McDonald’s (MCD) has just reported earnings. The global fast food chain stock has delivered over the last two years, and looks set to move higher after putting out its results. The key to the quarter and to future performance? Franchising.
Franchising eliminates the cost of operating those units and replaces restaurant sales with more predictable rent and royalty payments based on a percentage of sales.
“During the quarter, we refranchised our businesses in China and Hong Kong, reaching our target to refranchise 4,000 restaurants more than a year ahead of schedule,” Chief Financial Officer Kevin Ozan said.
Now it was not al good news. The company beat analyst estimates, bud revenue was down. In fact, total revenue fell 10.4 percent to $5.75 billion, after the company stepped up franchising its restaurants. Analysts were expecting revenue of $5.74 billion.
McDonald’s has been working to reverse a decline in traffic at its U.S. restaurants, where it gets most of its profit, with new menu items such as fresh beef Quarter Pounders, premium customizable sandwiches such as the Signature Sriracha sandwich, as well as mobile ordering and delivery.
Excluding items, the company earned a profit of $1.76 per share, missing the average analyst estimate of $1.77 per share,
Looking ahead expect vigorous promotions and a focus on franchising. We will be closely watching the latter.