McDonald’s earnings fall short, hurt by European lockdowns, but sees this year’s sales topping 2019
McDonald’s on Thursday reported that U.S. same-store sales jumped 5.5% in its latest quarter, but the coronavirus pandemic is still adding costs and slowing recovery in many of its international markets.
As the fast-food giant enters 2021, it’s projecting that systemwide sales will rebound to surpass 2019 comparisons.
Shares of the company rose less than 1% in morning trading.
Here’s what the company reported for the quarter ended Dec. 31 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: $1.70, adjusted, vs. $1.78 expected
- Revenue: $5.31 billion vs. $5.37 billion expected
McDonald’s posted fourth-quarter net income of $1.38 billion, or $1.84 per share, down from $1.57 billion, or $2.08 per share a year earlier. The company reported that higher restaurant closing costs of $30 million and lower gains on the sales of restaurant businesses hurt profits for the quarter.
Excluding gains related to the sale of McDonald’s Japan stock and other items, McDonald’s earned $1.70 per share, missing the $1.78 per share expected by analysts surveyed by Refinitiv.
Net sales dropped 2% to $5.31 billion, falling short of expectations of $5.37 billion. Worldwide same-store sales shrank by 1.3%, but improved from the third quarter.
In the United States, same-store sales were positive for the second straight quarter. The company’s home market reported same-store sales growth of 5.5%. McDonald’s credited marketing investments and promotional activity, including those focused on core menu items like the Big Mac. The consumer trend of spending more per order stayed true during the quarter as well, although traffic remained negative.
Working through franchisee feud
But the speedy U.S. sales recovery hasn’t stopped McDonald’s management and franchisees from feuding. Operators’ grievances with the company include asking franchisees to pay higher fees for tech investments and ending a subsidy for Happy Meals that has existed for decades. As part of their revolt, franchisees plan to push back against any future value promotions and revisit those already decided for 2021. Operators have also ceased any nonessential communication with the company.
CEO Chris Kempczinski told analysts that he was confident that U.S. President Joe Erlinger and franchisee leadership would be able to work through the disagreement. Executives also said that average U.S. franchisee restaurant operating cash flow reached an all-time high in 2020, up nearly $40,000 over 2019.
He also commented on President Joe Biden’s plan to raise the federal minimum wage to $15 an hour over the next five years. He told analysts that based on the Canadian minimum wage increase from several years ago and the pay hikes in different states and municipalities in recent years, the company would be able to weather the higher labor costs.
“So long as it’s done in a staged way and in a way that is equitable for everybody, McDonald’s will be just fine,” Kempczinski said.
Covid shutdowns take a toll
McDonald’s international operated markets division, which includes France, Germany and Australia, was the laggard of the quarter. Its same-store sales fell 7.4%. Resurgences of Covid-19 hit most of the segment’s markets, leading to increased government restrictions. However, the company reported that the United Kingdom and Australia both reported positive same-store sales growth for the quarter.
Kempczinski said that Australia could provide a good model for the post-pandemic business. The country has effectively avoided a surge of new cases during the fall and winter, allowing its residents to resume many normal activities. But Kempczinski said that restaurants in Australia are still reporting higher digital sales and a lift to average tickets.
The chain’s international developmental licensed markets segment fared better. Its same-store sales fell just 3.6% in the quarter. Japan showed strong same-store sales growth, but it wasn’t enough to offset declining sales elsewhere in Asia and Latin America.
In 2021, McDonald’s is expecting systemwide sales growth in the low double digits, excluding any foreign currency changes. New restaurant units are projected to contribute about 1% to systemwide sales growth.
It’s expecting $2.3 billion in capital expenditures, about half of which will go toward opening nearly 500 new restaurants in the U.S. and its international operated markets.
— CNBC’s Kate Rogers contributed to this report.