McDonald’s misses Q4 earnings expectations, but sales boosted by menu, mobile

McDonald's misses Q4 earnings expectations, but sales boosted by menu, mobile

McDonald’s (MCD) on Thursday posted a fourth quarter profit that fell short of Wall Street expectations, but the fast food giant got a sales boost from the COVID-19 trends of menu innovation, takeout and mobile ordering.

Here’s what the Chicago-based fast-food restaurant posted, compared to Wall Street’s expectations, according to a Bloomberg consensus estimate:

  • Revenue: $5.31 billion versus $5.37 billion expected

  • Adj. earnings per share (EPS): $1.70 versus $1.77 per share expected

  • U.S. same-store sales: 5.5% versus 4.89% expected

  • International same-store sales: -1.3% versus -4.32% expected

The Golden Arches said that U.S. sales were bolstered by a rise in average check size, leading to “positive comparable sales” that tied in with “strategic marketing investments and promotional activity” for new menu items.

McDonald’s President and Chief Executive Officer Chris Kempczinski said “2020 will be remembered as one of McDonald’s most challenging, yet inspiring, moments in our long history. The resilience of the McDonald’s System was on display – making safety and service a priority, putting our customers and people first, and running great restaurants.”

On Monday, the home of the Big Mac and Quarter Pounder, announced Spicy Chicken McNuggets and Mighty Hot Sauce are making a comeback for a limited-time only, beginning February 1st. And on February 24th McDonald’s will leap into the chicken sandwich wars with three different iterations of crispy chicken sandwich: Classic, deluxe and spicy.

Wall Street and Main Street also rallying around the anticipated launch of the McPlant, a plant-based burger, created by and for the fast food chain.

Like many restaurant chains, McDonald’s has kept sales afloat by menu innovation, and shifting aggressively to mobile ordering that allows customers to order in advance — then grab their food and go.

“By investing for the future and leveraging competitive strengths within our Accelerating the Arches strategy in drive-thru, delivery, and our growing digital presence, we’re confident we can continue to capture market share and drive long-term sustainable growth for all stakeholders,” McDonald’s president and CEO Chris Kempczinski said on Thursday.

And after a year focused mainly on digital, delivery and drive-thru, analysts are optimistic about the long-term recovery for the fast-food giant.

J.P. Morgan analyst John Ivankoe noted on Monday that McDonald’s is “well-capitalized” and well-positioned to recover in the post-COVID era, “as evidenced from a near-record 12% gain in comparable sales posted in September 2020.”

When compared to other similar fast food giants like Brands (YUM), Starbucks (SBUX) and Dominos (DPZ), the Golden Arches’ valuation is comparatively better, Ivankoe noted.

J.P. Morgan remains overweight on shares of McDonald’s, with a 12-month price target of $215. “We believe valuing McDonald’s should be longer term in nature,” the analyst added.

In a recent note, RBC Capital Markets analyst Christopher Carril said he is keeping a close eye on “relative shifts in top line trends” and foot traffic — including those for other giants like Restaurant Brands International (QSR), Wendy’s (WEN) and YUM!.

For McDonald’s in Q4, he’ll also be looking for “momentum carried over to begin the third-quarter, with top line aided by the continuation of the celebrity meals promotion and the McRib.”

Back in December, weighed in on just that.

“I do think that McDonald’s has done a nice job of driving sales with the McRib with better marketing…there will be a good catalyst path into at least the first part of 2021,” UBS restaurant analyst Dennis Geiger told Yahoo Finance Live last month.

“So from a sales perspective, there will be good numbers that you will see from them,” he added.

BTIG analyst Peter Saleh of BTIG is also eyeing menu innovation, as well. In a note from November, he reiterated the firm’s “Buy” rating and $245 price target, with a nod to new menu items like the McPlant, McRib and crispy chicken.

McDonald’s shares, which closed lower $207.83 a share Wednesday, fell modestly in pre-market trading.

Brooke DiPalma is a producer and reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma.

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