McDonald’s riding the trend in comfort food to soaring same-store sales results


McDonald’s Corp. reported global comparable sales growth of 40.5% in the second-quarter, up 6.9% on a two-year basis, helped not only by the pandemic recovery, but also a comfort food trend that has taken hold over the past year.

“McDonald’s cites its new-and-improved chicken sandwich and the BTS Meal (a promotion with pop supergroup BTS) as being drivers of the better-than-expected sales,” wrote Mark Kalinowski in a note for Kalinowski Equity Research.

The latest celebrity collaboration was announced on Thursday. The Saweetie meal will be available on August 9.

See: McDonald’s next celebrity menu collaboration will be with platinum artist Saweetie

The latest addition to the Famous Orders lineup is Saweetie

“We would also suggest that to some degree, given McDonald’s unique place in American life, it is in its way comfort food — and comfort food has gained in popularity over the last 12+ months,” Kalinowski wrote.

Kalinowski rates McDonald’s stock buy with a $295 price target.

McDonald’s
MCD,
+1.21%
said much the same on the company’s earnings call, reiterating its commitment to core menu items.

“We’re tapping into customer demand for the familiar, and making the chicken, burgers and coffee our customers love even more delicious,” said Chris Kempczinski, chief executive of McDonald’s, on the earnings call, according to a FactSet transcript.

Digital was also a focus of the call, with innovations centered on the fast-food giant’s mobile app. Kempczinski announced the launch of a team focused on customer experience, led by company vet Manu Steijaert as chief customer officer, a newly-created role.

“We continue to believe drivers exist for the two-year run-rate to sustain through the second half,” wrote Wedbush analysts led by Nick Setyan.

“These remain ongoing menu innovation across all dayparts, continued growth in marketing spend, increasing digital/delivery adoption, including the ongoing rollout of MyMcDonald’s Rewards program (22M active users and 12M loyalty sign-ups), and drive-through opportunities.”

Wedbush rates McDonald’s stock outperform with a $270 price target.

Read: Krispy Kreme has set up shop in the $650 billion, recession-resistant indulgence market, JPMorgan says

McDonald’s isn’t just showing improvement in the U.S., where comparable sales were up 25.9%, but abroad, with comparable sales in international operated markets soaring 75.1%.

“[M]anagement expects this acceleration to continue in 2H21 as dining rooms reopen, given a lower drive-thru penetration in Europe (~2/3rds of stores vs. 90% in US), barring any reinstituted lock downs from a COVID resurgence,” wrote Truist Securities in a note.

Truist rates McDonald’s stock buy with a $266 price target.

McDonald’s expects all U.S. dining rooms to reopen by Labor Day, though COVID-19 resurgences could thwart that schedule.

Even with all of the positive improvements, Kalinowski’s most recent franchisee survey, conducted before the earnings announcement, shows concern about the competition and staffing.

“The future for McDonald’s is good IF we can staff the stores,” one franchisee said.

“Staffing is a monumental issue,” said another.

“Sales are dropping as competition re-opens. Difficulty getting sufficient help.”

Others blasted management for being out of touch with the reality in restaurants.

“When the pandemic is truly over the McDonald’s corporate people should get out in the actual restaurants and see what’s actually happening. McDonald’s can’t be run on Zoom,” was another response.

Also: Taco Bell parent Yum Brands beats earnings and sales consensus

Analysts have also noticed the impact of the company’s inability to find enough workers.

“McDonald’s has seen its speed of service improve by 30 seconds over the last few years but recently saw it decrease by three seconds. This reversal was driven by
continued staffing challenge,” wrote Stifel analysts.

Kempczinski said on the call that the staffing situation, especially in the U.S., is improving, helped by 5% wage increases at corporate-owned restaurants.

Stifel rates McDonald’s stock hold with a $245 price target.

McDonald’s stock has run up 14.1% for the year to date nearly in line with the Dow Jones Industrial Average
DJIA,
+0.57%,
which has gained 14.8% for the period.



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