Why McDonald's Will Keep Winning
The Golden Arches took a big hit the other day when it released February sales figures. Yet, despite coming in shy of analysts' estimates, it's been crushing the competition for a while now. After being the top performing Dow stock of 2011, I wanted to dig in and see whether McDonald's (NYS: MCD) has what it takes for a repeat performance, or whether it's run out of steam.
McDonald's value menu offerings really helped buoy it in the recent Great Recession. As consumers pared spending, fast-food vendors such as McDonald's outran other, more conventional (read: expensive) restaurants. The company's share price has reflected this, and climbed more than 31% from a year ago, slightly outperforming giant Yum! Brands (NYS: YUM) , owner of KFC and Taco Bell, no slouches themselves at 28% year-over-year growth. Five-dollar-a-gallon gas could actually help Mickey D's. They expect the renewed belt-tightening by consumers to send customers scurrying away from full-service restaurants such as Darden Restaurants' (NAS: DRI) Olive Garden and Red Lobster locations and right into the McDonald's drive-thru.
New ventures will keep the momentum going
In order to keep the good times rolling, McDonald's is going forth and multiplying its brand, particularly in China. Currently, McDonald's has more than 1,400 restaurants in that country and is looking to open up to 250 more this year. In addition, the company is looking to export its franchising business model from the U.S. to China as well, where the McDonald's sites are now operated by the company. In other marketing news, McDonald's is also pushing the brand's quality to Chinese consumers, featuring a television advertising campaign scheduled to begin this summer.
In Japan, the fast-food giant is also unveiling some delectable, American-style treats: large hamburgers, with an equally hefty calorie count, named after various American states. Though trimming the fat at its American sites, the company expects the new menu items to reap oversized rewards in the Japanese market.
Even though McDonald's worldwide same-store sales came in a bit under analysts' expectations for February, it is important to note that its global same-store sales were stellar at 7.5% -- quite a jump from January's 6.7%. The company's sizzling growth in 2011 shows no sign of slowing, and the company's commitment to duplicating its successful franchise model in China bodes well for revenues in Asia. McDonald's even managed 4% growth in Europe, quite a feat considering the harsh weather and even harsher economic climate that part of the globe has been experiencing lately.
Decades of success speak for themselves, and the new ventures overseas show clearly that McDonald's is not content to sit on its laurels and expect continuous profits to roll in by themselves. While many reacted to McDonald's recent miss by selling off the stock more than 3%, the slight drop may just make it the bargain many investors seek.
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At the time this article was published Fool contributor Amanda Alix owns no shares in the companies mentioned above.The Motley Fool owns shares of Darden Restaurants. Motley Fool newsletter services have recommended buying shares of McDonald's and Yum! Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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