McDonald’s serves up best sales rise in 5 years

Menu overhaul and discounts bring more Americans back into restaurants
A two-year campaign by chief executive Steve Easterbrook to lure people back to the golden arches is paying off © Dreamstime

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McDonald’s has reported its best showing for global comparable sales in five years, reassuring investors that the world's biggest burger chain can keep pace with shifting appetites.

The company known for Big Macs and supersized fries said it drew more Americans into its restaurants in the three months to the end of June, the first time in years, as it looks to adapt to healthier consumer tastes and compete with new rivals in the fast casual food industry.

Global like-for-like sales, a key metric, rose 6.6 per cent in the three months to the end of June, beating Wall Street estimates for a 3.7 per cent gain. 

The results help validate a two-year campaign by chief executive Steve Easterbrook to lure people back to the golden arches, after losing 500m restaurant visits in the US since 2012. “We’re building a better McDonald’s and more customers are noticing,” Mr Easterbrook said on Tuesday.

McDonald’s has defied a gloomy outlook for the US casual restaurant sector, with shares up 25 per cent this year, boosted by the better sales performance. Shares were up 4.4 per cent to $158.44 in morning trading on Tuesday. 

The 77-year-old company has looked to overhaul its menu under the guidance of Mr Easterbrook, who took over as chief in 2015 and faced sagging sales. The 49-year-old British executive has aimed to win customers back through upmarket burgers, digital ordering and aggressive price promotions, such as $1 soft drinks and $2 coffee. Shares in McDonald’s have climbed 60 per cent since Mr Easterbrook took over in March 2015, from his previous role as head of UK and Europe. 

Same-store sales in the US, where McDonald’s derives a third of sales, rose 3.9 per cent in the quarter, surpassing forecasts for a 3.2 per cent lift.

The company says the US growth reflected the success of cheaper drinks and its introduction of upscale sandwiches made with what it describes as artisanal bread, to compete with an upscale and expanding Shake Shack.

Net income rose 36 per cent to $1.70 a share, on sales of $6.05bn. This exceeded analyst forecasts for earnings of $1.62 a share on sales of $5.96bn. 

“The consumer is finally coming first for McDonald’s” as the company undergoes a “multi-faceted brand turnround”, said David Palmer of RBC. 

McDonald’s in March said it would start using fresh beef instead of frozen patties in its Quarter Pounders across the US by next year, a significant shift for one of its biggest-selling products as the company looks to meet customer demand for fresh products.

The US restaurant business is undergoing seismic change as Americans seek out healthier food. At the same time, the price of groceries in the US has fallen for 18 straight months, the longest stretch since the 1950s, making eating at home cheaper and adding pressure to the likes of McDonald’s.

An explosion of entrants in the fast casual food chain business, such as Chipotle and Five Guys, and rising labour costs have also squeezed the business.

“A lot of people had really not given McDonald’s a chance in the last 5 years,” says Trip Miller, a partner at Gullane Capital Partners and a McDonald’s shareholder for 13 years. “This is a business that had been in turnround mode [under Mr Easterbrook] and we are starting to see some of these positive results now.”

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