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McDonald’s sales sizzle on demand for ‘gourmet’ burgers

By
Lisa Fickenscher
Published April 30, 2018
Updated April 30, 2018, 9:42 p.m. ET

The good news for McDonald’s is that customers are spending more at its 37,000-plus eateries — but the fast-food giant is still struggling to win new customers in the US.

What’s more, even some of McDonald’s diehard fans defected to competitors for breakfast in the first quarter.

Despite failing to draw more customers into its US stores compared to the year-ago period, Chief Executive Steve Easterbrook kept the Golden Arches’ turnaround on pace and pleased Wall Street by posting better-than-expected sales and profits.

Easterbrook produced the results by boosting prices and adding new, more expensive items to the menu.

McDonald’s shares popped 5.8 percent in regular trading, to $167.44 — before adding as much as 4.1 percent in after-hours trading.

But the falling traffic numbers in the US — after last year’s uptick broke a four-year losing streak — and the tough breakfast wars make clear Easterbrook still has lots of work ahead of him.

“Breakfast was competitive” said Easterbrook, who blamed a downturn in customer traffic in its more than 14,000 US stores on soft breakfast sales.

“We are satisfied with where we are,” Easterbrook said on an earnings call, “but we want to get the guest count piece of it moving up again.”

Last year, the Oakbrook, Ill., company said it had lost 500 million US transactions over the past several years, a number that Easterbrook has been laser-focused on improving.

McDonald’s does not disclose precise US customer traffic on a quarterly basis — only disclosing that it was down.

“Some things McDonald’s is doing [to win back US market share] are short-term in nature,” said restaurant analyst Mark Kalinowski of Kalinowski Equity Research, pointing to a 2-for-$4 breakfast promotion that was introduced in mid-March.

While same-store sales in the US rose 2.9 percent in the quarter, the increase was due to customers spending more per transaction, padding their orders with extra items from its value menu of $1, $2 and $3 meals. Some customers even sprung for its new premium fresh burgers that sell for $6 and $7.

Worldwide customer traffic was up 0.8 percent — propelled by growth in Germany, France, the UK and Australia.

The US sales increase topped analysts’ expectations. The company earned $1.79 per share, beating estimates of $1.67, while revenue fell 9 percent because the company sold its company-owned stores to franchisees and now collects only a fraction of those sales.