After three years of dismal sales, McDonald’s reported stronger-than-expected third quarter results on Thursday, including a surprising 0.9 percent uptick in sales at U.S. restaurants open for more than 13 months. Global sales also rose and net income jumped more than 22 percent.
The unexpected upturn was enough to get investors excited about McDonald’s turnaround efforts — and enough to drive an 8.1 percent surge in the fast food giant’s share price on Thursday, the biggest daily increase in seven years. The stock, which bumped along for years, has now spiked to an all-time high above $112.
But can the Golden Arches turn this glimmer of good news into long-term success?
Even CEO Steve Easterbrook cautioned against celebrating too much too soon. “We’ve so far delivered one quarter,” he told The Wall Street Journal.
Neil Saunders, chief executive of retail research agency Conlumino, agreed: “One set of results doesn’t indicate a trend.”
The U.S. same-store sales gain was the first in two years, beating analysts’ projection of a 0.2 percent decline. While the growth might buck McDonald’s recent trend, “it wasn’t fantastic,” Saunders said. The overall restaurant market saw a pickup as consumers allowed themselves to eat at restaurants more because of savings from low gas prices. Compared to other fast food chains such as Taco Bell, which saw sales increase 7 percent in the same time period, McDonald’s “showed weakness,” Saunders said.
Still, the results were enough to suggest that some of McDonald’s many recent changes have been working. The fast food chain said menu additions like a buttermilk crispy chicken sandwich and the switch to using butter instead of margarine in its Egg McMuffins helped increase sales. Saunders said that while the individual changes aren’t doing a lot, collectively, the new menu items — from offering all-day breakfast to kale bowls and antibiotic-free chicken — are working together to drive consumer traffic and improve perceptions of McDonald’s as unhealthy.
If menu changes have helped, organizational rejiggering has, too. Morningstar analyst, R.J. Hottovy, found it a positive sign that the uptick in sales “wasn’t driven by a hot product, but more executional issues, like the investments in training and the speeding up of service.” Hottovy also said that the company’s new approach of allowing more decisions to be made at the local and regional levels is working. While the McDonald’s lobster roll was a hit in New England, it most likely wouldn’t have performed as well in other locations across the nation.
Saunders says McDonald’s needs to do a lot more to maintain its upward trajectory. The main reason the stock shot up after the earnings report, he says, was that investors were both reassured by the bump in U.S. same store sales and enthused by the various changes the company is planning to implement in the coming months. But timing is crucial and the company needs to act with unusual speed to maintain its new momentum and keep proving its commitment to change — much like it did with the all-day breakfast plan, which was introduced as a pilot program in April and turned full-scale just six months later.
Until McDonald’s delivers more of that promised change, “the jury is still out” on whether this quarter was merely a fluke or a real turning point.