McDonald's boosts customer traffic in critical milestone for CEO

McDonald's reported higher second-quarter profits July 25, 2017 behind strong comparable sales in key markets, including the United States.
McDonald's reported higher second-quarter profits July 25, 2017 behind strong comparable sales in key markets, including the United States.PHOTO: AFP

NEW YORK (BLOOMBERG) - McDonald's Corp is getting customers back into its restaurants after years of declining traffic, helped by drink deals and more upscale burgers.

The company saw an increase in United States diners in the last quarter - a key milestone that has proved elusive to chief executive officer Steve Easterbrook - and posted same-store sales that handily beat analysts' estimates.

The results mark a victory for the 49-year-old CEO, who has been working to overhaul McDonald's for the past two years. Even after he managed to increase sales at the world's largest restaurant chain - helped by higher prices - it has taken longer to get more people in the door.

"You can increase sales by raising prices, but that's not sustainable," said Mr Michael Halen, an analyst at Bloomberg Intelligence. "This is good, strong sustainable growth."

The shares gained as much as 3.1 per cent to US$156.50 (S$213) in early trading after the results were posted. They had increased 25 per cent this year through Monday's close.

As many of its fast-food competitors struggle, McDonald's has boosted sales with cheaper drinks, all-day breakfast and higher-quality chicken. The chain is also improving kitchen equipment to make its food taste better. Same-store sales rose for the eighth-straight quarter, and its domestic gain of 3.9 per cent beat analysts' estimate of 3.2 per cent.

Mr Easterbrook, who took over in March 2015, has also contended with a record run of grocery deflation that has made restaurants a tougher sell to many Americans. Chains have had to work harder to compete with supermarkets, where eggs and other staples are increasingly cheap.

"We're building a better McDonald's and more customers are noticing," Mr Easterbrook said in a statement.

Second-quarter revenue amounted to US$6.05 billion, beating the average analyst estimate of US$5.96 billion. Earnings rose to US$1.70 a share, compared with a projection of about US$1.62.

Globally, same-store sales gained 6.6 per cent, well ahead of the 4 per cent predicted by analysts, according to Consensus Metrix.

McDonald's traffic had dropped domestically for the past four years. While Oak Brook, Illinois-based McDonald's posted surprisingly strong sales in the first quarter, customer counts were still negative.

In March, company executives said McDonald's had lost more than 500 million transactions in its home market since 2012. Most of those customers defected to other traditional fast-food competitors, not fancier or fast-casual chains like Chipotle Mexican Grill and Panera Bread, according to company officials.

McDonald's sees delivery services and digital ordering options as the key to attracting more diners. It has not been easy. US competitors are advertising steeply discounted food and new fare. In response, Mr Easterbrook has tried to overhaul the company's menu and added all-day breakfast in the US in 2015.