Please ensure Javascript is enabled for purposes of website accessibility

McDonald's Will Focus on Lunch and Dinner in 2021

By Demitri Kalogeropoulos - Feb 3, 2021 at 7:11AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The fast-food giant is hoping for a return to global sales growth soon.

McDonald's (MCD 2.46%) business is slowly getting back to normal. The fast-food chain's fourth-quarter earnings report, while marking another period of global sales declines, showed improving operating trends despite the ongoing pressure from COVID-19. The company even extended its annual growth streak in key markets like the U.S. and Australia.

In a conference call with Wall Street analysts, CEO Chris Kempczinski and his team talked about the competitive assets that allowed Mickey D's to grow in 2020 even as peers like Starbucks posted declines. Let's look at some highlights from that chat.

A man carrying to go food.

Image source: Getty Images.

Finishing a tough year on a high note

"While there were challenges across markets, some of our larger markets achieved positive comp sales for the full year, including the U.S., Japan and Australia, and that was on top of strong momentum coming into 2020," Kempczinski said.

Comparable-store sales bounced back into positive territory in the fourth quarter, growing 5.5%. That result put McDonald's ahead of Starbucks on its recovery path; the coffee titan announced a 5% sales decline in the U.S. segment.

Stepping back, sales were down 8% globally for the year, but McDonald's achieved modest gains in key markets, including the U.S., Japan, and Australia. The chain credits a swift push into delivery and drive-thru, popular menu introductions, and investments in creating a safe operating environment. "We know how to run great restaurants," Kempczinski said.

It's a different market

"The needs of our customers have changed," Kempczinski said. "They're dining in less and taking out more, visiting less in the morning and much more for lunch and dinner, and interacting with other people and brands, less in-person and more through digital." 

McDonald's is operating under the assumption that many of the pandemic-related consumer shifts will be around for a while. That means the core lunch and dinner menus will be crucial in 2021 as breakfast visits stay pressured. The drive-thru and home delivery platforms are getting big upgrades, too, given that this channel doubled in markets like the U.S. just over the past year.

Rivals like Chipotle and Shake Shack are pouring resources into these convenient fulfillment offerings. But McDonald's is aiming to stay the global leader in drive-thru while scaling up its delivery platform. "We have big ambitions," Kempczinski said.

Winning where it counts

"We ultimately measure overall financial efficiency by our operating margin, as it serves as the most comprehensive gauge of our operating performance," CFO Kevin Ozan said. "We expect our operating margin percent to be in the low to mid 40s for 2021."

Last year ended McDonald's impressive streak of surging profitability, and that stumble contributed to several worsening financial metrics. Earnings, cash flow, and margins all dropped due to the combination of reduced sales and rising expenses in areas like labor, safety procedures, and marketing.

MCD Operating Margin (TTM) Chart

MCD operating margin (TTM) data by YCharts. TTM = trailing 12 months.

Management could have lessened that blow by pulling back on new store development, marketing spending, or investments in the digital selling platform. But it made the calculated bet that such a pullback would hurt the chain's long-term earnings power.

Investors should see some concrete returns from those decisions as profit power starts recovering in 2021. In fact, executives are calling for operating margin to return to the low 40% range by the end of the year.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
$252.96 (2.46%) $6.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.