Financing

Value and marketing helped McDonald's sales last quarter, but only to a point

The fast-food chain’s same-store sales rose 0.3%, but traffic remained “slightly negative” last quarter. But investors may be more concerned about what’s happened since then.
McDonald's
McDonald's generated positive same-store sales last quarter in the U.S. | Photo courtesy of McDonald's.

Marketing and value helped lead to a moderate improvement in sales and traffic at McDonald’s domestic restaurants last quarter, the company said on Tuesday, but the company missed Wall Street expectations on profitability and investors and others may be more concerned with what’s happened since the quarter ended.

Same-store sales rose 0.3% in the U.S. in the third quarter, McDonald’s said, as average check growth offset “slightly negative” same-store customer counts. Traffic to the chain’s restaurants had been worsening in recent quarters as consumers frustrated by menu price inflation have cut back on their visits. The commentary on the earnings report suggests that improved, though still negative. 

Revenue increased 3% last quarter to $6.87 billion, which beat analyst expectations according to the website Earnings Whispers. But the Chicago-based company reported $3.13 in earnings per share, which missed expectations.

Regardless, much of the concern for investors and others is the reaction of consumers over the past week as McDonald’s has dealt with an e. coli outbreak that led the company to pull Quarter Pounders from the menu in a dozen states, including Colorado, Nebraska and Nevada. 

That outbreak, which has sickened at least 75 people, is believed to have been caused by slivered onions that have been removed from the menu at 900 affected restaurants. Quarter Pounders are set to return to those restaurants this week, though without onions. 

“Hearing reports on how that has impacted our customers has been wrenching,” CEO Chris Kempczinski told analysts on the company’s third-quarter earnings call Tuesday. “We’re sorry for what our customers experienced.” 

The third quarter ended before that outbreak, so the sales data does not include any potential impact from the issue, consumer reaction or the lack of Quarter Pounders in a wide swath of locations.

But the company said that sales and traffic, which had been positive in the first half of October, turned negative after news of the outbreak hit last week. But executives also said they were confident that any impact from the incident on sales would ultimately be immaterial to the quarter's earnings, a comment that reversed the company's stock price Tuesday, sending it moderately higher after it had fallen more than 2% in pre-market trading.  

The outbreak came at a tough time for McDonald’s, which watched its sales slow dramatically this year, including a 0.7% decline in the second quarter, driven by falling traffic. That prompted the company to introduce a $5 Meal Deal, featuring a four-piece Chicken McNuggets, fries, a drink and either a McChicken or a McDouble.

The deal appeared to help restaurants improve customer count numbers but not enough to lure more traffic than it did during the same period a year ago. 

Other marketing strategies also helped, notably the company’s Collector’s Cups introduced in August that apparently generated strong traffic in the promotion’s early days. 

The company also said that its digital sales continue to grow, particularly through its MyMcDonald’s Rewards loyalty program. Sales from loyalty members in the 50 markets with such programs was nearly $8 billion last quarter, and $28 billion over the past 12 months. 

UPDATE: This story has been updated to include information from the McDonald’s earnings call. 

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