McDonald’s Corporation MCD is benefiting from robust digitalization, comps growth, loyalty program, menu innovations and expansion efforts. Thereby, the company’s shares have gained 7.8% in the past six months, against the industry’s decline of 0.9%. However, dismal traffic and soft China comps hurt the company’s performance. Let’s delve deeper.
The company continues to gain from robust digitalization. During the coronavirus pandemic, the company has been focusing on drive-thru, delivery & take-away. Prior to the coronavirus crisis, drive-thru accounted for about two-thirds of all sales in the United States. Despite reopening of dining rooms, the company stated that drive-thru sales in its top six markets continue to remain strong compared to the pre-pandemic level.
The company informed that more than 80% of its restaurants across 100 markets globally provide delivery. In the United States, 95% of its restaurants offer drive-thru facility. Over the past year, delivery sales mix has doubled in Australia, Canada and the United States. It announced that across its major six markets, digital sales crossed $10 billion or nearly 20% of system-wide sales in 2020. Year-to-date, the company recorded approximately $13 billion in digital sales in its top six markets.
Recently, McDonald’s launched its first-ever loyalty program in the United States. The new loyalty program will not only help in retaining the existing customers but also help in expanding the customer base. The loyalty program is likely to drive sales and average checks. During the third-quarter 2021 conference call, the company announced that the launch of its loyalty program in the United States has surpassed expectations. In just a few months, the company has more than 1 million members enrolled with over 15 million active loyalty members earning rewards. The company anticipates the number to increase in the days ahead. McDonald’s currently has loyalty programs in France, the United States and Germany. MyMcDonald’s Rewards is likely to be launched in Canada by the end of 2021, and in the U.K and Australia in the first half of 2022. By mid-2022, the company expects to have a loyalty program in the top six markets.
McDonald’s believes that there is a huge opportunity to grow all its brands globally by expanding presence in existing markets and entering new ones. The company’s expansion efforts continue to drive performance. Despite the pandemic, the company opened about 500 restaurants across the market in 2020. It is planning to open more than 1,500 restaurants globally in 2021. In China, the company surpassed the 4,000 restaurants mark in June and is on track to open 650 new restaurants in the country this year. In China, the company has already opened 500 new restaurants.
The Zacks Rank #3 (Hold) company continues to impress investors with robust comps growth. In third-quarter 2021, global comps advanced 12.7% against a decline of 2.2% in the prior-year quarter. This marks the third consecutive quarter of comps growth after reporting a decline in the preceding four quarters. In the third quarter, comps at the United States, international operated markets and international developmental licensed segment rose 9.6%, 13.9% and 16.7%, respectively. Japan and Latin America posted robust comps growth.
McDonald’s results in the coming quarters are likely to reflect the impacts of the coronavirus pandemic. Although the company has reopened most of its restaurants, it might witness dismal traffic due to concerns stemming from the Omicron variant. The company continues to monitor the resurgence of coronavirus cases worldwide. Although the company has reopened roughly 80% of its dining rooms in the United States, nearly 3,000 dining rooms remain closed in high risk COVID areas.
Although overall comps have increased sharply, it is still below the pre-pandemic level in a few markets. In third-quarter 2021, comps in the China market were negative. Softening economy and resurgence of COVID-19 have negatively impacted comps in China.
Key Restaurant Picks
Papa John’s International, Inc. PZZA currently carries a Zacks Rank #2 (Buy). The company has been benefiting from its off-premise business model. Sales at off-premise business model has exceeded pre-pandemic levels. We believe that a rise in customer count coupled with targeted off-premise marketing are likely to drive the channel’s performance in the upcoming periods.
Papa John’s has reported better-than-expected earnings in three of the trailing four quarters, the average surprise being 27.2%. The company’s fiscal 2021 earnings is likely to witness growth of 138.6%. PZZA stock has gained 48.2% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Del Taco Restaurants, Inc. TACO has a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 25.7%, on average. Shares of the company have gained 3.3% in the past three months.
The Zacks Consensus Estimate for Del Taco Restaurants’ current financial year sales and earnings per share suggests improvement of 7.2% and 33.3%, respectively, from the year-ago period.
Kura Sushi USA, Inc. KRUS carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 15.6%, on average. Shares of the company have soared 225.1% in the past year.
The Zacks Consensus Estimate for Kura Sushi’s current financial-year sales and EPS suggests growth of 108% and 85.7%, respectively, from the year-ago period’s levels.
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