McDonald’s Corporation (MCD) Showing Signs Of Life

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McDonald’s Corporation (NYSE:MCD) is witnessing sales upsurge after years of recording sales drop. However, it did not reflect in the quarterly top line because of the strong Greenback. Excluding the currency impact, its top line would have advanced 3% in the first quarter drive by strength in its comparable store sales. Aside from that, there is a reason behind the success. The company was categorical and very clear that it would make available the breakfast menus all through the day despite criticisms from analysts, as well as, some investors and customers. Its stubbornness to stick with the revised menus is proving to be a solid factor in the turnaround of the food retailer.

Value Matters

It is not just that McDonald’s Corporation (NYSE:MCD) brand matters. Gone are the days of the sheer brand value delivering thumping numbers. Currently, people are more cautious about selecting the food or menus, and at the same time the pricing of such foods. As far as the food retailer is concerned, its president and CEO, Steve Easterbrook, believes that its business, as well as, the brand was established on tasty food and beverages with compelling value and unmatched convenience. One of the reasons for its turnaround plan, which was announced last year, to succeed, was that it focused on improving the critical customer-driven factors.

McDonald’s Corporation (NYSE:MCD)’s has also been investing in its restaurants and the ongoing investments were reflecting in restaurants performance. The recent first quarter results is a testimony to this believes. The restaurant firm could witness increased top line and operating in constant currencies in every business segment they operate. While the comparable store sales grew 6.2% at the international level, it witnessed 5.4% growth domestically. That is mainly because of All Day Breakfast, as well as, the launch of McPick, which is a branded national value platform. The significant factor is that the growth was the third consecutive quarter after recording two years of drop. For the upcoming period too, the business in the America remains focused on providing its long-term value platform apart from investing in enhancements of core menu besides simplifying restaurant operations.

Addressing Of Customer Complaints

The turnaround for McDonald’s Corporation (NYSE:MCD) did not come through without the satisfaction of the customers or addressing the complaints of the customers. It was not just the change of menu that altered the situation for the company. The company was plagued by complaints of poor service from its customers. Their complaints included long waiting period for food, dirty restaurants, rude employees, and inaccurate orders. The restaurant retailer understood the need to train its employees to behave well with its customers to retain its hold and gain from the changes in the menus apart from attractive pricing. Therefore, the company opted to enhance its customer service providing proper training to its employees apart from increasing their wages.

Last year, McDonald’s Corporation (NYSE:MCD) made a big investment on wages, as well as, benefits for its employees. For instance, in July 2015, the restaurant firm boosted its average hourly wages to $9.90 from $9.01 representing 10% hike. Currently, the company believes that the average wages per hour would top $10 before the end of the current year. Aside from these, the company allowed its workers to get a maximum of five paid days of vacation every year. The retailer’s investments in training with the execution of fresh procedures such as ‘ask, ask, tell’ to quicken its drive-thru service where it witnessed a lot of issues from the customers, are yield the expected results now. For example, in the first quarter, customer satisfaction got a 6% percent boost compared to the year-ago quarter.

Intelligent Menu Turned It

While the current trend indicates that customers want fresh items in the menu, they are also mindful that such menu items do not stray away too far from the main norm. As far as McDonald’s Corporation (NYSE:MCD) is concerned, its comeback is also credited, at least, in parts, to some of the items in the menu. For instance, its premium Buttermilk crispy chicken deluxe sandwich, Egg McMuffin, and return of the classic recipe ingredients have all played their part in bring back the customers. Of course, the main reason is its decision to provide breakfast menu all through the day. The traffic to the stores suggested that the customers were waiting for quite a longtime for the day long breakfast menu.

McDonald’s Corporation (NYSE:MCD) is also conscious about the rivals’ plans and their ad campaign. The company also tried an ad campaign in vain and such ads did not offer any turnaround in the fortunes of the sales. In fact, they only reminded consumers the reasons for preferring the rivals’ food. The food retailer has also taken a decision not to trying something that they were not doing and returned to do something that they are known for. That meant the company will no longer put tons of items for sale like it did on the Dollar Menu days. Instead, it would focus on high-value orders to realize a better margin.

Conclusion

McDonald’s Corporation (NYSE:MCD) has addressed two primary issues that made the turnaround of performance possible. Both customer satisfaction from the employee’s behavior and the menus play a key role in retaining the consumers. The company indicated that it would continue to invest on both the issues to enhance the performance so that it reflected in the upcoming quarterly financial numbers. On valuation, its PE for the trailing twelve-month is cheaper at 23.6 times than the industry average’s 26.6 times. However, the stock is priced premium compared to the Price to Book and Price to Sales for the same TTM. However, its return on assets and equity were sharply higher than the industry average. Therefore, one can consider buying the stock during a dip.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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