McDonald's turnaround gaining momentum

by Keith Nunes
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McDonald's meal
During the second quarter, McDonald’s earnings rose 28% to $1,395.1 million.
 

OAK BROOK, ILL. – McDonald’s Corp. is slowly changing the narrative. A strong second quarter affirms a management vow to turn around the company, and newly launched initiatives may help the world’s largest fast-food company sustain momentum.

During the second quarter, ended June 30, McDonald’s earnings rose 28% to $1,395.1 million, equal to $1.70 per share on the common stock, and an increase compared to the same period of the previous year when the company’s net income totaled $1,092.9 million, or $1.25 per share.

Sales during the quarter fell 3% to $6,049.7 million from $6,265 million the previous year. The sales decline was due to the company’s refranchising initiative.

Steve Easterbrook, McDonald's
Steve Easterbrook, president and c.e.o. of McDonald's

“We grew global comparable sales 6.6% and global guest count 3%, resulting in strong earnings growth,” said Steve Easterbrook, president and chief executive officer, during a July 25 conference call with financial analysts. “Our strength was broad-based as we grew sales and guest counts in every one of our top 9 markets from the first time since 2008.”

In the United States, second-quarter comparable sales increased 3.9%, reflecting the national cold beverage value promotion and the launch of the Signature Crafted premium sandwich platform, according to the company. Core strategies in the United States continue to focus on building momentum as it executes strategies to enhance convenience, strengthen value and innovate around the menu to bring more customers to McDonald’s more often.

Kevin Ozan, McDonald's
Kevin Ozan, c.f.o. of McDonald's

“… While the environment in the U.S. remains very competitive, we’re pleased with our comp sales growth for the quarter, up positive 3.5% versus our Q.S.R. sandwich competitors, a good indication that we're beginning to make headway on regaining customers,” said Kevin M. Ozan, chief financial officer.

To maintain the momentum, McDonald’s is focused on three initiatives around digital, delivery and the company’s experience of the future in its U.S. restaurants.

“These new platforms for growth build on our foundation and enhance or accelerate everything else we’re doing for the customer,” Mr. Easterbrook said. “They bring the biggest benefit to the most people in the shortest possible time. And we’re making great progress with bringing the accelerators to a growing number of restaurants.”

McDonald's delivery with UberEats
McDonald's has partnered with UberEats to deliver food to customers in select markets nationwide.
 

With digital, the goal is to enhance the level of convenience experienced by customers via mobile order and pay. Mr. Easterbrook said the company is focused on having the program in place in 20,000 restaurants worldwide by the end of this year and in 14,000 restaurants in the United States.

“Whilst we’re in early days, we’re seeing higher average checks and the curbside pickup as a convenience that customers value and thus, enabling us to grow capacity at peak times,” he said.

With delivery, the company has scaled up the initiative from a few restaurants in the Miami area to 4,000 locations in the United States and Australia.

McDonald's mobile order & pay app
With digital, McDonald's goal is to enhance the level of convenience experienced by customers via mobile order and pay.
 

“In each of the markets where we’ve launched delivery this year, our size and scale have provided an additional advantage,” Mr. Easterbrook said. “We've been able to partner with the strongest third-party operators like UberEATS to pick up food from our restaurants and deliver to our customers. We’re encouraged by the results we’ve seen so far with the expansion of delivery. They give us confidence there’s meaningful opportunity with the customers we want to regain and we’ve only scratched the surface.”

Two added benefits from the delivery roll-out and trials are the company is experiencing higher delivery check sizes and many delivery orders are coming into franchisee stores during traditionally slow periods during the day.

With regards to the company’s “experience of the future,” the initiative focuses on taking learnings from different parts of the world and applying them in the United States. As part of the effort, the company engaged its franchisees, outlined what its future plans may entail and gave the individual franchisees a chance to decide if they want to be a part of it. With a deadline of October, Mr. Easterbook said 85% of franchisees have signed on to the plan.

McDonald's restaurant franchise
 

Eighty-five per cent of McDonald's franchisees have signed on to the "experience of the future" plan.

“We have always prided ourselves on continuous improvement, and now we’re doing it at an even faster pace,” he said. “That is what makes me most confident about McDonald’s.”

For the first six months of the fiscal year, McDonald’s net income totaled $2.609.9 million, equal to $3.17 per share, and an increase compared to the previous year when the company earned $2,217.7 million, or $2.51 per share.

Sales for the period fell 4% to $11,725.6 million from $12,168.9 million for the previous year.
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