McDonald's Finds Strength Overseas

OAK BROOK, Ill. ( TheStreet) -- McDonald's ( MCD) reported strong January same-store sales on strength in China and Europe.

McDonald's said comparable same-store sales -- or sales at stores open at least one year, a key metric in the restaurant industry -- jumped 3.1% in the U.S. in January. Comps in Europe surged 7% while same-store sales in McDonald's Asia/Pacific, Middle East and Africa (APMEA) region rose 5.2%.

Systemwide sales in January increased 7.4%, or 6.7% in constant currencies, McDonald's said Tuesday.

McDonald's said U.S. strength reflected the brand's everyday accessibility to American consumers, including its beverage lineup of products like its McCafe premium hot chocolate and Caramel Mochas, the popularity of Chicken McNuggets, and the nationwide launch of Fruit & Maple Oatmeal.

European strength was led by demand for McDonald's products in Germany, the U.K., France and Russia, where its breakfast and drive-through services were popular.

McDonald's said improved results the APMEA region were driven by positive results in China, Japan and Australia, where customers enjoyed locally-relevant menu items.

Better-than-expected January comps led investors to bid McDonald's shares 3.3% higher to $75.86 in morning trading Tuesday.

In its recent quarter, McDonald's reported that global comps increased 5% , including 4.4% growth in the U.S., 3.4% in Europe and 5.5% in APMEA.

"In 2011, we plan to invest about $2.5 billion of capital -- roughly half dedicated to opening approximately 1,100 new McDonald's restaurants and the other half allocated to investing in our existing locations, including reimaging," CEO Jim Skinner said when its earnings were released late last month.

"China is a major focus and the stock has a potential longer term to have a higher multiple as the China story unfolds, similar to what Yum! Brands ( YUM) has benefited from in the last couple of years," Oppenheimer analyst Matthew DiFrisco said in appearance on CNBC, commenting on McDonald's quarterly earnings.

A string of U.S.-based food and beverage companies also have made moves to grow in international markets. Yum!, Cheesecake Factory ( CAKE) and Starbucks ( SBUX) have planned to expand globally.


McDonald's said in December that it planned to grow its presence in China by 40% this year, opening 200 new stores in the country over the next three years.

The fast-food chain said its investment will include opening new restaurants and updating existing stores. Among the new store openings, about half will be drive-through locations, McDonald's said. McDonald's currently operates more than 1,200 restaurants in China.

McDonald's also plans to double its presence in South Korea within the next five years . That would bring McDonald's total presence in Korea to around 500 restaurants.

DiFrisco likened McDonald's to the " Wal-Mart ( WMT) of restaurants" in terms of its ability to manage costs on a large scale.

Even so, McDonald's anticipates it will need to raise prices on some of its offerings this year in order to offset rising ingredient costs, Chief Financial Officer Peter Bensen said on a conference call with analysts following its recent earnings release. The U.S. Department of agriculture said meat prices could increase by as much as 3.5% this year.

U.S.-based food processor Sara Lee ( SLE) said early Tuesday that higher food costs cut into its results last quarter even as the maker of Jimmy Dean sausages and Ball Park hotdogs raised prices to offset some of that food inflation.

A number of consumer goods and food companies have also reported adverse effects from rising food costs in recent weeks.

Bill DeLaney, CEO of food products and supplies distributor Sysco ( SYY), said Monday that "accelerating and significant food cost inflation negatively impacted our customers' purchasing budgets, contributed to increased gross margin pressure and meaningfully increased our selling expense."

Hershey and Kellogg ( K) each cautioned last week their margins would remain under pressure as a still-weak economy will lead them to carry the higher costs since raising prices could dissuade already-choosy consumers.

-- Written by Miriam Marcus Reimer in New York.

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