McDonald’s Growth Momentum Is Likely To Continue In Q4 2017

by Trefis Team
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After delivery strong results in the first three quarters of 2017 on the back of stellar comparable sales growth, McDonald’s‘ (NYSE:MCD) will announce its fourth quarter and full year 2017 results on January 30th, 2018. While the company’s revenue decline is likely to continue in this quarter as it works on the refranchising initiative, consensus analyst estimates expect a nearly 12% year on year growth in EPS (earnings per share).

The charts below summarize the company’s earnings expectations:

Key Trends:

Positive industry environment:  The overall restaurant industry environment has been positive for the quarter ended December 2017. While comparable traffic declined, comparable sales have been positive on the back of higher average checks. Fine dining and upscale casual restaurants are likely to benefit from this trend, however McDonald’s has been able to attract significant traffic to its stores and generate higher comparable sales via its several value offers. Its focus on “gourmet” burgers and healthier menu alternatives is likely to drive higher check sizes.

Initiatives To Drive Growth: McDonald’s refranchising initiative is driving profitability for the company and it is taking several measures such as value based promotions (dollar menu), digital initiatives around its “Experience Of The Future Stores” and increased focus on door delivery to drive revenues. While a significant benefit of these initiatives will be visible in 2018, promotions are likely to drive growth in Q4 2017.

These initiatives are aimed at increasing profitability for the company, however, reports suggest that the dollar menu and self-serve kiosks are acting as a point of friction between the company and its franchisees. A franchisee driven growth is likely to drive profitability for the company, but its ability to manage franchisee expectations is likely to be key for this growth.

Increase in Comparable Sales: McDonald’s has been ahead of its peers in generating high comparable sales with increasing customer traffic as its digital and customer-centric growth initiatives bear fruit. However, it might not be easy for the company to sustain this high growth in comparable sales and we will be keenly watching the comp growth for Q4 2017 and the guidance issued by the company for 2018.

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