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McDonald’s Store Comps to Improve Says Janney, but Franchisees Unhappy

LEXINGTON, Ky. — Janney Capital Markets maintained its rating of buy for McDonald's stock (NYSE:MCD) based on its anticipation that same-store sales for McDonald's restaurant units will gradually improve in 2013. "We believe that investors are more prepared today than they were in September for the tough sales comparisons," said Mark Kalinowski, analyst for Janney.He estimates that it will become easier to better last winter's stellar year-over-year store comparisons as the year goes on. December 2011's mild winter days saw comps that were at +9.8 percent, which will be highly challenging to meet or exceed this season.

Kalinowski surveys multiunit franchisees throughout the year to help him better anticipate same-store sales results. Based largely on the answers of McDonald's franchisees, Kalinowski writes in his January 11 report "We raise our January U.S. same-store sales forecast by a percentage point, to 0.0% (consensus is at -1.0%)."

The franchisees' aggregate response was that they anticipated +.8 higher comps for January, pushed slightly up by more restaurants being open on Christmas Day.

 Chart fo McDonald's Corp stock price

data by YCharts

But there is a dark cloud for the franchise system around that silver lining for Wall Street.

Surveyed franchisees are at high levels of unhappiness in gauging their franchisor's performance. They rank relations with the franchisor between poor and fair, with the average response on this go-round at 1.76. A ranking of one is poor and two is fair. "To put this 1.76 result in context, it is quite far from the average result of 2.1 to 2.2 over the history of the survey," says Kalinowski in his survey report. The unfavorable evaluation of their relationship has slipped below the alarming 1.77 rating of three months ago.

"Does management care about anything beyond their bonus and stock holders?" wrote one anonymous McDonald's franchise owner in the survey. Another wrote, "Oak Brook (franchisor McDonald's Corp) is scrambling to keep the stock price up [with] more and more discounting, dollar menu, $1.99 Big Mac, coupons, [stores] open 24 hours...[and] more staffing at 11 a.m. to 2 p.m."

Consultant Richard Adams of Franchise Equity Group, a well-known expert on McDonald's operations and franchises, observes that despite surpassing the lowered expectations of Wall Street investors, the mood of McDonald's franchise owner-operators with franchisor McDonald's remains gloomy. Adams tells Blue MauMau: "McDonald's franchisees are increasingly frustrated by the push for same store sale increases since a modest increase in sales does not always translate to profits for the franchisee. For instance, the frantic efforts by McDonald's headquarters to keep many restaurants open on Christmas Day increased rent and royalty payments to corporate but it was not profitable for franchisees due to the break even costs of keeping a restaurant open." The former McDonald's executive continues, "The tug of war between sales at any cost and profitable sales may be reaching a breaking point."

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