McDonald’s shares jumped on Monday, even though the company’s fourth-quarter earnings fell short of analysts’ expectations. Strong overall same-store sales boosted the fast-food chain’s stock.
The company reported adjusted earnings of $2.83 per share for the quarter, slightly below Wall Street’s expectation of $2.85. Revenue of $6.39 billion was also below analysts’ estimates of $6.45 billion.
Investor Expectations and Stock Performance
Revenue was marginally lower than the same period last year, while earnings per share fell 4.1%. Discounts and promotional offers offered by McDonald’s in the last few quarters may have led to a drop in profits.
Still, investors seemed encouraged by the rise in same-store sales. After two consecutive quarters of declines, same-store sales rose 0.4%, while analysts had forecast a 1.1% decline.
McDonald’s shares rose 4.7% on Monday to $308.
Company strategy and future plans
McDonald’s CEO Chris Kempczinski said, “‘Accelerating the Arches’ is the right strategy as we focus on growing market share. We aim to win for our customers through great value, exciting menu innovation and culturally relevant marketing.”
However, the domestic market may take some more time to recover. Same-store sales in the US fell 1.4%, attributed to a “decline in average billing”, although customer numbers saw a slight increase.
Consumer Behaviour and Promotional Strategies
McDonald’s has tried to revive sales as consumers face a slowdown in spending due to inflationary pressures. A $5 meal deal and other promotional offers introduced last summer attracted customers back.
However, an E. coli outbreak linked to chopped onions used in the Quarter Pounder burger in October sparked fears among customers. Following the incident, the company signed up with a new onion supplier and resumed selling the Quarter Pounder.
New plans for 2025
For 2025, McDonald’s has planned new offers. On January 7, the company introduced the ‘McValue’ value meal, in which customers can buy one item and add another item from a select menu for $1. According to Gordon Haskett Research Advisors, the offer has already seen an increase in food traffic and sales since it was introduced.
For 2025, analysts expect McDonald’s to earn $12.43 per share, up 6% from $11.72 in 2024, according to FactSet. The company believes sales in the US market will improve by the beginning of the second quarter of 2025.
McDonald’s Market Position and Challenges
McDonald’s leads the U.S. fast-food industry with about 15% market share. Its size gives it a cost advantage and better location advantage over competitors, according to analyst Brian Yarbrough.
The company’s loyalty program is also encouraging customers to visit again and again, boosting sales.
Analysts’ opinion and potential risks
However, some analysts believe the heavy discounting strategy is not conducive to long-term growth. According to BTIG restaurant analyst Peter Saleh, sales recovery following the E. coli incident has been mixed. Some franchise owners reported positive growth through December, while others still had negative sales.
Discounted products now account for one-third of McDonald’s total sales, three times the historical average. “We remain neutral for now as we see little chance for a major earnings boost for next year,” Saleh wrote.
conclusion
Despite the decline in the stock market, investors are hopeful that McDonald’s strategy and new promotions will boost sales and profits in the coming years.
