McDonald’s Posts Strong Global Sales, But Struggles to Attract More U.S. Customers

Wall St. Journal

Micah Maidenberg

Jan 30, 2019

Price increases helped McDonald's Corp. lift sales at its U.S. restaurants in the latest quarter, but overall revenue still drifted lower due to foreign-exchange movements.

     The fast-food chain is trying to draw in diners by revamping stores, using fresh ingredients and pushing sustainability initiatives such as one that requires beef suppliers to reduce their use of antibiotics over the next few years.

     But consumers have evermore dining options, from a growing number of quick-service restaurants to meal-delivery kits.

     Comparable sales, or sales at stores open for at least 13 months, in the U.S. rose 2.3% in the fourth quarter as the Chicago-based company said Wednesday it benefited from higher prices and increased spending on pricier items. Comparable sales at restaurants outside the U.S. grew a stronger rate in the period.

     Overall, McDonald's sales fell 3% from the year earlier to $5.16 billion, in line with analyst expectations. Excluding currency-translation effects, revenue would have been flat.

     Shares of McDonald's rose 2.7% in morning trading as the company delivered a stronger-than-expected profit in the latest period.

     Investors also cheered margins at company-operated U.S. restaurants coming in slightly ahead of what analysts expected, according to Gordon Haskett Research Advisors, as the company spends to remake its locations.

     "It looks to me like they've gotten a much better handle on the ability to manage U.S. restaurant-level margins in the backdrop of a very aggressive U.S. remodel cycle," said Jeff Farmer, an analyst at Gordon Haskett.

     The company reported a profit of $1.42 billion, or $1.82 a share, compared with $699 million, or 87 cents a share, a year earlier. After accounting for a tax benefit and an adjustment related to the federal tax overhaul, the company said it earned $1.97 a share. Analysts expected $1.89 a share.

     McDonald's reported Wednesday that traffic at domestic stores, its largest market, weakened last year. Comparable guest counts, which measures transactions at restaurants open for at least 13 months, declined 2.2% in 2018 compared with a 1% gain in 2017. Globally, traffic ticked up 0.2% last year.

     McDonald's also said it expects long-term average sales growth across the company of 3% to 5% and earnings-per share in the high single digits.

     This year, the company expects to open 1,200 restaurants and spend about $2.3 billion on capital expenditures, with $1.5 billion spent on the U.S. business. Globally, the company predicts it will add a net 750 new stores this year.

     McDonald's late last year turned its focus to its breakfast menu, which accounts for a quarter of its sales. The company offered a limited-time Triple Breakfast Stacks sandwich and has tested selling coffee cakes and muffin tops.

     McDonald's has pursued other promotions, too. It tried to attract customers into its restaurants on Tuesday by allowing them to add bacon for free to anything on the menu at participating domestic stores during a one-hour stretch in the late afternoon, according to a statement.