McDonald’s wins with all-day breakfast, China back on track
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McDonald’s Corp smashed analyst expectations for quarterly same-restaurant sales as the launch of all-day breakfasts proved a hit with diners in the United States and demand continued to recover in China.
The performance adds fuel to McDonald’s revival, after the chain had seen its US sales fall for two years up to the third quarter of 2015 following a series of missteps under former chief executive Don Thompson, who left the world’s biggest restaurant chain last year.
“Once upon a time, under previous leadership, it seemed like McDonald’s became a less nimble company where it took a really long time to roll out new products and innovations,” said Morningstar analyst RJ Hottovy.
New Chief Executive Steve Easterbrook implemented a turnaround plan last year that involved making the menu simpler, improving service times and raising worker wages.
McDonald’s also launched all-day breakfasts in October in the United States, a move aimed at countering increasing competition from chains such as Wendy’s Co, Starbucks Corp and Burger King.
“All-day breakfast positions us to regain market share we had given up in recent years,” Easterbrook said on a post-earnings conference call, adding it would take at least six more months of positive sales to cement a more sustained turnaround.
Sales at US outlets open at least 13 months rose 5.7 per cent in the quarter ended December 31 – the best quarterly growth in nearly four years and far ahead of forecasts of 2.7 per cent.
Shares rose 3 per cent to a record of $121.90 on Monday.
China back on track
“Sales at US outlets open at least 13 months rose 5.7 per cent in the quarter ended December 31 – the best quarterly growth in nearly four years and far ahead of forecasts of 2.7 per cent.”
In China, where McDonald’s and rival Yum Brands Inc are still recovering from a July 2014 food safety scandal, same-store sales rose 4 per cent, the second straight quarter of growth after four quarters of falling sales.
The growth, however, was slower than the 26.8 per cent jump in the July-September quarter, when sales ticked up sharply against a steep drop in the same period in 2014 immediately following the food scare at key supplier OSI Group.
McDonald’s and Yum, the parent of KFC and Pizza Hut, are slowly turning things around in China, although same-restaurant sales for both firms remain below pre-scandal levels, according to a Reuters analysis of available data.
“It’s back to par rather than getting ahead too much, but it’s good for them to see stable sales,” said Ben Cavender, Shanghai-based principal at China Market Research Group.
He added it would be tough for the firm to re-ignite the kind of rapid growth it enjoyed before 2012, as Chinese diners now had far greater choice and often looked for more healthy options.
What’s more, the recovery comes as the world’s second-biggest economy faces its weakest growth in 25 years, a slowdown that has roiled global markets in the past few months.
Globally, McDonald’s same-restaurant sales rose 5 per cent, above the 3.2 per cent expected by analysts polled by research firm Consensus Metrix.
Fourth-quarter net income rose 9.9 per cent to $1.21 billion, or $1.31 per share, on revenue of $6.34 billion, handily beating analysts’ estimates.
The company also said it was exploring a sale of a portion of its Japan business, confirming earlier reports on the move.
Questions & Answers
Q.What specifically caused the improvement in McDonald's US sales performance?
What specifically caused the improvement in McDonald's US sales performance?
The launch of all-day breakfasts proved a hit with diners in the United States. New CEO Steve Easterbrook also implemented a turnaround plan involving a simpler menu, improved service, and higher worker wages.
Q.How long has it been since McDonald's US sales saw similar growth?
How long has it been since McDonald's US sales saw similar growth?
Sales at US outlets open at least 13 months rose 5.7 per cent in the quarter ended December 31. This represents the best quarterly growth in nearly four years.
Q.What factors are making it difficult for McDonald's to achieve rapid growth in China again?
What factors are making it difficult for McDonald's to achieve rapid growth in China again?
Chinese diners now have much greater choice and often seek healthier options. The wider Chinese economy is also facing its weakest growth in 25 years, impacting markets.
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