McDonald's: Lifting All Boats? (MCD, YUM, SBUX, DNKN, GMCR)

McDonald’s Corp. (NYSE: MCD) announced this morning that US same-store sales in July increased by 4.4%. In the announcement, the company noted especially its McCafe drinks and its “market-leading breakfast.” World-wide, same-store sales grew 5.1%.

In the event, the fast-food business appears to be healthy overall, as both Yum! Brands Inc. (NYSE: YUM) and Starbucks Corp. (NASDAQ: SBUX) received ratings upgrades to ‘Outperform’ this morning from analysts at Robert W. Baird. But, McDonald’s and Yum appear to have the inside track on weathering the storm that is following on the heels of S&P’s downgrade of US debt.

Dunkin’ Brands Group, Inc. (NASDAQ: DNKN), which came public only a couple of weeks ago, is still unrated. It does seem odd, though, that both Starbucks and McDonalds, really at opposite ends of a price spectrum, should both be doing well. That probably can’t continue.

Starbucks had its lunch eaten by McDonald’s introduction of lower-priced coffee drinks. The coffee icon was forced to close hundreds of stores and fire thousands of employees to get its costs back in line with its revenues. It’s done about all it can do to cut costs. Now it has to set its sights elsewhere.

Starbucks and its expensive coffee drinks are at a disadvantage if consumer spending slows down. It will begin in the fall to sell its coffees in the popular single-serving Keurig K-cups. Dunkin’ has beaten Starbucks to the punch, at least with K-cups, introducing the product in its stores last week.

But Starbucks’ deal with Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR), owners of the Keurig system, allows the chain to sell the K-cups in its own stores as well as in the mass retail market. Dunkin’ can only sell K-cups in its own restaurants. Advantage Starbucks.

Dunkin’ has had its problems since it’s soaring IPO. The fast food sector is expected to grow as the economy tightens again, but the question for Dunkin’ is how it will take advantage of that growth. Its Baskin-Robbins stores may suffer from consumers giving up the small luxury of an ice cream cone. If that happens, Dunkin’ is faced with head-to-head battle against McDonald’s, and that’s a fight Dunkin’ will have a hard time winning.

Yum’s approach to profits has been to maintain diverse offerings through its stable of brands. Taco Bell, KFC, and Pizza Hut have all been providing nice profit streams from different parts of the world. The company’s strategy appears to be paying off, and there’s no reason to believe it won’t continue to expand internationally.

McDonald’s is poised to do well no matter how issues with the economy shake out. To some degree so is Yum. Starbucks and its deal with Green Mountain could falter if the economy really sours. The company bet on a recovery in the economy, not a downturn. Dunkin’ is trying everything in an effort to keep up.

Shares of all these companies’ stocks are down this morning, as the market opened weakly. McDonald’s is off about -1%, at $84.16 in a 52-week range of $70.02-$89.57. Starbucks’ shares are down about -1.33%, at $36.10, in a 52-week range of $22.50-$41.11. Yum’s shares are down nearly -2%, at $49.74, in a 52-week range of $40.51-$57.75. Dunkin’s shares are down about -2.5%, at $26.19, in a post-IPO range of $24.97-$31.94.

Paul Ausick