Global restaurant brand McDonald's (MCD 0.38%) has been seeing a burst in customer traffic and ordering over the past year as the company continues to rebound from the big hit it took during the early stages of the pandemic in early 2020. That's a good thing. The company's challenge has been to manage this return of in-person dining and sustained ordering for delivery and drive-thru in what has effectively been a labor shortage.
How McDonald's is doing managing this tailwind/headwind situation will again be on top of investors' and analysts' minds when the company reports fourth-quarter earnings on Jan. 27.
Let's take a closer look at this and other issues that might be part of that report on Thursday.
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McDonald's has no shortage of customer demand
In its third-quarter (ended Sept. 30) report, McDonald's management said comparable-store sales (comps) grew by 12.7% from the same time last year. That's impressive growth considering the pandemic is still causing people to hesitate to leave their homes two years in. Not only are sales higher than last year, but comps were 10.2% higher than at the same time in 2019.
McDonald's President and CEO Chris Kempczinski had this to say about the third-quarter results:
Our third-quarter results are a testament to our unparalleled scale and agility. Our global comparable sales increased 10% over 2019, which was delivered across an omnichannel experience that is focused on meeting the needs of our customers. We continue to execute our strategic growth plan and run great restaurants so that we can drive long-term, sustainable growth for all of our stakeholders.
Customers are showing their appreciation for the value and the quick service McDonald's provides. The bigger problem for McDonald's is the challenge of serving these customers. Many businesses are reporting difficulty finding workers because of the pandemic. As a result, McDonald's locations are reducing hours of operation and the speed of service is decreasing because restaurants are not fully staffed. Although McDonald's has implemented wage increases of between 10% and 15%, the problem persists. For a worker making $10 an hour, that's a $1 to $1.50 an hour wage boost. Still, judging by the tepid response from workers, the boost in wages is not nearly enough to compensate for the elevated on-the-job health risk the coronavirus presents.
Management has taken measures to respond to worker shortages, including enhancing its mobile ordering system, voice recognition systems at drive-thrus, and self-serve digital kiosks inside restaurants. These services have not been rolled out broadly to all McDonald's restaurants just yet, but they are steps management has taken to offset labor shortages. With nearly 40,000 locations worldwide, it will take time to implement any strategy, but shareholders should be aware that efforts are being made to address the issue.
What this could mean for McDonald's investors
Analysts on Wall Street expect McDonald's to report revenue of $6.04 billion in Q4 and earnings per share (EPS) of $2.34. If the company hits those projections, it would be increases of 13.6% and 37.6%, respectively, from the same quarter last year.
Perhaps as important to the stock price as the financials from the recently completed quarter will be management's discussion on the impacts of shortages in the next few quarters. If higher wages are needed to secure enough staff, investors will want to hear about further menu price increases to offset those higher costs.
