McDonald’s Corporation (NYSE:MCD) has demonstrated strong performance over the past year, outpacing industry growth, and several key factors are contributing to its success. These factors include digitalization efforts, menu innovation, and expansion initiatives, along with a focus on loyalty programs and drive-thru channels, which have driven sales in recent quarters.
Shares of McDonald’s have gained 11.7% in the past year, exceeding the industry’s growth of 9.7%. This positive performance is supported by a solid earnings surprise history, with earnings consistently surpassing the Zacks Consensus Estimate in each of the past six quarters. Furthermore, earnings estimates for full-year 2023 and 2024 have increased by 3.7% and 2.1%, respectively, over the past 60 days. These upward revisions reflect bullish sentiments from analysts and justify the company’s Zacks Rank Buy rating, indicating strong fundamentals and expectations of continued outperformance in the near term.
Key Growth Drivers for McDonald’s
- Digitization Efforts: McDonald’s has been capitalizing on robust digitalization efforts. In the second quarter of 2023, digital sales from the top six markets reached $8 billion, accounting for 40% of the company’s system-wide sales. McDonald’s “MyMcDonald’s” digital experience growth engine has been transforming various aspects of its services, including dine-in, drive-through, takeout, delivery, and curbside pickup. The company is also testing a digital upgrade in the United States to enhance customer service and satisfaction. With 95% of its U.S. restaurants offering drive-thru facilities, McDonald’s is well-positioned to leverage digitalization to drive growth.
- Focus on Loyalty Program: McDonald’s has been actively focusing on its loyalty program to boost sales and average checks. The program is expected to help retain existing customers and attract new ones. In the second quarter of 2023, the company reported over 52 million active loyalty members across its top six markets, with more than 30 million in the U.S. High single-digit growth rates in loyalty program sign-ups indicate strong customer engagement. McDonald’s plans to continue innovating digitally to enhance customer engagement, drive digital acquisition, and increase customer frequency.
- Menu Innovation: McDonald’s has been introducing new products to stimulate growth. In the second quarter of 2023, the company launched Spicy McNuggets in various markets, including Australia and Germany, catering to evolving customer taste preferences. This approach to modernizing the core menu and scaling new ideas globally has yielded positive results, with significant sales boosts for McNuggets and successful contributions from the McCrispy portfolio. McDonald’s intends to focus on affordable entry-level meals to enhance value perceptions and drive growth.
- Expansion Efforts: McDonald’s believes in the potential for global growth by expanding its presence in existing and new markets. The company’s expansion initiatives have been driving performance, with plans to open more than 1,900 restaurants worldwide in 2023. This includes 400 openings in the United States and IOM segment and 1,500 inaugurations in the IDL market, with nearly 900 in China. These expansion efforts are expected to contribute approximately 1.5% to 2023 systemwide sales growth in constant currencies.
In conclusion, McDonald’s has demonstrated strong performance driven by its digitalization efforts, loyalty program focus, menu innovation, and expansion initiatives. These factors, coupled with its commitment to providing a convenient and engaging customer experience, have contributed to its outperformance in the past year.
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