McDonald’s wraps up tumultuous year on a strong note

Business

FILE – In this Jan. 22, 2020, file photo signs for a McDonald’s restaurant hang on a building in the Chinatown section of New York. McDonald’s reports financial results on Wednesday, Jan. 29. (AP Photo/Mark Lennihan, File)

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McDonald’s wrapped up a tumultuous year on a high note after the company’s CEO was ousted in November.

The burger giant said Wednesday it surpassed $100 billion in annual sales for the first time, and notched its highest same-store sales in more than a decade, with growth in all of its global regions.

Even as the Chicago company puts a rocky year behind it, potential hurdles have already emerged in 2020.

McDonald’s new President and CEO Chris Kempczinski said McDonald’s has closed several hundred restaurants in China because of the new coronavirus. The number of confirmed cases jumped to 5,974 Wednesday, surpassing the 5,327 in mainland China during the SARS outbreak in 2002-2003.

Kempczinski said 3,000 restaurants remain open in China, including some that are feeding health care workers. He said the outbreak is worrisome, but China only accounts for 4-5% of the company’s systemwide revenue. That’s less exposure than Starbucks, which said Tuesday that 10% of its revenue comes from China.

“Its actual impact on our business is going to be fairly small assuming it stays contained to China,” Kempczinski said during a conference call with analysts.

That was a relief to investors, who pushed McDonald’s stock upmore than 2% to $216.25 in morning trading.

Kempczinski said his top priority is improving U.S. customer traffic, which has been falling for more than a year. U.S. same-store sales — or sales at restaurants open at least 13 months — rose 5% in the fourth quarter, but that was driven by higher prices and delivery.

McDonald’s said Dynamic Yield, a system that recommends products on drive-thru menus based on weather and other factors, is also convincing customers to add items like donut sticks to their orders. McDonald’s purchased Dynamic Yield last March and has added it to menu boards in the U.S. and Australia.

Kempczinski said it’s critical for McDonald’s to perform better at breakfast, since that’s the only time of day U.S. restaurant traffic is growing. McDonald’s is also facing increased competition as Wendy’s reintroduces a breakfast menu.

McDonald’s plans menu changes and competitive pricing at breakfast, Kempczinksi said. The company is also testing a new chicken sandwich to better compete with Chick-fil-A and Popeye’s.

“Growth in this industry at this point is going to have to come from stealing share,” Kempczinski said.

McDonald’s plans to open 1,400 new restaurants this year, including 450 in China. Almost all of those restaurants will be outside the U.S. McDonald’s has 38,695 restaurants worldwide; 13,846 are in the U.S.

Delivery was a big driver of the gains this year. Delivery is now available at 25,000 restaurants worldwide and brought in $4 billion in sales. That’s up from $1 billion in 2016. The company added DoorDash as a U.S. partner in July, ending its exclusive partnership with UberEats. It partnered with GrubHub in September.

McDonald’s Corp. fourth-quarter net income rose 11% to $1.6 billion, or $2.08 per share. Excluding one-time items like tax benefits, the company earned $1.97 per share. That beat Wall Street’s forecast of $1.96, according to FactSet.

Fourth-quarter revenue was up 4% to $5.3 billion, which was in line with estimates.

Same-store sales jumped 5.9% worldwide in the October-December quarter, topping analysts expectations.

France and the United Kingdom were among the top performers internationally, the company said. The UK saw its 55th consecutive quarter of same-store sales growth, driven by extended breakfast hours and delivery.

Kempczinksi became president and CEO in November after former President and CEO Steve Easterbrook was ousted for violating company policy by having a consensual relationship with an employee. Kempczinski most recently led the company’s U.S. operations.

Kempczinski said he has spent the past few months visiting restaurants, talking with franchisees and hosting town halls with employees.

“I continue to have great confidence in our ability to grow and shape our industry,” he said.

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