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McDonald’s Fourth-Quarter EBIT Margins Expanded

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Fourth-quarter performance

For the fourth quarter, McDonald’s (MCD) posted an EBIT margin of 43.1%—compared to 40.2% in the fourth quarter of 2017. The expansion was driven by an increase in company-operated margins. The expansion was partially offset by a decline in franchise margins and higher SG&A (selling, general, and administrative) expenses as a percentage of the total revenues.

Despite the increase in food and paper costs and labor expenses, the margins from company-owned restaurants expanded 0.2% due to sales leverage from positive SSSG and refranchising of company-owned restaurants. During the quarter, the margins from franchised restaurants declined 0.9% due to increased depreciation expenses from the deployment of EOTF (Experience of the Future) facilities in the United States. The decline was partially offset by growth in the franchise business. Although the company’s SG&A expenses declined during the quarter, as a percentage of the total revenues, it increased from 11.6% to 11.8%. The SG&A expenses had a negative impact on the company’s EBIT margin.

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Peer comparisons

During the same period, Starbucks (SBUX) posted an EBIT margin of 17.4%. Analysts expect Wendy’s (WEN) and Jack in the Box (JACK) to post an EBIT margin of 19.0% and 22.9%, respectively.

Next, we’ll discuss McDonald’s fourth-quarter EPS.

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