News

All-day breakfast still giving a glow to the Golden Arches

July 27, 2016

In an earnings call this week, McDonald's Corp. reported its fourth consecutive quarter of positive comparable sales growth across all segments. Still, a little of the luster faded from the golden arches as a result of costs associated with refranchising. This effort decreased consolidated revenues for the megachain by about 4 percent, or 1 percent in constant currency, according to a news release. 

"Our second quarter performance … provides a clear indication that customers are responding to the steps we're taking to deliver the menu and value options they want at the convenience of McDonald's," said company president and CEO Steve Easterbrook. "We're making steady progress on transforming our business to satisfy the needs of our customers around the world, despite a challenging environment in several key markets."

Here's a look at some of the highlights from the quarter ending June 30: 

• 3.1 percent increase in global comparable sales, reflecting positive comparable sales in all segmentsp;
• 4 percent decrease (1 percent in constant currency) in consolidated revenues due to refranchising;
• relatively flat consolidated operating income (up 3 percent in constant currency), due to refranchising, noncash impairment charges, general and administrative initiatives, and company relocation decision;
• 1 percent decrease (1 percent increase in constant currency) in diluted earnings per share (without strategic and restructuring charges, diluted EPS increased 13 percent in constant currency);
• $4.1 billion returned to shareholders through share repurchases and dividends; and
• cumulative three-year (2014–2016) return to shareholders now $24.4 billion, on target for $30 billion at year end.

A deeper dive
A closer look at the numbers reveals that Q2 comparable sales grew 1.8 percent in the U.S. Although growth industry-wide softened over the last quarter, the company said its all-day breakfast menu and McPick 2 offerings helped boost sales. 

Operating income grew 10 percent over the quarter due to higher sales-driven franchised margins and gains from refranchising. 

Comparable international sales increased 2.6 percent during the quarter, with improved performance in the United Kingdom, Canada, Australia and Germany. Due to improved franchise margins, operating income also grew in this segement by 4 percent. 

In Q2, China and Russia comparable sales led the high-growth segment, which reported a 1.6 percent increase in comparable sales. Operating income in this segment skyrocketed 25 percent (32 percent in constant currencies), mostly due to improved results in China.

In foundational markets, comparable sales rose 7.7 percent, largely due to extremely strong performance in Japan. However operating income for this market fell as the result of strategic charges from ongoing refranchising and general and administrative initiatives.

The look forward

In the second half of this year, McDonald's U.S. will add more breakfast sandwiches, including biscuits, McMuffins and McGriddles. Core menu enhancements and customer experience improvements are also planned.

"I am confident in our system's ability to stay the course and execute our turnaround plan to achieve our goals," Easterbrook said. "We are on the right path to changing the way customers think about McDonald's by getting closer to the communities we serve and harnessing one of our system's key competitive strengths — the entrepreneurial spirit of our dedicated franchisees — as we lay the foundation for future growth."