E McDonald’s Turnaround Efforts Bearing Fruits

Shares trading just shy of 52-week highs as company returns cash to shareholders

Refranchising efforts to help with underlying profitability and reduce risks to the outlook

Cost cutting has improved the bottom line but the top line shrinkage goes unabated

Fast food giant McDonald’s Corporation (MCD:NYSE) has finally started showing signs of life after a long period of disappointing performances. The company has seen sales drop for several consecutive quarters. A massive turnaround plan and an intense rebranding effort have led the company to the cusp of a breakthrough in 2016. Also, despite the company’s struggles, they have been able to continue increasing dividend payments and stock buybacks, although the sustainability of the company’s efforts might be a concern going forward. All in all, the new turnaround plan could have some unforeseen consequences and could lead to deleterious effects in the medium to long term.

Turnarounds and New Outlooks

After a string of disappointing quarters and increasingly concerning sales trends, McDonald’s was at a crossroads. CEO Steve Easterbrook has led the company on an aggressive turnaround plan and a rebranding effort that has seen share prices recover from 52-week lows of $87.50 to record highs of $118.90, leading to analysts raising price targets for the company to as high as $130 a share.

A large part of this major turnaround has come from policies centered around improving the service and options provided in store, as well as attempting to change brand perception. So far, the company has pared down their menu offerings, and slightly tweaked their preparation processes in order to improve quality as well as lower wait times for food. Limited-Time offers (LTOs) have also been highly successful, as opposed to previous years’ efforts

The biggest in-store improvement, however, has been the introduction of all-day breakfast. Starting in October, stores in the US began offering the company’s popular breakfast options at all times, and the results were immediately positive. The new policy not only increased sales, but has already contributed to attracting new customers as well as increased sales of non-breakfast items. According to the latest figures, nearly one-third of customers who bought breakfast were new and almost two-thirds of customers who bought breakfast items also bought a non-breakfast item.