From cleaning fluid in latte to drug in soda, McDonald’s (MCD) has been making news for all the wrong reasons lately. The stock has been affected as well, falling 10% from the start of the year, making it one of the worst performers on Dow.
However, it is advisable that investors focus on the company’s turnaround strategy rolled out under CEO Steve Easterbrook. McDonald’s is now tasting the initial success of this turnaround strategy, which is visible in the company’s recent second-quarter earnings.
In the recent quarter, the company’s global comp sales rose 4%, reflecting positive comp sales in all segments. Comp sales in US alone rose 2.6% and systemwide sales grew 5% in constant currencies.
On the other hand, rival Starbucks (SBUX) reported comp sales growth of just 1% both globally and in the US in its recent Q3 2018. McDonald’s also saw double digit-growth in reported and adjusted earnings figures.
The positive result was mainly due to the refranchising strategy. McDonald’s aggressively refranchised its restaurants in several territories including China and Hong Kong last year. To increase its appeal, McDonald’s tweaked its menu offering to more healthier options, besides all-day breakfast.
Meanwhile, the company has been struggling with sinking revenues. Even in the recent Q2 2018, revenue slipped 12% to $5.35 billion. Though the company offers healthy alternatives, its core menu of burgers, fries and soda, is losing to more healthier options of other food chains. In Q2 2018, the company’s US foot traffic fell 0.3%. The trade war with China has led to a fall in the foot traffic in China also.
Despite the drop in foot traffic, the company managed to report a growth in its same-store sales globally, a key metric for restaurant companies. In the long-term, if the company manages to revamp its menu to please its customers and stay away from serving debacles, it should sail smoothly in the coming years.
Out of all the analysts offering ratings, the stock earned a ‘BUY’/ ‘STRONG BUY’ rating from 13 analysts, based on data provided by Zacks Research.
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