McDonalds Strong; Circuit City Out

By: TraderMark Monday, November 10, 2008 6:45 PM

Symbols: CC, GS, HD, HPQ, MCD, MORN, RBC, WMT

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Same-store sales, a key gauge of retail health, rose 5.3 percent in the United States, 9.8 percent in Europe and 11.5 percent in the Asia/Pacific, Middle East and Africa (APMEA) division.

RBC Capital Markets analyst Larry Miller said the October results "were above expectations in every division" and that the report's one "negative," which was not unexpected, was that the impact of foreign exchange has started to turn against the company in its overseas markets.

Strong results in the United Kingdom, France and Russia as well as promotions and value items boosted results in Europe, while localized menu items, value items and extended hours helped in APMEA, the restaurant chain said.

Goldman Sachs analyst Steven Kron said in a note to investors that business momentum at the chain is "overpowering" any shift in the strength of the dollar. Overall, Kron said the results "temper lingering concerns that a global economic slowdown will impact the company's results."

Morningstar analyst John Owens said the results show McDonald's is likely benefiting from diners who might ordinarily go to pricier sit-down restaurants but are gravitating to fast food to save money -- a phenomenon called "trading down." (actually it's called "Pooring of America" but "trading down will suffice" - he is about a year and a quarter late on his analysis but good call anyhow)

And in the least surprising bankruptcy filing of the past decade, out goes Circuit City (CC) - they of infamous moves such as firing most of their experienced staff to bring in lower paid newbies. Bright ideas like that are just one of many signature move of management at this fine firm.

Circuit City Stores Inc. filed for bankruptcy protection on Monday heading into the busy holiday season as analysts question whether the nation's second-biggest electronics retailer will be able to survive.
The company said it decided to file for bankruptcy protection because it was facing pressure from vendors who threatened to withhold products during the holiday period. The company also said it cut 700 more jobs at its headquarters, after announcing a week ago that it would close 20 percent of its stores and lay off thousands of workers.
The company laid off about 3,400 retail employees last year and replaced them with lower-paid workers, a move analysts said could backfire, hurting morale and driving away customers.

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