Highlights include McDonald’s Corporation (MCD), Burger King Holdings Inc (BKC), Wendy’s/Arby’s Group (WEN), Jack in the Box Inc (JACK), CKE Restaurants Inc (CKR) and Yum! Brands Inc (YUM).

MCD: April Sales Take Bite Out of Competitors’ Lunch

It appears that McDonald’s Corporation (MCD) is not only taking share from casual dining restaurants, it’s taking share from its fast-food competitors as well.

McDonald’s announced today that global same-restaurant sales jumped 6.9% in April, with strength in all territories. Comps surged 6.1% in the U.S., 8.4% in Europe and 6.5% in Asia/Pacific, Middle East and Africa.

Although McDonald’s quick service competitors — including Burger King Holdings Inc (BKC), Wendy’s/Arby’s Group (WEN), Jack in the Box Inc (JACK) and CKE Restaurants Inc (CKR) — haven’t announced April sales yet, recent results suggested they were losing share, with comps in some cases lower than price increases.

McDonald’s strong U.S. sales were fueled by its popular line of healthier chicken snack wraps, and by its successful recent rollout of McCafe coffees. The new premium coffee line has an appealing ad campaign and is likely to draw value-conscious customers away from the $4 lattes at Starbucks Corporation (SBUX).

Europe benefited from promotions and the Easter holiday shift. Notably, Germany – a very weak area for Burger King – posted positive comps.

Strong sales in Australia and Japan juiced strong Asia/Pacific comps. McDonald’s has successfully tailored its menu offerings to local tastes.

China, where McDonald’s represents a more expensive meal, remains one area
of weakness. China’s contraction, however, should have a much bigger effect on Yum! Brands Inc (YUM), which derives 28% of its revenue there.

The U.S. dollar’s recent surge remains the major headwind facing the company. Same-store sales are logged in local currency. Revenues on the income statement are not. When overseas revenues are translated to dollars for reporting purposes, the strengthening U.S. dollar continues to temper results. System-wide sales grew 8.9% in constant currencies, but actually declined 1% after translation.

As we have noted in the past, however, currency shifts have little impact on McDonald’s fundamentals. The company effectively operates its overseas operations as separate businesses, sourcing, selling, funding and building new units in local currency.

Shares of McDonald’s are 18% off their 52-week high, on fears that the drag from currency translation and tough 2008 comparisons will stall growth in 2009. While currency remains a substantial headwind, commodity deflation may temper the strong dollar’s effects on margins, and same-store sales show no signs of marked deterioration as menu innovations entice cash-strapped consumers to the Golden Arches’ value proposition.

At current prices, MCD shares are trading at 14.2x our 2009 EPS estimate, which we think is justified by the company’s strong balance sheet, consistent earnings, healthy cash flow, high ROE (30%) generous, safe dividend (currently yielding 3.7%) and stock buybacks. In turn, we think the shares provide relative safety and moderate growth in a turbulent environment and exposure to faster-growing international markets.

Read the full analyst report on “MCD”
Read the full analyst report on “BKC”
Read the full analyst report on “YUM”
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