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McDonald's franchisees optimistic about sales growth

McDonald's Egg McMuffin and hash browns.
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McDonald's Egg McMuffin and hash browns.

Consumers aren't the only ones loving McDonald's all-day breakfast. Franchisees of the chain are finally feeling optimistic after a spell of declining sales over the last year.

While same-store sales in the third quarter continued to fall, franchisees had a positive outlook for the fourth quarter, according to a well-known restaurant analyst at Nomura.

In aggregate, third-quarter sales declined by 0.9 percent for 29 franchisees who collectively own about 226 stores in the United States, according to analyst Mark Kalinowski, who has taken the pulse of McDonald's franchisees for years.

Stores in the South reported the biggest dip in same-store sales, falling 1.6 percent.

Yet despite this decline, franchisees are feeling confident about a turnaround. Their aggregate expectation for this quarter is a 1 percent increase, with stores in the North expecting a 2.7 percent boost in sales.

McDonald's has reported seven straight quarters of decreasing U.S. sales.

This renewed optimism appears to be the result of McDonald's all-day breakfast initiative.

Perception of the restaurant's brand hit a two-year high in the last two months, according to YouGov BrandIndex. The consumer research firm suggested that the launch of the all-day breakfast campaign was a major factor in the changing consumer sentiment and could provide a boost for the struggling chain.

McDonald's all-day-breakfast marks its biggest initiative in years — a move aimed both at answering consumer demand for breakfast throughout the day and helping boost traffic at the floundering giant.

The chain has long dominated the breakfast category. Within McDonald's own lineup, breakfast accounts for roughly 25 percent of sales and 40 percent of profit in the United States alone.

The turnaround is fairly pronounced - just 4 months ago, Kalinowski said franchisee sentiment was at an all-time low.

Nomura lowered its earnings per share estimates by $0.01 for both Q3 and Q4, to $1.27 and $1.17, respectively. The firm also lowered its full-year estimate by $0.02 to reflect the lower base of anticipated earnings.

Despite the rocky turnaround, McDonald's shares have beaten the market of late, rising 10 percent this year.