McDonald's Profit Climbs, Showing Turnaround Is Sustainable -- 3rd Update
April 22 2016 - 1:16PM
Dow Jones News
By Julie Jargon
All-day breakfast and a new value menu helped McDonald's Corp.
beat profit and sales expectations for the third straight quarter,
signaling that a turnaround that began last year is
sustainable.
Evidence that Chief Executive Steve Easterbrook's turnaround
plan was gaining traction first emerged in the third quarter of
last year, when McDonald's U.S. division posted its first quarterly
same-store sales increase in two years.
It has been just over a year since Mr. Easterbrook took the
reins at McDonald's, and in that time he has pushed the company to
move quickly to enhance operations, simplify the menu and improve
the food. When McDonald's introduced all-day breakfast last October
in response to customer requests -- the biggest menu change at
McDonald's in years -- company and industry watchers expected
demand for Egg McMuffins at lunchtime to eventually wane, but it is
still driving sales.
Mr. Easterbrook said efforts to get the basics right, such as
improving order accuracy and speeding up drive-through service,
deserve as much credit for the turnaround as the all-day breakfast.
The management team, he said, has gotten into such granular detail
as increasing the font size on order tickets so that crew members
can better see customers' special orders. Higher wages for
employees at company-operated restaurants and tuition assistance
for all workers has resulted in lower crew turnover, he said, which
has led to better customer service. The company also has been
developing new training for employees in an effort to motivate them
to deliver faster, friendlier service.
"Customers in the U.S. are noticing a difference," Mr.
Easterbrook told investors on Friday, explaining that customer
satisfaction scores improved by 6% versus the year-ago period.
After stumbling with a two-for-$2 menu in January, McDonald's
changed its new value offering to two for $5, which it pointed to
as another sales driver in the quarter. Analysts caution that the
effort to arrive at the right price point and product mix for a
national value menu remains a work in progress. Some markets are
testing 2-for-$3.50 and 2-for-$4 deals, and some locations' value
menus include breakfast items.
Sales at McDonald's U.S. restaurants open at least 13 months
rose 5.4%, topping the 4.6% growth rate analysts had expected and
slowing just slightly from the fourth quarter's 5.7% pace. Sales in
high-growth markets including China, where the chain has previously
struggled, also posted greater-than-expected growth. Globally,
same-store sales rose 6.2%.
Mr. Easterbrook said McDonald's later this year will transition
from its turnaround plan to a longer-term strategic plan intended
to sustain the company's growth.
"The continued momentum in the U.S. business was encouraging,
and the company's other markets all came in above expectations,"
Citi Research analyst Gregory Badishkanian said in a note to
investors. "Maintaining the momentum will be key...especially as
the company laps the all-day breakfast introduction later this
year."
For the first quarter, McDonald's reported a profit of $1.1
billion, up from $811.5 million. Per-share earnings rose to $1.23
from 84 cents, topping analysts' expectations of $1.16.
Revenue fell 0.9% to $5.9 billion, though it still topped Wall
Street's forecasts of $5.82 billion.
Write to Julie Jargon at julie.jargon@wsj.com
(END) Dow Jones Newswires
April 22, 2016 13:01 ET (17:01 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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