Discount food prices may be adding some luster to the tarnished Golden Arches.
According to several
franchisees and observers on Wall Street, sales in the burger giant's beleaguered U.S. operations in July were flat or up slightly compared with the same month a year ago.
While that may not seem like much to crow about, it's good news for McDonald's, which saw same-store sales fall an estimated 6% in May and 7% in June. The plunge in same-store sales -- which occurred even as rivals stormed ahead -- stemmed primarily from the now-canceled Campaign 55. That was the program launched in April where customers could get a bargain burger, but only if they bought it with full-priced fries and a drink.
To replace the much-ballyhooed promotional ploy, McDonald's started offering standard menu items at bargain prices with no gimmicks. Just finishing up is a promo of two quarter-pound burgers with cheese for $2. Next are Chicken McNuggets for 99 cents. The summer began with a triple cheeseburger for 99 cents.
"There's a lot of value activity this summer with some very popular products on our menu," notes Chuck Ebeling, a McDonald's spokesman. "It's a good summer for us."
Steven Kent, who tracks McDonald's for
, says same-store sales in the U.S. were up anywhere from 1% to 3% in July. "It's a little bit better than we expected," says Kent, who has a market perform rating on McDonald's.
"They have shown some success with the 99-cent price point," says Janice Meyer, who tracks McDonald's for
Donaldson Lufkin & Jenrette
, and is one of the few restaurant analysts to rate the stock a buy right now. Her firm hasn't done underwriting for the chain. She says early indications are that comparable-store sales were flat or up slightly for July.
For one franchisee, who asked not to be identified, business was good last month, thanks to the price strategy. "Business has been strong. July is going to be one of the best months we've had in a long time. I suspect the new value campaign is going to be extremely effective," he says. Going forward, "price is going to be the driver," he adds.
"In the Campaign 55, you tried to please everybody with the convoluted pricing scheme. Now we have gone back to very easy-to-understand
pricing," says the longtime franchisee.
Also, the recent management shake-up at corporate headquarters, announced July 9, and the switch in advertising agencies announced this week, appear to be tasty news for investors. Since July 9, the stock has climbed from 48 to 52 9/16. Meanwhile, shares of rival
dropped 10.3% Thursday after several investment banks lowered their rating on the stock.
"We're optimistic and hopeful that some of the reorganization they've done in the U.S. will pay some dividends," says Ken Feinberg, co-portfolio manager for
Davis Selected Advisers
, which has some $300 million invested in McDonald's. The fund has recently increased its Mickey D holdings by 10% to 15%. "We're pleased they changed ad agencies. That shows they're willing to change a little bit," he says.
Feinberg calls it a "very good sign" that comparable-store sales are up even slightly. "We're hoping they can keep it going. It's clearly better than maybe some people might have expected. They had a poor May and June and Campaign 55 confused enough people and that affected the numbers."
The slight uptick in sales isn't prompting a flood of upgrades on the stock among restaurant analysts. In a July 21 report, influential restaurant tracker
maintains its hold recommendation on the stock. The burger chain, the firm asserts, is becoming "less relevant" to many U.S. consumers at a time when they want to "assert their individuality and experience 'adventure' in their eating-out experience." Montgomery has done no recent underwriting for McDonald's.