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McDonald's (MCD) Rides on Robust Comps Growth Amid Traffic Woes

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·4 min read
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Shares of McDonald's Corporation MCD have gained 32.1% in the past one year, compared with the industry’s rally of 39.6%. The company is benefiting from expansion efforts, comps growth, menu innovation and other sales building efforts. Recently, McDonald's reported first-quarter 2021 results, wherein both earnings and revenues comfortably beat the Zacks Consensus Estimate. Moreover, the top and the bottom lines improved 9% and 31% year over year, respectively. However, dismal traffic due to the pandemic remains a concern.

Growth Drivers

McDonald’s believes that there is a huge opportunity to grow all its brands globally by expanding presence in existing markets and entering new ones. The company’s expansion efforts continue to drive performance. Despite the pandemic, it opened about 500 restaurants across the market in 2020. In 2021, the company is planning to open more than 1,300 restaurants globally. In 2021, the company anticipates systemwide sales growth, in constant currencies, in the low-double digits. In China, McDonald’s opened 150 new restaurants in first-quarter 2021 and is on track to open 500 restaurants in the country this year.

Moreover, after reporting dismal comps in the trailing four quarters due to the coronavirus pandemic, the company reported robust comps in first-quarter 2021. In the same quarter, global comps increased 7.5% against a decline of 3.4% in the prior-year quarter. Moreover, during the first quarter, comps at the United States, international operated markets and international developmental licensed segment rose 13.6%, 0.6% and 6.4%, respectively. The company recorded high average daily sales volumes in first-quarter 2021. The U.K, Canada and Japan reported robust comps.

Amid the coronavirus pandemic, the company has been focusing on drive-thru, delivery & take-away. Prior to the coronavirus crisis, drive-thru accounted for about two-thirds of all sales in the United States. Drive-thru now accounts for approximately 90% of sales. The company has more than 25,000 drive-thrus globally. Moreover, McDonald’s continues to roll out mobile order and pay, with a new curbside check-in option. To provide enhanced experience and convenience to customers, the company is increasingly focusing on delivery. It provides delivery from more than 30,000 restaurants in above 75 countries, compared to nearly 3,000 restaurants over the past four years.

Concerns

McDonald’s results in the coming quarters are likely to be impacted by the coronavirus outbreak. Although the company has reopened most of its restaurants, it is likely to witness dismal traffic due the social distancing protocols. Moreover, shutdown of dine-in in several markets will continue to hurt the company’s performance. In first-quarter 2021, France and Germany reported dismal comps due to dining rooms closure and curfews. Moreover, the company is struggling to perform in Spain and Italy on account of the current scenario.

Zacks Rank & Key Picks

McDonald’s carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering in the same space include Bloomin' Brands, Inc. BLMN, Chuy's Holdings, Inc. CHUY and Dine Brands Global, Inc. DIN. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bloomin' Brands has beat earnings estimates in each of the trailing four quarters, the average surprise being 85.2%.

Chuy's Holdings earnings in 2021 is expected to witness growth of 72.6%.

Dine Brands Global earnings in 2021 is expected to witness growth of 268.7%.

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You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.

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