McDonald's (MCD -0.82%) bet on its "3 Ds" strategy -- digital, delivery, and drive-thru -- continues to pay dividends even if the fast food chain fell slightly short of analyst expectations in the fourth quarter.
Because of awful sales in Australia, which continues to have some of the world's strictest COVID-related freedom of movement, and China, the controversial host of the Winter Olympics, which has the government cracking down on its people's ability to go out in certain cities to contain new coronavirus outbreaks, revenue came in at $6.01 billion. The consensus expectation was $6.03 billion.
Image source: McDonald's.
Earnings were similarly affected by the restrictions, with adjusted earnings coming in at $2.23 per share, compared with Wall Street forecasts of $2.34 per share. Rising inflation and labor shortages also took their toll.
Yet the fast food chain's performance was otherwise quite good, and the U.S. market continues to hum along, with comparable sales jumping 7.5% from last year.
Technology drives McDonald's forward
Consumers continue to fill their bellies at McDonald's, which says it benefited from strong average check growth resulting from price increases, as well as the continuing success of its grilled chicken sandwich that has become quite popular even though the chain is late to the chicken sandwich wars. The return of the McRib sandwich also helped drive sales.
But the real star for McDonald's remains its digital initiative, which alone drove $18 billion in sales in 2021, accounting for more than a quarter of the restaurant's total sales.
McDonald's began investing heavily in technology well before the start of the pandemic, installing self-ordering kiosks, machine-learning and voice-activated drive-through technology, digital sign boards, mobile pay and ordering upgrades, and kitchen robots to dunk food items into vats of oil.
Arguably one of the best bets the fast food leader made was in its MyMcDonald's Rewards loyalty program, which has helped lead to a 13.4% rise in comps over a two-year period.
Digital and drive-through became inextricably linked during the pandemic as dining rooms were shut down, and that's not changing with the harshest restrictions lifted. It's estimated that about 70% of business comes from the drive-through, and most of that occurs during the morning daypart as people drive to work.
COVID still weighs on operations
That's not the case everywhere, as Australia and China held back performance. While revenue in the former barely inched higher to $1 billion, comps were flat, and despite a 16% jump in sales in the latter, comps were negative.
As China drags down much of the restaurant's overall performance, international developmental licensed markets grew 14.2% while international operated markets saw a 16.8% increase in comps.
Still, the U.S. remains the biggest market for McDonald's, representing $8.7 billion in sales, or 38% of the $23 billion total for the full year.
The way forward
McDonald's stock benefited from the strength of its business, with shares rising 25% in 2021, but so far this year they've fallen 7% as the broad market indexes turned sour.
The fast-food chain looks like it's fully stocked for future growth. Except in countries where the government continues to interfere with business, the coming year still looks bright for the Golden Arches.
