After missing revenue and earnings expectations and disappointing the Street when it reported third-quarter results in late October, McDonald's (MCD 0.51%) might have left investors unfamiliar with the company to conclude that it's struggling. But this view is far from reality. In Q3, comparable-store sales jumped 5.8% as systemwide sales rose 7% in constant currency. High expectations, not subpar execution, were the primary culprit of McDonald's worse-than-expected third quarter.
Beneath the surface of the fast-food company's third-quarter top- and bottom-line miss was more strong execution and further progress on key initiatives bringing the fast-food company into the future.
Image source: Getty Images.
1. Experience the Future restaurant renovations
McDonald's is in the middle of a transformation it has dubbed Experience of the Future (EOTF). The plan includes store remodels that are bringing digital experiences front and center. In the third-quarter update, the company said more than 9,000 U.S. restaurants, about two-thirds of its total U.S. restaurants, have now been converted to EOTF -- and it's paying off.
"The sales benefit from EOTF contributed to our overall U.S. comp performance for the quarter and improved customers' experience with more inviting dining environments, easier and faster ordering, and greater hospitality," the company stated in a blog post about its third-quarter performance.
2. Menu innovation
After its acquisition earlier this year of Dynamic Yield, a company that provides decision logic technology to offer personalized menu suggestions, McDonald's has been rapidly deploying the technology at its U.S. drive-throughs. Indeed, the updated menus have now made it to more than 9,500 restaurants and are expected to be at every location with an outdoor digital menu board by the end of the year.
3. Registered digital members
Another key catalyst for McDonald's is the company's growing base of registered digital members. These important customers now stand at 100 million, management said in the company's third-quarter earnings call. CEO Stephen Easterbrook also said the strong 5.8% increase in comparable store sales during the period was in part due to "delivering tangible members-only benefits to our digital community."
4. Delivery
Finally, the consumer goods company's aggressive adoption of delivery across its restaurants is helping driving growth for the fast-food giant.
"For 2019, we expect delivery to drive $4 billion, or roughly 4% of global systemwide sales," Easterbrook explained during the third-quarter call. "That's up from 1 billion just three years ago. And [delivery is] now available from about 23,000 McDonald's restaurants in over 80 countries."
Furthermore, the rollout of delivery and promotions for delivery are notably driving a halo effect for digital engagement across its large base of registered digital users, Easterbrook noted.
Deep into a transformation focused on modernizing its stores and positioning them to thrive in an evolving landscape, McDonald's will probably continue to benefit from these investments in Q4 and beyond.
