McDonald’s Is Showing No Signs of Slowing Down

McDonald’s (MCD) impressive turnaround is continuing apace.

The fast-food chain on Tuesday reported another quarter of growing revenue, spurred by same-store sales rising a better-than-expected 4.5% in the United States, its largest market by far, and continuing a momentum that started to build three years ago.

McDonald’s has been winning market share back through different initiatives in the last few years, from new iterations of its classic burgers to food delivery to a mobile app as well as to discounted drinks and offerings like the McPick 2 deal and the new Buttermilk Crispy Tenders. That has led shares to all-time highs of late. And the chain expects the rollout in the middle of the year of its fresh beef Quarter Pounder to feed that momentum.

At the same time, the recent introduction of a new value menu is raising concerns it could eat into profits and hurting sales of other items, a problem McDonald’s has grappled with in the past. So far, the menu is attracting new customers, according to report earlier this week by Bloomberg News. Still, as rivals like Taco Bell introduce their own super-cheap options, the going will only get tougher for McDonald’s.

“As much as the focus on value drives trade (business), it is also cannibalizing sales of higher priced menu items,” Neil Saunders, managing director of GlobalData Retail, wrote in a research note. Still, he lauded McDonald’s tech investments and initiatives such as a better display for items like snacks and treats.

The company will continue those restaurant renovations: McDonald’s expects to spend about $2.4 billion of capital in 2018, primarily for the upgrade of restaurants in its “Experience of the Future” initiative as well as the opening of 1,000 restaurants this year.

Overall for the first quarter, McDonald’s had a profit of $698.7 million, or 87 cents a share, compared with $1.19 billion, or $1.44 a share, a year ago. Stripping out some charges related to the new U.S. tax law, it earned $1.71 a share, up from $1.43 a year earlier, below analysts’ forecasts for $1.59. Revenue dropped 11% to $5.34 billion from the year-earlier quarter because of the sale of company-owned restaurants to franchisees. McDonald’s shares, which had risen 45% this year, slipped 1.5% in mid-morning trading.

As for what’s next, McDonald’s Chief Executive Steve Easterbrook, the architect of the chain’s return to form, said the initiatives will continue to pay off. “We are confident that we will accelerate our momentum by capitalizing on our strong business model and distinct brand advantages in convenience, menu variety and value,” he said in a statement.


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