McDonald’s Slows Down In Q2’16, Despite Growth In Comparable Store Sales

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McDonald's

Despite strong comparable store sales growth of 3.1% in its Q2 2o16 earnings report, McDonald’s (NYSE:MCD) posted a 3.6% y-o-y decrease in its revenues and 1% y-o-y decrease in earnings.

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McDonald’s revenues suffered a decline, led by a significant decrease in company-operated sales, partially offset by the increase in franchised revenues. The softening in company-operated revenues was primarily due to the negative impact of refranchising, as the company-operated sales were increasingly replaced by franchised revenues in the form of rent and royalty, based on a percentage of sales. Going forward, McDonald’s will accelerate the pace of refranchising to optimize its restaurant ownership mix and generate more stable and predictable revenues. Consequently, we can expect continued weakness in the top-line in the second half of the year.

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In terms of bottom-line, the company only saw a slight decline in earnings, owing to its efforts at controlling costs. Operating expenses were down approximately 5% y-o-y in Q2’16, supported by favorable commodity costs around the world, partially offset by rising labor costs in many of its markets. As a result, despite a fall in revenues, McDonald’s witnessed a 120 basis points improvement in operating margins.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for McDonald’s

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