Why McDonald's Execution Looks as Strong as Ever

McDonald's (MCD 0.51%) has implemented a new plan under CEO Chris Kempczinski, focusing on digital ordering, drive-thrus, and delivery. The fast-food giant just capped off a strong year with double-digit comparable sales growth and looks well positioned for future growth.

In this video clip from "Beat and Raise," recorded on Jan. 28, Fool contributors Jeremy Bowman and Brian Withers discuss McDonald's latest quarter, and how the company is overcoming the pandemic. 

Brian Withers: I went to McDonald's the other day. I went on Monday and I said, "Can I have a large fries, please?" She says, "No, we don't have any large fry containers." I wonder if the supply chain impacted McDonald's quarter.

Jeremy Bowman: The supply [laughs] chain is really hitting home when they tell you that. I guess they could always do a medium fry or whatever large.

Withers: She said, "Sorry, we got to sell you a medium." I'm like that's probably better for me anyway. [laughs]

Bowman: Yeah. Let's get into it. So McDonald's had a solid quarter. Let me pull up the slides. I think McDonald's is one of those stocks you can set it and forget it. This is the world's biggest restaurant chain. It's a brand known around the world, and a pretty solid quarter, they were lapping -- 2020 was a pretty weak year for them globally because of the COVID pandemic.

Withers: Slow it up to the full-screen there Jeremy.

Bowman: You'll see revenue was up 13% to $6 billion, which was basically matched estimates. That's pretty good when you're a company the size of McDonald's and you're growing at double-digits. Like I said they are lapping an easy year. Nonetheless, I think you've got to be happy with that. We should also note McDonald's, they franchise 93% of their restaurants so revenue doesn't really reflect the true size of the business. Their systemwide sales I think we're like $118 billion or something last year. Full-year revenue is only about 20% of that or something, and then earnings per share up 31%, which I think is also pretty stellar for this kind of business. That was a bit short of estimates though, at $2.34, they didn't really give a detailed guidance or outlook.

As Brian, it sounds like you experienced firsthand, they are having some headwinds with the challenges with supply chain and labor shortages and inflation and all that good stuff. They didn't give revenue or EPS guidance, but they did see operating margin in the low to mid 40s, not too many businesses get up there, so that shows how powerful their franchise model has been for them, at least as far as profitability and that was about 40% for 2021, so they're improving on that, which is a good sign. Highlights in the fourth quarter, same-store sales were up 12.3% globally which is outstanding and it's on a two-year rate or two-year stack as they call it, 10.8%, so a little slower because they had a dip in the quarter a year ago.

That's solid growth and then 7.5% in the U.S., which is actually lapping, I think it was, 5.5% growth a year ago so, definitely strong growth across the board there. Digital sales has been a big initiative like across the restaurant industry during the pandemic. Twenty-five percent of their business is coming from digital sales in their top six markets. I think that's pretty impressive the way they are remaking themselves on the digital front following in the footsteps Starbucks and those kind of restaurants which clearly has done a good job with that too. Their digital sales were 18 billion systemwide for the full-year, so a pretty big business there and their rewards program they've made some headway there with my McDonald's rewards now  30 million members in the U.S. six months after the launch.

Withers: That is a fantastic number. I don't know that Starbucks is up to 30 million at this point.

Bowman: Yeah. You might you might be right. Yeah, they really show the demand that was out there for them and I think also should be a pretty easy program to expand internationally, step up the competitive advantage you can do when you're a huge brand with McDonald's like with rewards program like this and then no major concerns really but the company mentioned because the COVID uncertainty, we're going through that omicron variant and there's some supply shortages, shutdowns in other countries. They've seen stronger COVID headwinds internationally, less so in the U.S., definitely like China and some parts of Europe, and then inflation both wages and product costs hit them but they are a little more immune to that than other restaurant chains because of their franchise model, so all in all a pretty strong report. I think the stock they reported yesterday, the stock barely moved, and they were up today with the gains in the broad market. Like I said I think this is one of those steady performers if you're looking for just a safe stock that you can count on. They're a Dividend Aristocrat as well with I think 2.5% yield.

Withers: It's pretty impressive. Yeah, I found the Starbucks loyalty number. Their 90-day active members is just short of 25 million so may not be an apples-to-apples comparison with the 30 million McDonald's members but if you use the app and it's been successful for you, it sounds like they're getting repeat business through that so that's super awesome.

Bowman: It's a good customer acquisition tactic for sure.