McDonald’s reports strong sales, thanks to Donut Sticks and bacon

The company said its U.S. same-store sales rose 4.5% in the first quarter, but traffic is still down.
Photograph courtesy of McDonald's Corp.

McDonald’s lured consumers to its restaurants in the first quarter with a combination of doughnuts, bacon and fancy kiosks.

The Chicago-based burger giant said Tuesday that its same-store sales rose 4.5% in its key U.S. market in the quarter ended March 31.

But that result came from customers paying higher prices and making larger orders. Traffic, a consistent problem for more than a year, remains down, though the company would not provide details, saying only that it was similar to prior quarters.

McDonald’s traffic declined 2.2% in 2018.

Still, the results bested expectations and sent the company’s stock price higher Tuesday.

“Average check growth helped cover up the continuing decline we’re seeing in guest counts,” CEO Steve Easterbrook said on the company’s first quarter earnings call.

Same-store sales rose 5.4% systemwide, including 6% in both developed and newer international markets as the company’s overall same-store sales have now risen 15 straight quarters.

But a lot of attention is paid to the U.S., where the company has 14,000 locations and which is still its biggest market.

The company cited four reasons for its improved same-store sales in the quarter. The company held a “Bacon Hour” promotion in January, giving customers the option to add bacon to any order for free.

In February, it introduced Donut Sticks, which helped lift sales in the company’s important breakfast daypart. And the chain generated sales with a 2 for $5 Mix and Match promotion.

And McDonald’s said that its “Experience of the Future” remodels, which feature kiosks, contributed to the company’s same-store sales in the period for the first time—and ahead of its projections to do so by the middle of the year.

“There was an overall net positive contribution from the aggressive modernization effort,” CFO Kevin Ozan said, noting that the sales lift from new remodels is now exceeding the sales loss from the time restaurants were under construction. Remodels were a drag on sales for most of 2018.

McDonald’s is planning to have the vast majority of its 14,000 restaurants remodeled in the U.S. by the end of 2020, and roughly 60% of those projects are complete.

“The remarkable speed with which we completed projects in 2018 was incredibly hard work,” Easterbrook said, noting that U.S. customers now have a “50-50 chance of visiting a modern-looking McDonald’s.”

He noted that once markets cross the 50% mark, customer experience is smoother in the locations, and the technology is more supportive. “We feel good about where we’re at,” Easterbrook said.

Kiosks could also be increasing average check at the chain because customers ordering from such devices take longer and order more products.

That might also be happening with delivery.

The company’s delivery service through Uber Eats was a “meaningful contributor” to same-store sales in the first quarter, executives said Tuesday. Delivery orders, Easterbrook said, are 1.5 times to 2 times the size of a typical order.

Executives also suggested, however, that U.S. delivery remains far behind the service in many other markets around the world.

Delivery is now a $3 billion business for McDonald’s, which has the service in 20,000 of the chain’s more than 36,000 restaurants.

Easterbrook largely confirmed reports that the company is working with Uber Eats on delivery coverage and “to get as competitive a deal” for owner-operators.

“We believe that we’re on the verge of unlocking some of that delivery potential more within the U.S.,” Easterbrook said.

He noted that the company would be able to market the service once it gets a critical mass of restaurants on the service. “The actual guest counts per restaurant per day is still some way behind elsewhere in the world,” Easterbrook said. “But we’re more confident we’re going to rapidly pick up the pace.”

UPDATE: This story has been changed from its previous version to add details from the company's earnings call.

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