Published: Wed, July 26, 2017
Markets | By Erika Turner

Custom burgers, $1 drinks boost McDonald's sales; shares jump

Custom burgers, $1 drinks boost McDonald's sales; shares jump

Customer visits have declined in the US for four straight years at existing locations, and McDonald's is on track to shrink its domestic footprint for the third year in a row.

McDonald's beat Wall Street expectations in its second-quarter performance, posting a 3.9 percent USA comparable sales increase thanks to beverage value promotion and the launch of its Signature Crafted premium sandwich platform.

CEO Steve Easterbrook has been working on transforming the chain's menu and stores to get customers visiting more often in an increasingly competitive environment.

Global comparable sales increased 6.6%, reflecting positive guest counts in all segments.

But price promotions can't drive sales over the long term, and the company said it isn't relying on short-term tactics to retain customers.

The company appears to be winning back business lost to fast-food competitors like Wendy's Co and Restaurant Brands International Inc's Burger King, which McDonald's said in March had siphoned 500 million US transactions away from the chain since 2012.

It said the USA market "continues to build momentum" amid efforts to make its food more convenient, offer better value, and innovate in its menus to increase both the number of customers in its stores and the frequency of visits. But order accuracy and quality perception scores have improved, he said, adding that he hopes the self-order kiosks and mobile-order and pay app will shave seconds off order times.

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McDonald's reported higher second-quarter profits Tuesday behind strong comparable sales in key markets, including the United States.

McDonald's said total revenue was $6.05 billion, also higher than expected.

"The typical behavior is that they will buy other items", he said.

Chris Kempczinski, president of McDonald's US, noted in an interview last month that about three quarters of the people who come in for the drink deals also end up buying food.

The company has placed a tight focus lately on operations, with plans to encourage underperforming franchisees to sell their restaurants to better-performing ones, resulting in fewer, better operators. The gap between the cost of food-at-home and away widened considerably a year ago as a number of key commodities prices dropped.

Those efforts in the USA include introducing in-store ordering kiosks, expanding delivery through UberEats, and launching a mobile order-and-pay option later this year. The burger giant was expected to post earnings of $1.62 per share on $5.96 billion in revenue, according to Thomson Reuters estimates.

Revenue fell 3 percent to $6.05 billion, as sales gains at restaurants owned by franchisees were offset by a decline at company-operated stores.

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