McDonald’s Earnings Preview: Watch out for Velocity Growth Plan updates

McDonald’s (NYSE: MCD) last week announced that it has inked a deal with DoorDash for food delivery, improving its McDelivery service in the US. The deal was well received by investors with the stock breaching $216 mark, which is a new 52-week high level for the company. The stock price has increased 21% this year aided by solid Q1 results.

The fast-food chain is planning to report its second-quarter results on Friday before the bell. Analysts are expecting adjusted earnings of $2.05 per share on sales of $5.33 billion. It would be interesting to see whether McDonald’s is able to continue the momentum into the second quarter amidst nimble rivals and lower customer visits.

Apart from the headline numbers, comp-store sales would be closely tracked by the street. Last quarter’s 5.4% growth was aided by growth across all divisions. It’s worth noting that in the last three-quarters of 2018 same-store sales range has been hovering around the 4.0-4.4% range. Investors would be expecting McDonald’s to register solid growth backed by its growth plan.

Growth Drivers

As part of the Velocity Growth Plan, the company plans to focus on three main areas to generate sustainable long-term growth.

1) Experience of the Future (EOTF): McDonald’s has earmarked $1.5 billion to modernize restaurants in the US to improve customer experience and traffic. Tasting success with this initiative globally, now the fast-food chain wants to replicate it the US, which is the largest market for the firm. The goal is to modernize the majority of the stores by the end of next year.

2) Go Digital: Last quarter, the company bought Dynamic Yield which specializes in customization and decision logic technology. The restaurant chain plans to beef up its digital offerings to its customers and plans to complement the existing service delivery model. This initiative is expected to improve the customer experience through customization.

3) Delivery: McDonald’s currently offers food delivery services from 20,000 locations across the globe to its customers. The company is witnessing good feedback from its customers and has resulted in an increased number of orders and the average check has increased 1.5-2x more than the non-delivery orders.

McDelivery was launched in the US a couple of years back and the sales have grown to $3 billion. It’s available in 9,000 locations, which is more than 50% of the total US restaurants. The company would be expanding its reach both in the home market and across the globe. In the long term, this service is going to be a tailwind for the firm.

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