McDonald’s Delivers Another Stellar Quarter As Guest Count Grows
McDonald’s (NYSE:MCD) announced its Q2 2017 results on July 25th and the company beat analyst expectations for both revenues and EPS (earnings per share). The major highlight of these earnings was the 6.6% increase in comparable sales primarily due to a 3% increase in guest count. The company’s efforts to gather customer data and tweak its offerings to meet customer requirements appear to be paying off as it retains existing customers and attracts new loyal customers by converting casual customers into loyal ones. This has been McDonald’s strongest quarter in terms of global comparable sales in the last five years. Below is a summary of the company’s comparable sales growth in the past five quarters:
Despite a soft industry environment in the quick service restaurants segment, McDonald’s was able to grow customer traffic in the U.S. through its cold beverage value promotion and its Signature Crafted premium sandwich platform. The company’s efforts to offer premium high quality food along with a value menu and improving the customer experience via digital efforts appear to be paying off. In the U.S. the company’s cold beverage value platform which offered any size beverages at $1 and McCafe drinks at $2 was immensely successful, driving guest traffic for the region in Q2 2017.
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Below is a summary of the company’s financial performance for this quarter:
As McDonald’s continues its refranchising initiatives, the decline in revenues is expected. However, with higher franchisee margins, operating income is increasing, leading to a higher EPS. In this quarter the company returned $1.8 billion to shareholders in terms of share repurchase and dividends, which also contributed to the increase in EPS. McDonald’s is likely to close its China and Hong Kong refranchising transaction in the coming weeks. Once this transaction is completed, the company will reach its goal of refranchising 4,000 restaurants a year ahead of the original timeline.
The company continues to make progress on its “velocity accelerators” which are likely to drive growth in the future:
-McDonald’s is on track to make its Mobile Order and Pay platform available in 20,000 restaurants worldwide by the end of 2017.
– The company is scaling up its delivery initiative, including the partnership with UberEATS. Delivery orders are usually placed in the evenings and late nights and the company views this as an opportunity to grow business during slower periods.
-McDonald’s is working to bringing “Experience Of The Future” to 2,500 of its restaurants in the U.S. this year and preparing for a faster pace of deployment for 2018.
We will be updating our model for McDonald’s based on these earnings and this might might lead to a revision in our price estimate for the company.
For more details on the company refer to our complete analysis of McDonald’s.
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