July 26, 2019 / 12:10 PM / a month ago

McDonald's beats sales forecast on new deals, store revamp

(Reuters) - McDonald’s Corp (MCD.N) beat quarterly sales expectations at established U.S. restaurants on Friday, as the world’s largest burger chain attracted more diners with upgraded stores and new promotions, such as the 2 for $5 Mix and Match deal.

FILE PHOTO: The logo of a McDonald's Corp restaurant is seen oto in Los Angeles, California, U.S. October 24, 2017. REUTERS/Lucy Nicholson/File Ph

The company’s stock, a component of the blue-chip Dow Jones Industrial index .DJI, rose as much as 2% to a record high of $218.96, the third major restaurant chain to hit a peak this week.

McDonald’s is the latest restaurant chain to report solid growth, driven by new menu additions, expanded delivery services and tech-enhanced stores, and follows strong U.S. sales numbers from Chipotle Mexican Grill Inc (CMG.N) and Starbucks Corp (SBUX.O).

“These three (companies) are using their operating scale and their business strength to essentially outflank smaller competitors and generate very strong sales growth and profit,” Telsey Advisory Group analyst Bob Derrington said.

The U.S. restaurant market has been stagnant with lower customer traffic in recent years, dogged by increasing number of competitors among fast-food chains and the entry of delivery services such as DoorDash and Uber Eats, forcing established chains to find new ways of attracting and retaining customers.

McDonald’s, like many of its peers, has been remodeling its 14,000 restaurants in the United States - its biggest market - by introducing digital ordering kiosks, upgrading its mobile app and adding pay and pickup services to replicate its success in international markets.

The company has also tweaked its offerings by adding deals such as the $1, $2, $3 value menu as well as a wider variety of breakfast items like Donut Sticks. It has also switched many of its burgers to fresh-beef patties from frozen ones to woo diners.

“Customers are rewarding us for the investments we are making,” Chief Executive Officer Steve Easterbrook said on a post-earnings call with analysts.

“We’ve made significant progress on delivery the past 2 years,” he said, adding that delivery is expected to be a $4 billion business in 2019 for McDonald’s and its franchisees.

Sales at U.S. restaurants open for at least 13 months rose 5.7%, their biggest growth since the launch of its all-day breakfast in 2015.

Analysts had forecast 4.47% growth, according to IBES data from Refinitiv.

Globally, same-store sales rose 6.5%, also topping estimates of 5.08%, helped by strong performance in UK, France and Germany. (Graphic: tmsnrt.rs/2LJdpN8)

Total revenue was flat at $5.34 billion in the second quarter ended June 30, but came in slightly above expectations of $5.33 billion.

Excluding items, McDonald’s earned $2.05 per share, meeting Wall Street expectations.

Reporting by Aishwarya Venugopal and Nivedita Balu in Bengaluru; Editing by Tomasz Janowski and Anil D'Silva

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