McDonald's Goes Bigger -- and Better
McDonald's
(MCD) may seem like the fast-food restaurant of yesteryear, but appearances can be deceiving. The company's latest news suggests that the Golden Arches are headed onward and upward into the future.
The company recently revealed plans for its largest store ever at the 2012 London Olympics. The outlet in Olympic Park will seat 1,500 guests, eclipsing the chain's largest existing restaurant. During the games, this mega-Mickey D's brisk business will likely beat the 20-year reign of the company's current best-selling location in Moscow's Pushkin Square.
McDonald's followed that announcement with even better one: its second-quarter earnings. The Golden Arches put up 15% growth in earnings year over year, providing further proof that the company is executing its game plan superbly in a lackluster economy.
Caffeine and Cold Drinks Quench the Bottom Line
In total, the company reported $1.4 billion in earnings (or $1.35 a share) and sales of $6.9 billion, up 16% from last year. Same-store sales – a key measure of restaurants' performance – climbed 5.6% globally. Each of those figures blew away analysts' expectations, and shares climbed sharply higher in early trading.
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Menu additions in recent years have boosted the company's performance, most notably coffee and cold drinks such as smoothies. Thirsty patrons flocking to McDonald's frozen strawberry lemonade helped drive its U.S. sales.
While it has performed admirably, McDonald's still faces many of the same challenges that its rivals do, particularly the rising cost of inputs. The company expects costs in the U.S. to go up as much as 4.5%. Yum! Brands (YUM), the name behind KFC, Taco Bell, and Pizza Hut, expects U.S. expenses to climb 7%. Even the best performers, such as Chipotle (CMG), are seeing rising costs pinch their bottom line. While these top operators can play through these setbacks, struggling peers such as Wendy's (WEN) are getting hurt.
A Bright Horizon for the Golden Arches
Despite pressures such as these, McDonald's has performed well and should continue to do so. And a recession? You'd hardly see it in the company's share price over the last few years. The stock has consistently trended higher.
With massive opportunities in China and India, the company still has plenty of room to expand, meaning that shares – even at 18 times earnings – should still be a solid long-term value. And that tasty dividend? It's only growing bigger and better. Investors should consider buying shares.
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Fool.com analyst Jim Royal, Ph.D. own shares of McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill and Yum! Brands.
