McDonald's Profit Rises, Refranchising Drive Dents Revenue--Update
25 October 2017 - 1:18AM
Dow Jones News
By Annie Gasparro
McDonald's Corp.'s pivot to cost-conscious customers is gaining
traction.
The burger and fast-food restaurant chain said that sales in
restaurants opened at least 13 months surpassed expectations in the
latest quarter, rising 6% globally. That was largely fueled by
higher customer visits in the U.S., driven by low prices on
beverages and its value menu offerings, McDonald's said on
Tuesday.
"We are serving more customers, more often," said McDonald's
President and Chief Executive Officer Steve Easterbrook.
McDonald's began revamping its value menu in the U.S. a couple
of years ago, after realizing that it had been losing customers in
recent years to rivals serving cheaper food rather than higher-end
fast-casual restaurants it had been trying to emulate with
healthier and upscale items.
In recent months, its $1 drinks and promotion to pick two items
for $5 helped draw in more customers.
In the U.S., McDonald's said it also benefited from the
continued success of its premium, semi-customizable burgers and
sandwiches, which are more expensive than a Big Mac, but cheaper
than some higher-end burger chains like Five Guys. It is part of a
high/low menu strategy it says it is employing to attract customers
and maintain profit margins. In the latest quarter, its operating
margin continued to expand.
McDonald's per-share profit rose 9% on a comparable basis,
excluding certain one-time items. Its shares were up about 1% in
Tuesday morning trading. Over the past year, McDonald's shares had
risen 44% through Monday's market close.
Total revenue fell about 10% to $5.75 billion in the quarter,
after McDonald's sold more of its restaurants to franchisees and
only collected a percentage of the sales from them, the company
said. During the quarter, McDonald's sold its locations in China
and Hong Kong to franchisees, reaching its target to refranchise
4,000 restaurants.
"McDonald's ability to consistently grow earnings despite a
generally volatile environment" makes this quarter the 10th
consecutive period that the chain met or beat analysts'
expectations, said Will Slabaugh of investment bank Stephens
Inc.
McDonald's is also adding self-order kiosks, delivery, mobile
ordering and payment, and remodeling restaurants, in an effort to
set itself up for long-term growth.
McDonald's has been testing delivery in the U.S. with UberEATS
since January, and in July expanded delivery to 13 countries,
including 3,500 restaurants in the U.S. The chain, which offered
delivery in Asia and the Middle East for many years, said it
remains a clear opportunity for sales growth given that 75% of the
population in its biggest global markets live less than 3 miles
from a McDonald's.
Write to Annie Gasparro at annie.gasparro@wsj.com
(END) Dow Jones Newswires
October 24, 2017 10:03 ET (14:03 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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