McDonald's (MCD) is scheduled to report results of its fiscal fourth quarter before the market open on Thursday, January 28, with a conference call scheduled for 8:30 am ET. What to watch for:
1. GUIDANCE: On the company's Q3 earnings conference call, McDonald's said it still sees fiscal year 2020 capital expenditures of about $1.6B. Additionally, it said it expects to deliver system-wide sales growth in the mid-single digits for 2021 and 2022. For 2021, growth is as compared to 2019. For 2022, unit expansion is expected to contribute 1.5%-2% to system-wide sales growth, the company said. for 2021 and 2022, McDonald's sees an operating margin percent in the low-to-mid 40s and capital expenditures of approximately $2.3B, about half of which will be directed towards new unit expansion. McDonald's noted that its capital allocation priorities remain investing in the business for growth, paying dividends, and returning to pre-COVID-19 debt ratios.
2. DIGITAL, DELIVERY, DRIVE-THRU: On its Q3 call, McDonald's said: "The shift in customer behavior during COVID-19 has illustrated the competitive advantages of McDonald's. Delivery is booming and the use of the McDonald's app has surged as more and more customers are ordering and paying for their food on mobile devices. McDonald's 25,000 drive thru lanes worldwide have become an oasis for customers around the world. To unlock further growth, the company will accelerate technology innovation so that the tens of millions of customers who interact with McDonald's each day can enjoy a fast, easy experience that fits their needs at the moment, whether a family dinner delivered to a doorstep or late-night fries from the drive thru." To transform its digital offerings across drive thru, takeaway, delivery, curbside pick-up and dine-in, the company announced a new digital experience growth engine, 'MyMcDonald's.' The company expects digital sales to exceed $10B or nearly 20% of system-wide sales across its top six markets in 2020.
In the past three years, McDonald's has expanded the number of restaurants that offer delivery nine-fold, to about 28,000 restaurants. McDonald's said it will maximize the advantages of its strong drive thru presence by testing new concepts and technology to make the customer experience even faster. This includes innovations to provide a faster, more convenient experience such as automated order taking; a new drive thru express pick-up lane for customers with a digital order; and a restaurant concept that offers drive thru, delivery and takeaway only. In addition, the company said it will build on its drive thru advantage as the vast majority of new restaurants in the U.S. and International Operated Markets will include a drive thru.
3. MCPLANT BURGER: A Beyond Meat (BYND) spokesperson confirmed to The Fly that the company co-created the plant-based patty that McDonald's will be using as part of its McPlant offerings. BTIG analyst Peter Saleh said that Beyond Meat should ultimately be McDonalds' supplier for its McPlant platform, but noted that he does not expect McDonald's to launch a plant based burger in the U.S. in 2021.
4. CHICKEN SANDWICHES: On January 4, Reuters reported that McDonald's intends to roll out three different crispy chicken sandwich varieties in the U.S. this year, as it attempts to rival chains such as Restaurant Brands' (QSR) Popeyes for a share of the growing market for chicken sandwiches, according to Reuters' Hilary Russ. The burger giant confirmed to Reuters that it plans to roll out its crispy chicken sandwich in "classic," "deluxe," and "spicy" variants on February 24, with all containing a new crispy white meat chicken fillet served with crinkle cut pickles on a potato roll.
5. GOLDMAN SACHS, UBS BULLISH: On January 19, Goldman Sachs analyst Jared Garber initiated coverage of McDonald's with a Buy rating and $237 price target. The analyst initiated coverage of the restaurant sector with a bullish view into 2021. Large chains are positioned to benefit from the "rapid digital transformation and independent restaurant challenges," Garber told investors in a research note. He believes McDonald's will benefit broadly from economic re-openings in 2021, and that the company's investments in technology, a renewed marketing strategy, loyalty, and menu innovation will drive share gains in the industry.
Meanwhile, on January 22, UBS analyst Dennis Geiger kept a Buy rating and $240 price target on McDonald's, and noted that at current levels, the risk-reward on the stock is "golden." The analyst anticipates an acceleration in U.S. and international comps in 2021-22, even though Q4 earnings may miss, which he sees as having already been priced in.
