Salad Debut in Europe Lifts Sales at McDonald’s

A sales resurgence at McDonald’s Corp. carried it to better-than-expected profit this spring, the company said -- an announcement that sent its stock up sharply.

Based on preliminary numbers, the fast-food giant expects to surpass Wall Street’s forecast with earnings of about 47 cents a share when it reports second-quarter results July 22. Analysts surveyed by Thomson First Call had pegged earnings at 44 cents a share.

McDonald’s reported a 7.8% jump in quarterly sales at established restaurants -- the biggest year-over-year increase for the second quarter since 1987.

President and Chief Executive Charlie Bell cited success with newly introduced salads in Europe and the beginning of a music-download promotion as contributing to the upswing.

“This steady business momentum is what we planned to achieve when we launched our revitalization initiatives in early 2003,” he said.

The news sent McDonald’s shares, for the first time, back to the level they traded at before the April 19 death of CEO Jim Cantalupo, whose back-to-basics approach helped prompt a yearlong resurgence of sales and the stock price. The company’s shares Wednesday rose $1.11 to $27.79 on the New York Stock Exchange.

Sales at McDonald’s outlets open for at least a year climbed 8.4% in June over the same month in 2003, including a 6.6% increase in the U.S. and 3.6% in Europe. For the quarter, comparable sales were up 9.2% in the U.S. and 4.4% in Europe.

The European increase was notable in showing that the company’s recovery had taken root in its second-biggest market behind the U.S. McDonald’s has 6,100 restaurants in Europe, accounting for 35% of worldwide revenue, and it was the third consecutive quarter of higher comparable sales after a protracted slump.

“McDonald’s Europe is re-energized,” said Russ Smyth, president of the company’s European business, where restaurants in France, Germany and Britain generated 75% of the unit’s $1.3-billion operating profit last year.

Smyth told analysts in a presentation to the CIBC World Market conference in Boston that salads were having an even stronger debut than they did in the U.S. or Australia and were resulting in much higher average sales per customer.

“We’re focusing our efforts on females and on young adults specifically,” he said.

Looking to improve its service, McDonald’s also is working harder to hire friendly people and to give its employees hospitality training, Smyth said.

Morningstar analyst Carl Sibilski noted that the strong showing came at a time when results, from the U.S. in particular, faced tough comparisons against the highly successful spring of 2003, when McDonald’s introduced salads and McGriddles breakfast sandwiches.

“This should put to rest some of the skepticism about the momentum behind the recovery,” he said.