Value deals help McDonald's comeback
McDonald's Corp's turnaround is showing signs of gaining steam - helped by all-day breakfast, value deals and lower commodity prices - even as labor costs and other headwinds linger.
The fast-food chain posted a 6.2 percent gain in same-store sales last quarter, the best performance in four years, and earnings topped analysts' estimates.
The results showed Chief Executive Officer Steve Easterbrook's plan to revive the world's largest restaurant chain is gathering momentum. Since taking the helm more than a year ago, he has revamped drive-thru ordering, tweaked kitchen operations and slimmed down the menu. The company also has reignited sales in the United States with all-day breakfast and McPick two-for-$2 and two-for-$5 deals.
"They're getting back to why customers fell in love with the brand," said Michael Halen, an analyst at Bloomberg Intelligence. "It's really just basic blocking and tackling."
As part of the overhaul, Easterbrook even changed the font on order receipts. That makes it easier for workers to read special requests from customers, improving accuracy.
Yet challenges remain for the burger chain. Companywide revenue still declined last quarter, the seventh straight drop, and higher labor costs are pressuring its profit margins. McDonald's also is embroiled in a dispute with the National Labor Relations Board over whether workers at its franchised restaurants qualify as company employees, a change that threatens to upend its business model.
While revenue dropped 0.9 percent to $5.9 billion in the quarter, that beat analysts' $5.81 billion average projection.
Net income rose to $1.23 a share in the quarter, the Oak Brook, Illinois-based company said in a statement. Analysts estimated $1.16, on average.
Profit is getting a boost from lower prices for ingredients, such as beef, and that trend may continue. The company said it expects its "grocery bill" of 10 commodities to drop by as much as 4.5 percent in the US this year, a larger decline than the company predicted in January.
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