Higher prices boost McDonald's April sales

LOS ANGELES/CHICAGO Mon May 9, 2011 3:18pm EDT

A U.S. flags flutters in the wind in front of a sign for a McDonald's restaurant in Los Angeles April 4, 2011. REUTERS/Mario Anzuoni

A U.S. flags flutters in the wind in front of a sign for a McDonald's restaurant in Los Angeles April 4, 2011.

Credit: Reuters/Mario Anzuoni

LOS ANGELES/CHICAGO (Reuters) - McDonald's Corp (MCD.N) posted a better-than-expected 6 percent global rise in April sales at established restaurants as higher menu prices helped offset rising costs for beef and other ingredients.

Shares in the world's biggest hamburger chain were up 1.1 percent in afternoon trading on Monday after it reported that April sales at restaurants open at least 13 months were up 4 percent in the United States.

Same-restaurant sales rose 6.5 percent in Europe and the same amount in its Asia/Pacific, Middle East and Africa (APMEA) unit, reflecting strong results from China and Australia and a surprise sales rebound in Japan.

"There are not many companies out there showing consistent same-store sales increases in the mid-single digits," Edward Jones analyst Jack Russo said, adding that visits held up as McDonald's raised prices.

McDonald's in March raised menu prices by 1 percent in the United States, where it plans more increases. Prices in Europe are up by the same amount, and the company plans to raise prices in China.

The company expects food costs to rise between 4 percent and 4.5 percent in the United States and Europe this year.

McDonald's has an edge over rivals when it comes to raising prices because it attracts a higher-income diner than other fast-food chains -- particularly in Europe. Analysts say it would have the least resistance if it boosted prices on premium burgers and McCafe drinks that appeal to those customers.

Investors also are watching to see if $4 per gallon gas will lower sales in the United States where McDonald's has 14,000 units.

"There's one on practically every corner, you don't have to go out of your way for it," Russo said.

Bill Smead, a portfolio manager at the Smead Value Fund in Seattle, said, "If you're squeezed in your budget because of higher gas, you're just that much more likely to go in McDonald's."

LE BIG MAC

Europe is McDonald's biggest market, contributing roughly 40 percent of sales, and the United States is a close No. 2 at about 35 percent of sales.

During April, Europe sales benefited from spruced-up restaurants and the popularity of premium food items. U.S. sales got a boost from new McCafe shakes and breakfast items, McDonald's said.

Same-restaurant sales in Japan were up 3.6 percent in April, compared with the 7.3 percent drop in March.

"The strength of our global supply chain allows us to rebound quickly and keep our restaurants operational in times of crises," McDonald's spokeswoman Lizzie Roscoe said.

In addition to advertising pricier products such as new beverages, McDonald's has been catering to budget-conscious diners with its value menu. The chain's broad appeal may give it an edge over smaller chains, such as Wendy's/Arby's Group Inc WEN.N or Jack in the Box Inc (JACK.O), Morningstar analyst R.J. Hottovy said.

Many analysts believe that the company's top priority is getting more customers through the door.

"We believe the company will be judicious with menu pricing and focus on traffic gains," Jefferies & Co analyst Andy Barish said in a client note.

McDonald's shares were up 90 cents at $79.60 in afternoon trading on the New York Stock Exchange.

(Reporting by Brad Dorfman, Lisa Baertlein and Jessica Wohl; Editing by Derek Caney, John Wallace and Robert MacMillan)

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