McDonald's reported Q4 earnings, falling short of analyst expectations with EPS of $2.80 (vs. $2.84 forecast, flat year-over-year (y-o-y)) and revenue of $6.39 billion (vs. $6.45 billion forecast, also flat y-o-y). Q4 results were underwhelming with rising costs outpacing revenue growth, largely in line with the company's previous quarters' performance in 2024. McDonald's reported a decrease in global comparable sales by 0.1% for the full-year 2024, although Q4 saw a modest increase of 0.4%. However, U.S. same-store sales in Q4 were down 1.4% y-o-y, as the E. coli outbreak offset momentum in late October. On the other hand, International-owned stores saw positive same-store sales growth in the Middle East, attributed to the lapse of the impact of the Israeli conflict, plus growth in Japan and encouraging signs of stabilization in China.
McDonald's is poised to focus on value and affordability in 2025, aiming to recapture market share among low-income consumers through menu innovation and strategic marketing initiatives. To drive growth, the company introduced its McValue menu platform, featuring new offerings such as chicken tenders and snack wraps, and bringing back the Chicken Big Mac for limited-time offers.
Although the company anticipates a gradual recovery, with a full business rebound only expected to begin in the second quarter of 2025, it remains committed to expanding its global footprint with approximately 2,200 new restaurant openings, including 25% in mature markets of the U.S. The company also aims to reach 50,000 restaurants by the end of 2027 and increase its active digital users to 250 million. Looking ahead, McDonald's is targeting an operating margin in the mid-to-high 40% range for 2025. For context, the company's operating margins fell to 45.2% in FY 2024 compared to 45.7% in FY 2023.
Below are key drivers of McDonald's value that present opportunities for upside or downside to the current Trefis price estimate:
The company franchises and operates McDonald’s restaurants, which serve a locally relevant menu of quality food and beverages in communities across more than 100 countries. Approximately 95% of the restaurants at year-end 2024 were franchised, including 95% in the U.S., 89% in the International Operated Markets segment and 99% in the International Developmental Licensed Markets segment.
McDonald's essentially offers a uniform menu, though with minor variations to suit the local taste. A typical McDonald's menu includes burgers, sandwiches, salads, snacks, breakfast sandwiches (McMuffins), beverages (soft drinks, coffee, milkshakes, juices), and desserts (ice cream, pies, smoothies).
McDonald's competes primarily with Wendy's and Burger King in the hamburger fast food category. It competes with Starbucks through McCafe.
McCafe represents McDonald's foray into the high-margin caffeinated beverages market dominated by premium coffee chain Starbucks. McDonald's has been able to keep the prices competitive and margins healthy due to its excellent store network, marketing muscle, and highly efficient supply chain. McCafe's menu has been extended to more than coffee and now includes fruit smoothies, mocha, and chocolate shakes.
The breakfast market is proving to be a profitable segment, especially in the U.S. McDonald's is the dominant player in the breakfast segment with a market share of over 40%. McDonald's ensures new items are added to the breakfast menu regularly. However, it now faces serious competition as a number of rivals such as Dunkin' Brands, Restaurant Brands International, Taco Bell, and Starbucks have stepped up their game in the breakfast segment. Starbucks is in the process of reinvigorating its breakfast menu with the help of baked goodies launched under the La Boulange brand. Restaurant Brands International houses two well-renowned brands: Burger King and Tim Hortons, both of which already have a strong presence in the breakfast market. Dunkin' Donuts has also revamped its breakfast menu to cater to the needs of its customers.
McDonald's is in the process of converting its stores into "Experience Of The Future" restaurants, providing technological convenience to its customers. The company's focus on balancing its innovative gourmet offerings to attract millennials with its value focus to retain existing customers is likely to drive growth in the future.
