The restaurant industry had a strong recovery in the 2021 first quarter. More patrons are going out to eat now that lockdowns have lifted in several states, and restaurant chains are reaping the benefits.
McDonald's (NYSE:MCD), the largest restaurant chain in the world, demonstrated this amply in the 2021 first quarter. Not only did comparable sales (comps) grow 7.5% year over year, but they beat 2019 levels. Let's see how the recovery is going.
A huge jump forward
McDonald's comps decreased as much as 24% year over year in the 2020 second quarter when dining rooms were closed, but that quickly improved to a 2% decrease in the third quarter, and a 1.5% decrease in the fourth quarter.
In the 2021 first quarter, total comps increased 7.5% year over year, led by the U.S., with international sales just more than breakeven, and the international licensed segment up 6%. Total revenue increased 9%, and operating income was up 35% year over year. These numbers indicate a recovery from the pandemic and growth year over year as well as over pre-pandemic levels.
The burger chain's ubiquitous drive-thrus played an important role in the recovery, and management quickly switched gears to invest in digital capabilities. McDonald's had a strong cash position throughout the pandemic, which allowed it to make global investments in digital capabilities, as well as ramp up drive-thus and delivery. McDonald's also continued to pay and increase its dividend, an important element of shareholder value.
Considering the company's large global consumer base and that the pandemic is far from over, a comps increase is no small feat.
A strong showing from its biggest market
McDonald's operates nearly 40,000 restaurants, most of which are franchised. More than a third of total locations are in the U.S., and the recovery was most pronounced in this market. Comps increased 14%, driving the overall comps increase.
While the restaurant chain had significant success with new menu items, a removal of several menu items made for a smoother drive-thru and delivery process. Higher average orders fueled sales, and the company expects that to moderate in the second quarter.
Is growth sustainable?
One question that emerges from this is whether the growth is a backlash against lockdowns, and if the high comps will recede as people have their fill of McDonald's. Also, Q1 sales might have gotten an extra boost from stimulus checks. Can the company sustain double-digit U.S. comps growth and otherwise strong comps?
McDonald's comps are not typically high, but they are generally positive. Q1 2021 revenue is about normal as compared to the 2019 results -- a 3.5% increase. That's fairly standard for the company.
The company is focused on its three Ds -- digital, drive-thru, and delivery -- as key growth drivers. Digital is especially important in developing a diverse set of omnichannel options. There are now 40 million active app users in the top six locations, and millions more in other markets, demonstrating why digital investments are important, and that they're paying off. Delivery locations grew from 3,000 to 30,000 over the past four years, or 75% of total global stores -- and there are 25,000 stores with drive-thrus.
McDonald's is on track to open 500 new restaurants this year, keeping its lead as the largest global restaurant company. There are still significant growth opportunities for more stores and increasing comps, and McDonald's is a safe bet for continued growth. As it officially begins its recovery, the future looks bright.