line results. In Europe- it seems like the situation is getting a little bit more severe - less consumer spending and so with companies with exposure to those regions - particularly Germany and some of the southern European regions - you can be looking for a disappointing results. And then in China, in Asia in general, some of the Avian flu concerns are really going to have an impact." If you look at Q1 U.S. same-store sales prediction from Consensus Metrix, Yum Brands, which reports next week, is gaining momentum due in part to new products at Taco Bell; Jack-in-the-Box fares better than McDonald's with its line up; only Burger King is expected to see a larger drop, with its figures released next week too. REPORTER STAND-UP: CONWAY G. GITTENS, REUTERS (ENGLISH) SAYING: "For McDonald's to pull ahead of the pack, it is going to come down to food innovation. All of its compeitors now have a low-cost menu, so analysts say McDonald's has to roll out new items faster, with price points that scream value, and have a marketing campaign that brings that message across." SOUNDBITE: RJ HOTTOVY, SENIOR RESTAURANT ANALYST, MORNINGSTAR (ENGLISH) SAYING: "The company is also experimenting more with limited time offer products, as well. I think the Fish McBites that we saw in March is one example of that. We will see more limited time offer products on the menu across the globe in the period to come. But I think that this is really a key point for McDonald's this year. To their own admission 2012 wasn't the greatest year in terms of product pipeline. And I think that's really going to be the key to driving sales this year - is improving the strength of the overall pipeline." Shares dropped below $100 after the results, but that's still not far from the more than $103 lifetime high set this month. Analysts say McDonald's is better positioned for a second-half recovery than its peers and that could give the stock more room to run.