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Analysts Expect McDonald’s Revenue to Fall in Q1 2019

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Analysts’ estimates

In the first quarter of 2019, analysts expect McDonald’s (MCD) revenue to fall 4.1% YoY (year-over-year) to $4.93 billion from $5.14 billion, likely due to its company-owned restaurant count falling. However, McDonald’s adopted a refranchising strategy at the beginning of 2015 to generate stable and predictable revenue. The company is refranchising its company-owned restaurants to raise its franchised restaurant ownership to 95%. In 2018, its company-owned restaurant count fell by 237 units to 2,770 restaurants from 3,007, while its franchised restaurant count increased by 806 units. These new restaurants, and restaurants opened in the first quarter of 2019, are expected to offset some of McDonald’s revenue decline.

To improve customers’ experience and drive SSSG (same-store sales growth), McDonald’s is focusing on menu innovations and delivery and digital enhancements such as its EOTF (Experience of the Future) initiative.

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MCD had implemented EOTF in 4,500 US restaurants by the end of last year, and its plans to implement EOTF in 2,000 more restaurants this year. The company has modernized 80% of its US restaurants and has been offering delivery in 9,000 US restaurants as of March. The company stated that as its guest counts for delivery were relatively low, it is focusing on raising awareness among customers and optimizing its business. These initiatives, along with menu innovations, are expected to drive the company’s SSSG.

Peer comparison and outlook

During the March quarter, analysts expect revenue at Starbucks (SBUX), Wendy’s (WEN), and Jack in the Box (JACK) to grow 4.7%, 5.0%, and 3.8%, respectively. This year, analysts expect McDonald’s revenue to fall 0.9% YoY to $20.83 billion from $21.03 billion.

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