The news: McDonald’s sharp focus on value paid off in Q3 as the company’s US restaurants grew 0.3%, reversing Q2’s same-store sales decline.
- While traffic to US restaurants was slightly negative, McDonald’s said its $5 value meal that launched in June drew customers back into its restaurants throughout the quarter and helped provide a boost in sales.
- McDonald’s also said its limited-time “Collector’s Edition” vintage-inspired cups helped boost demand at a time when many consumers are pulling back on restaurant spending.
The bigger picture: McDonald’s beat analysts' top- and bottom-line expectations in Q2.
- Adjusted earnings per share were $3.23, up 1% year over year, and ahead of the $3.20 analysts expected.
- Revenues were $6.87 billion, up 2.7%, outpacing the $6.82 billion analysts expected.
However, the company faces several challenges.
- Its global same-store sales fell 1.5%, a much bigger decline than the 0.6% that analysts surveyed by StreetAccount expected, due to struggles in international markets such as the Middle East, France, and the UK. That was the second-straight quarter the company’s global same-store sales have fallen.
- The company needs to recover from the recent E. coli outbreak linked to McDonald’s Quarter Pounder burgers. Transactions fell as much as 6% from the prior year in the days after the outbreak became public, per Bloomberg. While the situation appears to be contained, the company needs to reassure consumers that its food is safe to eat.
Our take: The E. coli outbreak came at an inopportune time for McDonald’s. Consumers are incredibly selective about where and when they spend and the outbreak gives them one more reason to eat at home (or another chain).