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McDonald’s sales beat expectations as turnaround continues

Annie Baxter Jan 25, 2016
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McDonald’s sales beat expectations as turnaround continues

Annie Baxter Jan 25, 2016
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A turnaround effort at McDonald’s is gaining some momentum. Sales at established U.S. stores — a core market — jumped 5.7 percent in the fourth quarter of last year, marking the best quarter in nearly four years.

A new all-day breakfast initiative helped to brighten that picture.

“It exceeded our expectations,”  McDonald’s chief executive Steve Easterbrook said on an earnings call with analysts.

Easterbrook said the company is also making strides improving food quality and drive-thru order accuracy, which had been problems for the fast food giant.  Before Easterbrook took over last spring, U.S. sales had seen a couple years of declines.

“All-day breakfast is understandably more of a headline grabber,” he said. “But we believe that building these other platforms of growth on top of that will keep us competitive in the marketplace.” 

McDonald’s stock price climbed on the earnings news.

But restaurant consultant Aaron Allen said he’s still skeptical of McDonald’s path. He said franchisee sentiment is low, the menu at the Golden Arches is too sprawling and confusing, and fast-food hamburger joints are not in a great spot. 

“U.S. hamburger consumption per capita is not increasing,” he said. 

Allen said fast-casual players are stealing market share. He said the number of locations McDonald’s has closed is roughly on par with the number of new locations opened by fast-casual burger concepts. 

And that’s happening against a broader backdrop of change in the fast-food industry. 

“The millennials, who were the heaviest users of quick-service places, have cut back dramatically on visiting restaurants,” said restaurant industry analyst Bonnie Riggs at the NPD Group.

All this does pose questions for McDonald’s future, according to Andy Barish, managing director at Jefferies.

“Whether or not they can connect with this next generation of millennials and continue the performance medium to longer term, that’s a question I don’t think anyone can answer,” he said. “But the near-term results have clearly been on an upswing.” 

Meanwhile, McDonald’s Easterbrook cautioned that it will take a few more quarters of strong results before the company can move past its turnaround phase, which has ushered in two quarters of stronger performance. 

“When we get confident that it’s the right time to transition from turnaround into growth,” he said. “We will share that internally and, soon after, externally.”

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