Breakfast boosts sales at McDonald's

Tuesday, March 11, 2008

CHICAGO — Consumer spending and confidence may be waning, but people still need that jolt of morning caffeine to wash down an egg sandwich.

McDonald's Corp.'s big push on coffee and new breakfast items in its U.S. restaurants contributed to a double-digit jump in same-store sales last month, accompanying even stronger growth in Europe, the company said Monday.

The world's biggest fast-food chain reported that sales from its outlets open at least 13 months climbed 11.7 percent over a year earlier — evidence that the economic slowdown hasn't dealt it the blow that some investors had earlier feared.

While its new specialty coffees won't be available in all its U.S. restaurants until next year, analysts said they have heard positive feedback on how the products are faring in the 1,000-plus McDonald's where they are served. In the meantime, the company said the premium roast coffee it rolled out two years ago helped fuel U.S. same-store sales growth of 8.3 percent in February.

The new McSkillet breakfast burrito also aided February numbers, as did the weak dollar at international restaurants and the benefit of an extra selling day. The leap year boosted same-store sales by about 4 percent in all, the Oak Brook-based company said.

European same-store sales grew by an impressive 15.4 percent on strong results in Britain, France, Germany and Russia.

Two straight months of solid results to start the year have reassured investors worried about the impact of the economic slowdown. McDonald's shares rose $1.53, or 2.9 percent, to close at $53.80 Monday.

"We continue to believe that McDonald's is well-positioned to navigate through domestic economic challenges given its tiered menu platform which offers a broadly appealing mix of everyday value and premium new product news," Goldman Sachs analyst Steven Kron said in a note to investors.

McDonald's same-store sales in the Asia-Pacific region, Middle East and Africa rose 10.9 percent for the month, mostly on strength in Australia, China and Japan.

Systemwide sales, which include restaurants owned by franchisees and affiliates operating under joint-venture agreements, rose 13.2 percent in February.

Paul Westra of Cowen and Co. said he was "astounded" by the more than 15 percent growth in Europe, which he attributed in part to new products and the addition of 100-plus McCafes in Germany, added chicken products in Russia, an upgrading of British restaurants and strong momentum in France, which is the company's most profitable country outside the United States. New products also are brightening the U.S. outlook, he said.

"We strongly believe that February's solid results were positively impacted by the rollout of its two Southern-style chicken sandwiches [breakfast and lunch sandwiches] ahead of a likely spring 2008 media launch. This fact bodes well" for a strong second quarter, he said in a research note.

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