Revenue in the first half was up 25% excluding the impact of currency changes, to $11bn, reflecting strong growth across all segments. Net income more than doubled to $3.8bn, helped by the sale of McDonald's Japan stock, favourable tax adjustments, and easing Covid restrictions.
So far this year the group's generated nearly $8bn worth of sales through digital platforms, a 70% annual increase. CEO Chris Kempczinski said, ''It's clear that our next chapter will be driven by our leadership in digital.''
The shares were flat following the announcement.
Global lockdowns and social distancing restrictions made the dining industry a very tricky place to be. But McDonald's fared better than most of its peers, now that things are getting back to normal, the past year's lost sales are little more than a blip on the radar.
The group used the opportunity to build out its digital presence and delivery options, a strategy that has boosted sales in the US. That allowed many of the restaurants to continue operating despite indoor dining restrictions. The group's not abandoning this push online now that things are settling down, instead it looks to become a key pillar in McDonald's future growth strategy.
McDonald's "experience of the future" (read: the increased digitisation of its stores and capabilities) is a necessary move if the world's shift online is a permanent one. But outside banging the digitization drum, we've not had much clarity regarding its- "Accelerating the Arches" initiatives. Platitudes like "our brand will become a growth driver in its own right" don't give us much to work with. McDonald's enviable intellectual property is a significant advantage - but we'll reserve final judgement until we have more information.
It's not all happy meals and smiles, though. While McDonald's second quarter results show the group's moving swiftly on from the pandemic, the ordeal isn't firmly in the rear-view mirror just yet. Further lockdowns can't be ruled out, particularly in parts of the world where vaccination rates are lower.
McDonald's is also lugging around a hefty debt pile. At the end of last year net debt including leases was $45.1bn, or 5x cash profits. The group's strong cash generation and the low cost to borrow right now means this isn't a problem per-say, but if earnings encounter another setback it's not an ideal set up.
McDonald's has done more than survive the pandemic--the fast food chain's digital transformation is thriving. The group is well positioned to continue pushing that initiative while recovering its more profitable restaurant sales. Despite a price-to-earnings ratio beyond the long-term average we think the group's long-term growth story is a strong one.
McDonald's key facts
- Price/Earnings ratio: 26.8
- 10 year average Price/Earnings ratio: 20.4
- Prospective dividend yield (next 12 months): 2.2%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Second Quarter Trading Update
Revenue in the second quarter rose 49% in constant currencies to $5.9m as Covid restrictions eased. The higher-margin restaurant sales together with beneficial tax adjustments and the sale of McDonald's Japan stock helped net income rise from $483.8m to $2.2bn.
Total comparable sales rose 40.5%, the result of growth across all geographies. Compared to pre-pandemic levels, comparable sales across all segments were higher with same-store sales up 6.9%.
In the US, comparable sales increased 14.9% from 2019 levels, the result of larger order sizes, menu price increases, and growth in delivery and digital.
Comparable sales in International Operated Markets rose 2.6% from 2019 as strong growth in the UK, Australia and Canada offset declines in France and Germany.
International Developmental Licensed Markets saw comparable sales rise 0.3% compared to 2019 levels, driven by growth in Brazil, Japan and China.
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