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Coffee Business Boosts McDonald's U.S. Sales

NEW YORK -- McDonald's Corp. reported a better-than-expected quarterly profit, crediting its coffee business for boosting U.S. sales. Same-store sales rose 1.5 percent during the quarter and 4.2 percent in March thanks to the chain's McCafé coffees and other beverages, Reuters reported.

Meanwhile worldwide, sales at established McDonald's restaurants rose 4.2 percent for the quarter, which ended March 31, and 5.2 percent in the month of March.

McDonald's has had success with its foray into coffee despite early complaints about the cost to franchisees, who were squeezed by the economic downturn, the report stated. This quarter, the fast-food chain encroached further into Starbucks Corp.'s territory by introducing lower-priced frappes designed to compete with Frappuccinos.

McDonald's Chief Executive Jim Skinner said in a statement that so far, same-store sales in April were "trending at least as strong as first-quarter sales." McDonald's first-quarter profit was $1.09 billion, up from $979.5 million a year earlier.

The company's gross margins also got a lift from the coffee sales, and company-operated restaurant expenses that rose more slowly than revenues, sending its operating margins up 2.2 percentage points to 29.8 percent of sales, according to the report.

Morningstar analyst R.J. Hottovy told Reuters he expects McDonald's' higher-margin coffee business to keep growing, saying "the coffee market is large enough to support two major players, or more." He also foresees the chain's overseas growth to remain robust because its menus overseas successfully cater to local tastes.

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