Analysts’ revenue expectations
For 2019, analysts expect McDonald’s (MCD) to post revenues of $20.85 billion—a fall of 0.8% from $21.03 billion in 2018. Refranchising company-owned restaurants is expected to lower the company’s revenues in 2019. However, some of the declines will likely be offset by the net addition of franchised restaurants and positive SSSG (same-store sales growth).
With McDonald’s completing its strategic refranchising initiative, management aims to achieve its long-term goals of 3%–5% SSSG, an operating margin in the mid-40% range, and high-single-digit EPS growth starting in 2019. The company plans to open 1,200 restaurants with nearly 450 franchised restaurants in China.
Same-store sales growth drivers
To drive the SSSG, McDonald’s is focusing on deploying its EOTF (Experience of the Future) initiative, improving customers’ convenience through delivery and digital initiatives, improving the quality of menu items, and menu innovations.
In 2019, McDonald’s plans to deploy EOTF in 2,000 US restaurants. The company plans to expand its delivery service from ~19,000 restaurants at the end of the fourth quarter. To improve the quality of menu items, McDonald’s announced in December that it would partner with its suppliers and beef producers to lower the use of antibiotics in its supply chain.
To overcome the weakness in breakfast sales, McDonald’s management plans to move towards local breakfast value from a national value, which could help the company compete with local restaurants. Management is working on its value offerings to attract more customers.
Analysts expect McDonald’s to post an adjusted EPS of $8.21 in 2019—an increase of 3.9% from $7.90 in 2018. Expanding the net margins and shares repurchases could drive the company’s EPS. The expansion could be partially offset by a decline in the company’s revenues.
During the same period, Starbucks (SBUX) is expected to post EPS growth of 12.2%. Next, we’ll discuss McDonald’s valuation multiple.