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Can McDonald’s Unit Growth Stop The Bleeding?

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Expected unit growth

Earlier in this series, we learned about some of McDonald’s (MCD) initiatives to grow same-store sales where it’s been facing severe headwinds recently. The fact that McDonald’s existing store sales are coming in lower year-over-year is a bit concerning. But this isn’t the only factor driving revenues.

By adding more restaurants, it’s possible to eventually capture new markets. For a mature company like MCD, however, more penetration in the US market isn’t likely to yield a lot of results. Having said that, as you can see in the chart above, MCD is expected to add about 200 units in the fourth quarter, taking the total restaurant unit count to about 36,000.

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In the fast-food industry Yum! Brands (YUM) is aggressively adding units, especially in China. Burger King (BKW), Popeyes (PLKI), and Wendy’s (WEN) are following suit. Other restaurants formats included in the Consumer Discretionary Select Sector SPDR Fund (XLY) are also adding units in the US, as well as abroad.

Franchise to grow more units

Most of McDonald’s unit growth is expected to come from conventional and developmental franchises. Together, these franchises accounted for 220 restaurant additions in the third quarter alone. We’ll have to wait for the upcoming earning release to see if McDonald’s will add or close any company-operated stores. Of note, however, is the fact that over the past three quarters, company-operated net units were negative.

All efforts should regardless lead to efficiencies in the system. And these will be gauged by one measure—the EBITDA , or earnings before interest, tax, and depreciation, and amortization.

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