McDonald's (MCD) probably saw fat first quarter sales amid easy the launch of several new chicken sandwiches, and consumers spending their stimulus checks at the Golden Arches, compared to the COVID-19 shutdowns a year ago, argues Jefferies restaurant Andy Barish.
"According to our Safegraph [foot traffic] data, McDonald's saw a widening gap vs. quick-service peers starting in late-February and continuing through March as a result primarily, in our view, of its new much-anticipated Crispy Chicken sandwich. We suspect this product in addition to stimulus spending and easy comparisons (McDonald's March '20 same-store sales -13.4% and 1Q flat) could drive several points of upside to our 10% same-store sales estimate, which is essentially in line with consensus," Barish wrote in a new research note on Monday.
Added Barish, "In addition, interest from Google trends in chicken sandwiches generally and McDonald's specifically spiked in late-Feb, and we suspect drove significant interest in the McDonald's product (along with strong marketing campaign). In addition, app downloads have increased and should pave the way for more interest in the brand with its "MyMcDonald's" digital consumer-facing properties and loyalty program launching later in the year."
After watching rival Popeyes dominate the fried chicken sandwich game for over a year, McDonald’s decided it was time to take some action in the first quarter of 2021.
The Golden Arches introduced three new fried chicken sandwiches on Feb. 24: the crispy chicken sandwich (pickles and a new buttered toasted roll are the highlights); the spicy chicken sandwich (same build as the crispy sandwich, except with spicy pepper sauce); and the deluxe chicken sandwich (adds shredded lettuce and tomatoes to the mix).
Barish's analysis shows a significant spike in foot traffic at McDonald's around the debut of the chicken sandwiches. Google searches for the sandwiches also rose noticeably, according to Barish.
While Google searches for McDonald's chicken sandwiches has subsided considerably in recent weeks (see chart above) — which could be a leading indicator of cooling sales at the chain —Barish thinks there are enough tailwinds for the company to warrant his Buy rating and $265 price target on the stock.
"We believe McDonald's can outperform for same-store sales ramp in U.S. and eventual recovery in Europe providing some upcoming reopening strength," said Barish.
McDonald's shares fell slightly on Monday's session. Shares of the Dow Jones Industrial Average component are up 7.7% year-to-date, lagging the Dow's 10.3% gain.
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