Friday, June 8, 2007

McDonald's US Sales UP 7.4%

McDonald's (MCD)Chief Executive Officer Jim Skinner remarked, "May marks another month of strong sustained sales and shows how well we are providing solutions for today's busy lifestyles, with the convenience and value that customers expect from McDonald's. The chief reason given for the US business growth? Breakfast, or as I spell it c-o-f-f-e-e. Is Starbucks (SBUX) CEO Jim Donald paying attention now?

After their last earnings announcement, in an interview on CNBC, Donald said "we do not really consider or discuss our competition." He'd better start. They are stealing his business. Attracting only 1% more people per quarter will not fuel the long-term growth rate of 21.9% that analysts expect.

When you compare Starbucks recent quarter with today's statement by McDonald's Skinner who said, "We've re-energized our worldwide business with new food choices, redesigned restaurants and relevant marketing. Around the world, demand for McDonald's continues to grow as we now serve 6 million more customers every day than we did in 2002. We are working to attract more customers, more often, through innovation, added convenience and greater menu choices."

This upcoming quarterly announcement by Starbucks will be very interesting. They are officially entering the "reduced comps" phase. This means that when they are comparing quarterly sales growth, the comparisons they are going up against now become easier as this quarter marks the beginning of the recent slide. It also coincides with the improved coffee offering at McDonald's, but do not expect to hear that on the call.

While McDonalds is consistently blowing away improving numbers, Starbucks investors are hoping to beat diminishing ones. Not good. I am expecting bad news for investors this quarters and look forward to whatever excuse management comes up with. Last quarters anemic numbers were excused away as being "up against a tough comparison". Now that the comparisons are getting dramatically easier, we need to take that one off the table.

Should be interesting..


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