McDonald's (MCD 0.47%) is back.
Like rival Starbucks (SBUX -0.35%) did earlier in the week, the fast-food giant on Thursday said it returned to sales gains in early 2021, thanks partly to the comparison with a prior-year period that included some of the biggest impacts of COVID-19 social distancing.
The rebound suggests McDonald's will enjoy a record year for growth and earnings. But there's more to this report than just those top-line figures. So let's look at three standout metrics that you might have missed in the announcement.
1. Surging average spending
McDonald's comparable-store sales grew in each of its geographies and expanded by 7.5% overall. That's great news compared to the 1.3% decline it posted last quarter and the 8% slump Mickey D's endured for the wider 2020 year. Its U.S. growth of 14% stacks up well against Starbucks, too, which just reported a 9% boost in its home market.
Image source: Getty Images.
Yet both chains are still serving fewer guests than they did a year ago. McDonald's customer traffic was negative in each of its markets, meaning comps rose entirely thanks to increased spending per visit. Guests spent more across the chain's breakfast, lunch, and dinner hours, management said in the 10-Q filing, thanks to solid demand for core products, limited-time offers, and delivery and drive-thru options.
2. Setting new profit records
McDonald's industry-leading profitability was pinched during the pandemic but has now fully recovered. Operating margin jumped to 44.5% of sales in the first quarter compared to 35.9% a year ago.
That result keeps the chain far above peers like Yum! Brands (YUM 0.75%) and even further ahead of rivals like Chipotle Mexican Grill (CMG 1.07%), which don't rely on franchising to boost their profitability.
MCD operating margin (TTM) data by YCharts. TTM = trailing 12 months.
McDonald's CEO Chris Kempczinski and his team had projected low 40% operating margin by the end of 2021. But the strong start to the year suggests McDonald's has a shot at beating that optimistic outlook. Investors would see an immediate impact from that success in the form of higher earnings, and likely bigger cash returns over time.
3. Cash holdings
McDonald's is in fact flush with cash right now, having entered the year with over $3 billion on the books. It is on pace to convert over 90% of its 2021 earnings into free cash flow, too, management said in this week's announcement.
Taken together, these trends mean that there will be plenty of resources the chain can devote toward its aggressive growth plan that includes a big push into drive-thru and delivery upgrades, along with store remodels and extra marketing spending.
Even accounting for those investments, shareholders are likely to see rising cash returns from McDonald's through stock buybacks and dividends. These initiatives should amplify returns for holding this leading fast-food stock through what might be an unusually strong period for the industry over the next year or so.
