Happy meal: Gourmet burgers drive McDonald’s sales

Fast food chain McDonald’s reported first quarter results that topped analysts’ forecast on Monday, helped by strength in international markets and US consumers opting for more expensive burgers over value meals.

Shares of the world’s biggest chain by revenue rose 4.2 per cent to $165.10 in pre-market trading as global same-restaurant sales topped Wall Street forecasts, pulling profit higher.

A multiyear turnaround plan launched by chief executive Steve Easterbrook three years ago, has brought menu changes, new technology to stores and restaurant upgrades to drive more traffic.

High-margin “gourmet” burgers which offer fresh and more expensive ingredients, costing $6 or $7 a time compared to the chain’s $1 to $3 value options, raised the overall average US check value.

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Sales at McDonald’s US restaurants rose 2.9 per cent, topping analysts expectations of 2.7 per cent, according to Thomson Reuters.

Global sales at stores open at least 13 months rose 5.5 per cent, easily topping an average estimate of 3.94 per cent and reflecting a 7.8 per cent surge in the company’s more mature international markets - Australia, Canada, France, Germany and the United Kingdom.

“(This) shows the power of the brand ... globally the numbers were outstanding,” Peter Saleh, an analyst with brokerage BTIG, said. “The results were very impressive, actually more impressive than we initially had anticipated.”

Excluding items, the company earned $1.79 per share, beating the estimate of $1.67. Revenue overall fell 9 per cent as a result of refranchising - a cost-cutting move where the company sells McDonalds-owned outlets to a franchisee investor and receives only a cut of sales.

The shape of the results also ran contrary to recent quarters, when McDonalds and other fast food chains have focussed on battling each other with dollar menus, discounts on beverages and limited-time menu items as consumer spending cools.

“It is clear that diners now see the value options as a permanent fixture and are no longer as excited or stimulated by them,” said Neil Saunders, managing director of market research house GlobalData Retail.

Net income rose to $1.38 billion, or $1.72 per share, from $1.21 billion, or $1.47 per share, a year earlier.

Shares of the company were down 7.9 per cent this year, underperforming Dow US Restaurants index, which is down just 0.7 per cent. – Reuters