McDonald's (MCD -1.31%) rebound is still in full swing. The fast-food titan this week announced fourth-quarter earnings results that included record sales growth as it bounced back from its pandemic-related slump in 2020. The chain is becoming far more profitable, too, thanks to the combination of cost cuts and rising prices.
Let's look at some key takeaways from the Q4 update.
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McDonald's sales growth is accelerating
Investors were worried that the latest coronavirus variant might disrupt McDonald's growth rebound, but that fear was overblown. Comparable-store sales were up 10.8% on a two-year basis, which smooths out the volatility associated with temporary store closures. That result marks an acceleration as compared to the prior quarter when revenue was up 10.2% on that basis.
Sure, the U.S. market slowed slightly, with two-year comps falling to 13% from 15% in Q3. But McDonald's is still handling higher customer traffic and booming average spending per visit across all of its key geographic regions. CEO Chris Kempczinski in a press release described the wider 2021 result, which included McDonald's fastest U.S. growth rate on record, as a "truly exceptional performance." The chain's global sales volume jumped 21% to $112 billion for the full year.
Handling those costs
McDonald's wasn't immune to spiking inflation, which has hit food ingredients especially hard in recent months. Wages were up over 10% through most of 2021, for example, and food costs have been running about 6% higher.
The chain more than offset these pressures through a mix of price increases, aggressive cost cuts, and added efficiency from its push into more drive-thru and delivery sales. In fact, operating income jumped 17% to outpace overall revenue growth.
MCD Operating Income (TTM) data by YCharts.
That success allowed operating margin to soar to 42.4% of sales from 36.7% a year ago. McDonald's is now bumping up against record profitability despite the fact that costs are quickly rising across the business. Operating income crossed $10 billion for the full year, a new record for the fast-food titan.
Looking ahead
Kempczinski and his team are following some major potential challenges ahead for fiscal 2022, including continued pressure to pass along higher food costs to customers. Several key markets, such as China, are dealing with further COVID-19 restrictions. And competition is as fierce as ever in the booming home delivery space.
But the past year's performance confirms that this restaurant chain has a few world-class assets that allow it to thrive through just about every market environment. It also shows the flexibility of its massive fast-food platform to cater to a wide range of tastes, whether it's premium drinks and sandwiches or value-based meals.
As a result, investors have every reason to expect positive returns from holding McDonald's stock. Sure, it's unlikely that the company will ever repeat its 2021 performance of 14% higher comps following the 2020 slump.
But the chain routinely gains market share in a massive global market and boasts some of the highest margin and cash flow metrics in the industry. Those factors, plus a growing dividend, should help shareholders continue to outpace the market by owning this stock.
