McDonald's Quarterly Sales Growth And Profit Beat Wall Street Estimates
McDonald's Corp has beaten quarterly sales forecasts and said it will spend more on technology and research in 2020, as the world's largest burger chain bets on revamped stores and menu additions to lure diners and gain market share.
McDonald's CEO Chris Kempczinski, who took charge in November after the former CEO was dismissed, said that global comparable sales growth in 2019 was the chain's highest in more than 10 years.
But the company continues to battle lower US store traffic and faces stiff competition in breakfast against rivals including Starbucks Corp and Dunkin' Brands Group Inc , as well as the Wendy's Co impending launch into morning menu items.
"Breakfast remains the area of focus to further improve US traffic," Guggenheim analyst Matthew DiFrisco said.
Over the past few years, McDonald's has added kiosks, digital displays and delivery partners, as well as new burgers, beverages and breakfast foods.
It also began modernising stores across the globe and bought two smaller technology firms that focus on digitising stores and drive-thru menus.
Sales in US restaurants open for more than 13 months rose 5.1% for the fourth quarter that ended on December 31, slightly above the estimate of a 4.67% increase.
Still, the number of customers at its US restaurants fell 1.9% in the quarter, though that was better than the 2.2% decline for 2018.
"Returning to guest count growth in the US remains our top priority," chief financial officer Kevin Ozan said in a post-earnings conference call.
McDonald's reported a 5.9% rise in global comparable sales, both for the full year and the fourth quarter, beating analysts' forecast for a 5.23% growth, according to IBES Refinitiv.
The stock gained 11.3% in 2019, lagging the broader S&P 500 restaurants index that rose nearly 22% last year.
China Coronavirus Impact
The deadly coronavirus in China led McDonald's to close all of its restaurants in the Hubei province, where the outbreak is centered.
Remaining McDonald's stores in the rest of China are still open, Kempczinski said.
The virus, which originated in the Chinese city of Wuhan, has spread across the world and prompted companies to close stores and restrict travel.
However, for McDonald's, China makes up only about 4% to 5% of systemwide sales and 3% of operating income. In early 2017, it sold 80% of its business there, though it still collects royalty fees and considers China important for potential growth.
Upgrading, Capital Expenditures And New Openings
In the United States, approximately 70% of the fast food chain's 14,000 stores have finished upgrading to more modern counters and dining areas.
This year, McDonald's expects to spend approximately $2.4 billion on capital expenditures, which is about the same amount as last year. About half of that will be in the United States.
It also plans to open approximately 1,400 new restaurants in 2020, mostly outside of the United States.
News by Reuters, edited by Hospitality Ireland.
UK And Ireland Business
Meanwhile, in a statement on McDonalds.com, McDonald’s UK & Ireland CEO Paul Pomroy said, "2019 was a successful year for the UK and Ireland business, and it is testament to our people and franchisees that we have delivered continued strong growth during a tough time for the retail sector. In 2020, we remain committed to continuing investment in the areas driving our growth - our supply chain, our people and our restaurant experience - so over the next three years, £1 billion will be invested to ensure we can continue to focus on what matters most - customers, food, value, service and convenience.
"Our success has been built on investment. We invest in proven business cases that will set ourselves apart from the competition and attract customers. In 2020, investment will be in the customer experience, as, together with our franchisees, we embark on a new cycle of updating the look and feel of our restaurants, as well as in the digital experience. Having opened 40 restaurants in 2019, we plan to open a further 60 in 2020. However, this is not against an easy backdrop - rising food prices, labour costs and inflation, coupled with wavering consumer confidence, have resulted in a tough trading period across the board, and we are mindful of that.
"McDelivery was an important part of our success in 2019, and this year we will be partnering with a second delivery partner to expand this offer and give customers more choice and convenience. Just Eat will come on board later in 2020 alongside our existing and valued provider, Uber Eats, to help meet the demand which saw McDelivery account for more than 10% of sales in 2019.
"Listening to our customers and understanding what they want remains a priority as we grow. In 2019, we served more than 1.1 billion customers. They came to us for their McDonald’s favourites, but also our improved salads and wraps, as well as our coffee, with 14 million more cups sold last year.
"2019 was also a year of continual improvement. Following the introduction of paper straws across our restaurants, we made changes to our McFlurry and salads to reduce plastic waste by 485 metric tonnes annually. We remain committed to the 1270 communities we operate in, the 130,000 people we employ and the responsibility we have as a business environmentally. We will continue to do the right thing and challenge ourselves to do even more. While we undoubtedly live in challenging times, I am confident for the year ahead."
Article by Dave Simpson. Click subscribe to sign up for the Hospitality Ireland print edition.