Photo Credit: George

McDonald’s success in 2016 was largely the result of two key promotional campaigns that drove earnings and sales higher; the McPick 2 and all day breakfast. Both initiatives helped attract a wider audience and were more appealing to value-focused consumers. This year the focus shifts to growing the McCafe brand, expanding internationally, and revamping some of its classic menu items. Many of these initiatives, which are already underway, provide a much needed level of support to McDonald’s fourth quarter report scheduled to take place early Monday morning.

The consensus estimate at Estimize pegs earnings for the golden arches at $1.45 per share, about 13% higher than the same period last year. That estimate edged higher by 3% since the most recent report at the end of October. Revenue for the period is expected to drop by 5% to $6.05 billion, marking 8+ consecutive quarters of negative top line growth. Americans’ newfound adoration for healthier lifestyles clearly put a dent in McDonald’s sales growth in recent years.

Still, the stock continues to make gains. In the past 3 months share prices increased by 10% on increased business optimism, but during the earnings period the stock historically doesn’t move. If the numbers come in strong though, shareholders can expect to receive a healthy boost. 

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McDonald’s strategy to boost sales in the last year included greater marketing promotions, newer menu items, expanding the mobile app, and improving the customer experience. More specifically the McPick 2, All Day Breakfast and a new McNugget recipe helped boost comparisons despite a weak fast food industry. In the third quarter same store sales rose by 3.5% with across the board improvements in both the global and domestic sector. Sales in the United States gained 1.3%, mostly from the 3 menu promotions.

Looking forward, McDonald’s faces tougher comparisons as McPick 2 and All Day Breakfast sales dry up. To offset any lost sales, McDonald’s plans on expanding its McCafe brand by opening standalone stores and offering $1 any size coffee. These changes directly challenge Starbuck and Dunkin Donuts long held dominance in the coffee space.

The company is also focused on incorporating technology to improve the customer experience with the mobile app and self order kiosks. McDonald’s strong brand appeal along with a host of new initiatives in the pipeline presents an opportunity for a strong fiscal 2017.

That said, changing consumer tastes plus increasing competition pose a significant near term headwind. Fast food operators, Yum Foods and Wendy’s came on strong to end the year while Shake Shack and the rest of the fast casual industry continue to chip away at McDonald’s burger dominance. 

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