McDonald's (MCD) Outpaces Industry in the Past Year: Here's Why
McDonald's Corporation MCD is poised to benefit from digital efforts, menu innovation and expansion initiatives. Also, focus on the loyalty program and drive-thru channels have been a driving factor for sales in the last few quarters.
Shares of McDonald's have gained 11.7% in the past year compared with the industry’s 9.7% growth. The price performance was backed by a solid earnings surprise history. Earnings surpassed the Zacks Consensus Estimate in each of the trailing six quarters. Earnings estimates for full-year 2023 and 2024 have moved up 3.7% and 2.1%, respectively, in the past 60 days. The positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy). This indicates robust fundamentals and expectations of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Major Growth Drivers
Digitization Efforts: McDonald's continues to gain from robust digitalization. During the second quarter of 2023, digital dales (from the top six markets) came in at $8 billion, contributing 40% to the company’s system-wide sales. The company's "MyMcDonald's" digital experience growth engine is transforming its dine-in, drive-through, takeout, delivery and curbside pickup services. In the United States, 95% of its restaurants offer drive-thru facilities.
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To speed up service and improve customer satisfaction, the company has initiated testing of a digital upgrade in the United States. The initiative allows staff to compile a customer's mobile order before arriving at the restaurant. Also, it emphasized McDonald's mobile app enhancements and strategic partnerships (such as UberEats, DoorDash, Just Eat Takeaway.com and Deliveroo). The company is optimistic and anticipates the initiatives to drive growth in the upcoming periods.
Focus on Loyalty Program: McDonald's continues to focus on the loyalty program to drive sales and average checks. It believes that the program will help retain existing customers and expand the customer base. During second-quarter 2023, the company reported that its loyalty customers have proven highly engaged, with over 52 million active loyalty members across its top six markets (including over 30 million in the U.S.). The company reported high single-digit growth rates in our loyalty programs regarding sign-ups. The company intends to focus on continued digital innovation to boost customer engagement and drive digital acquisition and customer frequency.
Menu Innovation: Additionally, the company continues to focus on product introduction to drive growth. During the second quarter of 2023, the company introduced Spicy McNuggets, a popular line extension, in various markets, including Australia and Germany. This exemplifies the company's approach to modernizing the core menu, catering to evolving customer taste preferences and successfully scaling new ideas globally. Notably, both markets experienced significant boosts in McNuggets line sales, with Spicy McNuggets sales achieving an all-time high in Australia. Also, the company reported solid contributions from the McCrispy portfolio, reflecting a catalyst for chicken growth for many of its markets. Moving ahead, the company intends to focus on entry-level affordable meals to lift value perceptions with consumers and drive growth.
Expansion Efforts: McDonald’s believes there is a huge opportunity to grow all its brands globally by expanding its presence in existing markets and entering new ones. Its expansion efforts continue to drive performance. McDonald’s plans to open more than 1,900 restaurants globally in 2023, including 400 openings in the United States and IOM segment and 1,500(including nearly 900 in China) inaugurations in the IDL market. It expects net restaurant unit expansion to contribute nearly 1.5% to 2023 systemwide sales growth in constant currencies.
Other Solid Restaurant Bets
Some other top-ranked stocks in the Zacks Retail-Wholesale sector are:
Kura Sushi USA, Inc. KRUS sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 139.7% on average. Shares of KRUS have increased by 1.3% in the past year.
The Zacks Consensus Estimate for KRUS’s 2023 sales and EPS indicates 33.4% and 300% growth, respectively, from the year-ago period’s levels.
BJ's Restaurants, Inc. BJRI sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 121.2%, on average. Shares of BJRI have declined 0.8% in the past year.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates a 5.6% and a 447.1% growth, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. ARCO currently carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 35%, on average. The stock has gained 41.3% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests rises of 19.2% and 13%, respectively, from the year-ago period’s levels.
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