McDonalds Traffic Grows Again, Solidifying CEO’s Turnaround

McDonald’s Corp. is finally getting customers back into restaurants, a key milestone for a company that suffered years of declines.

The world’s largest restaurant chain posted another increase in U.S. diners last quarter — the second-straight period that the measurement was positive. Same-store sales, another closely watched benchmark, also topped analysts’ estimates.

The results suggest that Chief Executive Officer Steve Easterbrook is making progress with his turnaround plan, which he launched after taking the helm in March 2015 amid a prolonged sales slump. The question now for investors is how much further can the rally go: McDonald’s shares were already up 34 percent this year heading into the third-quarter report.

“Trees don’t grow to the sky,” said Michael Halen, an analyst at Bloomberg Intelligence.

McDonald’s domestic same-store sales gained 4.1 percent in the third quarter, compared with an average estimate of 3.4 percent. Globally, the measure gained 6 percent, which also topped estimates.

Earnings amounted to $1.76 a share, in line with projections. Revenue also matched predictions, coming in at $5.75 billion.

The results sent the shares up as much 1.9 percent to $166.49 in New York, marking the biggest gain in almost a month.

All-Day Breakfast

Easterbrook, 50, has built his comeback on a revamped menu — including cheaper drinks, premium burgers and all-day breakfast in the U.S. — along with a push to franchise more of its restaurants globally.

The customer-traffic recovery is a pivotal moment for the Oak Brook, Illinois-based chain. Company executives had said that McDonald’s lost more than 500 million transactions in its home market since 2012. Most of those customers defected to other traditional fast-food competitors, not fancier or fast-casual chains like Chipotle Mexican Grill Inc. and Panera Bread Co., according to company officials.

The company’s recovery has been largely fueled by its established markets, rather than emerging economies. McDonald’s is getting more of its revenue from the U.S. and so-called lead international countries than at any point in years.

McDonald’s is now turning to delivery services and digital-ordering options to attract more diners. The company delivers food from 3,700 U.S. restaurants through Uber Technologies Inc.’s UberEats, and it’s on track to expand the service to 5,000 locations by the end of the year.

The industry remains cutthroat, and McDonald’s executives indicated they expect a tough fight for market share in the months ahead. U.S. competitors are advertising steeply discounted food and new fare. McDonald’s, meanwhile, will expand its value-priced menu next year, with items offered for $1, $2 and $3. That comes a few years after the company pulled its popular Dollar Menu.

“We’re not trying to win on value, but we can’t lose on value,” said Chris Kempczinski, who runs the company’s U.S. business. “Since we rolled off Dollar Menu, we weren’t as competitive as we needed to be on value.”

Major storms also battered the U.S. in recent months, with the impact centered on two of the nation’s three most populous states. Hurricane Harvey struck Texas in late August, with Irma hitting Florida a few weeks later. Though McDonald’s is less exposed to the markets than some restaurant chains — thanks to its global footprint — the company still has more than 2,000 locations combined in the two states.

McDonald’s is also trying to clean up its menu. Two years ago, it pledged to stop serving chicken raised with antibiotics. The chain also has removed artificial preservatives from its popular Chicken McNuggets and recently added chicken tenders to its menu. The company is also experimenting with serving fresh beef, a change that requires six weeks of training for the restaurant staff.

“Our growth strategy is working,” Easterbrook said on a conference call. “We’ll continue focusing our energy on aligning our entire organization around disciplined execution that will allow us to deliver on the full potential of our plans.”

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    Tags: Advertising business CHIPOTLE MEXICAN GRILL INC Earnings food MCDONALD'S CORP New York PANERA BREAD COMPANY-CLASS A Steve Easterbrook UBER TECHNOLOGIES INC US Dollar Spot

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