MCDONALD'S

Earlier this week McDonald's reported February sales. Same store sales were up 4.7%, total sales up only 3%. Sofar this year SSS were up 5.7% in Jan and the 4.7% last month, This is the best back to back SSS increase since 2004 but the stock didn't react, and in fact has been acting week for a month. What gives? Total sales growth has been slowing significantly and persistently throughout 2005. Read my posts on 1/25 and 8/15/05 for background. It is now picking back up but the stock gets no benefit. Analysts have the first quarter earnings at .48 a share, about the same as last quarter, although last qtrs .48 included .015 impairment charge for South Korea, but was fairly clean otherwise. 2005 quarterly numbers have been a quagmire to sort out because of impairment charges, repatriation of overseas profits, large tax benefits, etc, making it easy to obfuscate the underlying trends.

To make .48 last quarter, they had 5.235 billion in revenues, which by the way was the first sequential revenue drop in a 4th quarter since 2002. With two months under our belts and total sales growth was 4.2% in Jan and 3% in Feb yoy. Total revenues are always a bit higher than the sales numbers they announce monthly because they do not include affiliated restaurants like Boston Market. So lets assume next month totals sales spurt to 5% and avg 4% for the quarter, throw in another 1% for Boston Market and say total revenues will be up 5% forma year ago. Last year's 1st qtr revenues were 4.8 bil, so a 5% increase would take them to 5.04 bil. Bottom line, I don't think they are going to make their numbers. They could miss by 2 cents. They sold some Chipolte shares and took a capital gain but that was offset with some further impairment charges. They also bought back a lot of share this quarter which will help and they could sell more Chipolte shares, but I think the street would see through that. In any event we will know in early April as they always pre-announce earnings with their monthly sales release. As an aside, I saw on Bernie Schaeffers website that the Mar 37 1/2 calls had large open interest, probably due to the earlier hedge fund interest in McDonald's. They look to expire worthless now.