McDonald's has more bite abroad than in US

A McDonald's restaurant in Shanghai. International markets have been a bright spot for McDonald's, as it launched a restaurant modernisation programme years before similar efforts in the US.
A McDonald's restaurant in Shanghai. International markets have been a bright spot for McDonald's, as it launched a restaurant modernisation programme years before similar efforts in the US.PHOTO: BLOOMBERG

Global same-store sales up for 13th straight quarter, but US figure misses expectations

McDonald's investment in online and touch-screen ordering drove a 13th straight rise in global same-store sales in the third quarter, allaying concerns about its poor growth in the United States.

Its shares rose as much as 6.7 per cent in response and were on track for their best day in three years, as the company beat forecasts for its main indicator of profit and same-store sales in its big developed overseas markets.

International markets, including Britain, Canada and Australia, have been a bright spot for McDonald's, as it launched a restaurant modernisation programme years before similar efforts in the US.

This drove global comparable store sales 4.2 per cent higher, beating analysts' average forecast of 3.72 per cent, according to Refinitiv estimates.

US same-restaurant sales missed expectations as guest counts dropped amid a rise in menu prices and fierce competition from Restaurant Brands' Burger King, Wendy's, Chick-fil-A and Yum Brands' KFC and Taco Bell.

McDonald's has embarked on a massive renovation programme for 12,000 US restaurants, introducing new decor, touch-screen kiosks, app-based delivery and equipment to store and use fresher ingredients.

However, the programme has reduced overall productivity at one of America's biggest employers, and temporary closures of restaurants for renovations have resulted in lost customers.

A rise in prices to compensate drove same-store sales up 2.4 per cent in the third quarter, but that was still its slowest growth in a year and a half.

The extra ongoing investment helped reduce total operating income by 21 per cent.

"The US team and our franchisees are taking on a lot all at once," chief executive Steve Easterbrook told a post-earnings call.

"We're still confident (in the US business)... the international business provides a good signpost for that," he said.

Overall revenue at McDonald's fell 7 per cent to US$5.37 billion (S$7.4 billion) in the quarter, although that was chiefly due to its sale of more company-owned restaurants to franchisees.

Net income, down 13 per cent to US$1.64 billion, came in at US$2.10 per share, beating expectations of US$1.99 per share, leaving shares up 6.2 per cent at US$176.95.

Bernstein analyst Sara Senatore said US comparable sales in the quarter had defied her worst fears, adding that the results underscore the persistent strength of the McDonald's model.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 25, 2018, with the headline 'McDonald's has more bite abroad than in US'. Print Edition | Subscribe