It's steady as she goes for the world's largest fast-food chain. After its sales growth pace dove in the second quarter, McDonald's (MCD -0.25%) found its footing in Q3 as sales stabilized at a modest, but still market-beating, rate.
Executives aren't resting with that result, and they're aiming to improve key metrics like customer traffic and average spending, especially in the U.S. CEO Steve Easterbrook and his team discussed those challenges in a conference call with analysts. Below are a few highlights from that chat.
Image source: Getty Images.
The plan is working
The key elements of the growth plan are working. We have powerful growth drivers at the heart of our strategy.
-- Easterbrook
Global sales accelerated slightly, rising to a 4.2% pace from 4% in the prior quarter. That overall boost calmed fears that the fast-food titan's three-year recovery could be winding down, as growth slowed in mid-2018.
Instead, the company saw healthy gains of about 5% across most of its international markets and a steady 2.4% boost in the U.S. segment. Executives highlighted a few key growth drivers behind that success, including value meals, digital ordering, and delivery.
Tough going in the U.S. market
The environment in the U.S. remains very competitive, especially around value and deal offerings. Considering this, we're pleased with our [comparable-store] sales for the quarter of positive 70 basis points versus our [quick service restaurant] sandwich competitors.
-- CFO Kevin Ozan
The obvious disappointment in this report was the fact that customer traffic declined in the U.S. market for the third straight quarter, which forced the chain to rely on higher prices and increased average spending to pull sales higher. McDonald's still managed to win market share overall in its biggest segment, with help from popular new offerings like its buttermilk chicken tenders and the fresh-beef Quarter Pounder. The company saw modest contributions from store remodels that added digital ordering kiosks, too, and from a wider network of stores outfitted for delivery.
You have to spend money to make money
[The U.S. segment] is maintaining an aggressive pace of modernizing restaurants, completing around 1,000 projects during the quarter. At our current pace, by the end of 2019, we expect to complete over 12,000 restaurants with our Experience of The Future initiative, making this as the largest construction project in our history.
-- Easterbrook
McDonald's is on pace to spend $1.6 billion this year on fitting its U.S. stores with the latest modern fixtures like digital menu screens and ordering kiosks. The initiative prioritizes setting stores up for home delivery, which management sees as a major source of volume growth in the years to come.
In addition to the normal expenses associated with the upgrades, though, these projects carry other big costs, including store downtime while the renovations occur.
But the company has seen a lift in traffic and spending at restaurants outside the U.S. that went through these remodels years ago in places like the U.K. and Canada. That's the reason why the chain is rolling out upgrades at a pace of about 1,000 stores per month on its home turf. It's the fastest store spending project in McDonald's history, but it's a direct tool the company can use to accelerate growth today while laying the groundwork for more digital and delivery-based gains in 2019 and beyond.
