McDonald’s Returns to Sales Growth With Toys, Budget Meals

McDonald’s Corp. sales picked up in the latest quarter, suggesting that pop culture-focused collaborations and budget meals are helping to offset diners’ economic anxiety.

Global sales at restaurants open at least 13 months rose 3.8% in the second quarter, the company said Wednesday. That’s higher than the average estimate of analysts polled by Bloomberg. International markets led the company’s growth, while the US was slightly ahead of expectations as Americans spent more per trip.

The results ended four quarters of declining or tepid growth as the burger chain dealt with an E. coli outbreak, backlash against American brands in the Middle East and consumer unease about the economy in response to President Trump’s trade disputes. Total guest counts around the world rose, Chief Executive Officer Chris Kempczinski said on call with analysts.

McDonald’s stock rose 2.6% at 9:30 a.m. in New York. The shares had gained 3.1% this year through Tuesday’s close, trailing the 7.1% increase in the S&P 500.

The chain’s second-quarter efforts to bring in customers included a meal timed to the launch of the Minecraft movie and a Squishmallows themed limited-time offer. In the US, the company launched chicken strips while trying to win over budget-sensitive diners with the offerings on its lower-priced “McValue” menu, such as its meal bundle starting at $5.

US Comeback

The company’s turnaround in the US is stark, with sales rising 2.5% in the second quarter after slumping in the three months ended in late March. It also contrasts with a mixed picture across the restaurant industry.

Rivals such as Chipotle Mexican Grill Inc. and Pizza Hut are grappling with pullbacks as they struggle to convey to customers that their meals are a good deal, while Taco Bell US is still bringing more diners in buzzy new launches and cheap eats — a similar playbook to McDonald’s.

Second-quarter earnings, excluding some items, were $3.19 a share — higher than analysts’ average estimate. Revenue, which consists of sales by company-operated restaurants and fees from franchised locations, also outpaced expectations.

The overall second-quarter results show that McDonald’s strategy is working and could lead to “sustained” same-store sales outperformance compared to the rest of the industry, Citi analyst Jon Tower said in a note to clients.

Bifurcated Consumer

Ahead of the earnings release, analysts were expecting growth for McDonald’s global same-store sales to accelerate in the second half of the year. Initiatives such as the relaunch of the Snack Wrap — which customers requested for years — were fueling the outlook.

The US business should be “stronger” in the fourth quarter than in the third, Chief Financial Officer Ian Borden said on the analyst call, in part because in the three-month period through Sept. 30 the company will go up against last year’s successful rollout of the $5 bundle.

McDonald’s is looking to bring back low-income diners in the US, Kempczinski said, since they eat at its restaurants more often than middle- and high-income diners.

“This bifurcated consumer base is why we remain cautious about the overall near-term health of the US consumer,” Kempczinski said on the analyst call.

Snack Wrap

The company will continue to market the Snack Wrap for $2.99 through year end, the CEO said. It’s also looking at making its core menu look more affordable. When diners see combo meals advertised for $10 or more, that’s “shaping value perceptions in a negative way,” Kempczinski said.

McDonald’s also plans to test new beverages, including cold coffees and crafted sodas, at more than 500 US locations starting in September.

“A balance between value and quality is being struck with the $5 dollar promotion and premium beverage service targeting Gen Z directly,” Brian Mulberry, a portfolio manager at Zacks Investment Management, said in an email.

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