Five takeaways from McDonald’s sizzling sales report

Fast food powerhouse McDonald’s Corp. (MCD) delivered surprisingly good sales numbers that helped lift both the Dow Jones Industrial Average (DJIA) and S&P 500 Index (SPX) in Monday’s trading. Mickey D’s stock posted a 1% gain to $89.41 on the day, though it’s still off about 12% for the year.

MCD Chart

MCD data by YCharts

Here are five things you need to know about this bellwether stock:

1) Despite Monday’s upbeat report, new McDonald’s CEO Don Thompson, who arrived in July, hasn’t convinced all Wall Street critics that the company is back on track after a sales slump earlier in the fall. In October, the company shocked investors when it reported its first global monthly sales decline in nine years. In contrast, same-store sales globally rose 2.4% in November, fueled by a 2.5% rise in U.S. same-store sales. But analysts and shareholders will want to see that momentum continue.

2) McDonald’s also outperformed sales expectations overseas in Europe, Asia/Pacific, Middle East and African markets.

3) Thompson’s renewed focus on McDonald’s recession-friendly dollar menu – emphasizing less expensive menu items, breakfast offerings and beverages – paid off in the November results.

4) Even so, Thompson needs to nudge McDonald’s research kitchen to come up with more innovative products to excite consumers, something that arch-rival Burger King (BKW) has been doing more aggressively this year with new offerings like snack wraps and gingerbread sundaes for the holiday season. McDonald’s had nine limited-time or test items from June through September, while Burger King had 20 on its menu, Bloomberg recently reported. Driving sales with new products is a far better long-term strategy than discounting.

5) Still, McDonald’s continues to enjoy tremendous advantages over competitors like Burger King and Yum Brands (YUM), particularly when you consider its real estate assets, argues David Saunders. Forget the hamburgers and consider the rental income the company gets from its franchisees, which make up roughly 85% of its 31,000 or so outlets worldwide. Saunders estimates that franchisee rent, fees and royalties kicked in nearly 68% of the company’s adjusted EBITDA in 2011. “By far, the lion’s share of McDonald’s earnings is directly related to property,” Saunders concludes.

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Xavier Brenner
Xavier Brenner
Xavier Brenner has covered global market, business and economic trends for Interactive Brokers Asset Management since 2013. An experienced financial journalist, Brenner offers analysis and insights on the stories that matter to the discerning investor.