McDonald's Corp. (MCD, Financial) reported second-quarter earnings that saw the company beat Wall Street estimates handily on the top and bottom lines, which pushed the stock to an all-time high. Global comparable store sales increased 6.6%, with U.S. comps increasing 3.9%.
President and CEO Steve Easterbrook said custormers are noticing a "better McDonald's."
“For the quarter, we delivered our strongest global comparable sales and guest count results in more than five years," Easterbrook said. "We're now introducing our Velocity Growth Plan accelerators in more restaurants around the world, bringing meaningful benefits to more customers through digital, delivery and our Experience of the Future."
Nomura-Instinet analyst Mark Kalinowski predicted the company's U.S. comparable sales would increase 3.2% during the quarter, missing it by a hair.
"We believe that drivers of the U.S. business during Q2 included beverage promotions (such as $1 any size soft drinks) and the national launch of Signature Crafted Recipes (semi-customized burgers and chicken sandwiches)," Kalinowski wrote in a research note.
Comparable store sales rose across all segments, helping McDonald’s post revenues of $6.05 billion for the quarter while the market was expecting only $5.96 billion. Revenue declined 3% compared to last year as the company continues to reduce the number of company-owned stores and increases the number of stores operated by franchisees. Sales from company-operated restaurants declined 6% to $3.57 billion during the quarter, while franchisee-operated restaurant sales increased 6% to reach $2.48 billion.
Source: MCD Q2-2017
The effect of increasing franchisee restaurant count has already started to show on McDonald’s operating numbers. Despite revenue declining 3% during the quarter, operating income expanded 24%. McDonald’s has only 85% of its restaurants franchised, and the company is targeting to increase that to 95%. The current trend of lower revenues but higher operating income will continue for several more quarters as the number of franchised restaurants continues to increase over the next several years.
McDonald’s stock price has shot up by more than 25% since the start of the year, and the increasing comparable store sales will provide even more support for the stock’s upward trajectory. Despite the rise in stock price, McDonald’s yield is still above 2%, which is bound to attract even more investors to its fold.
Disclosure: I have no positions in the stock mentioned above and have no intention of initiating a position in the next 72 hours.
