World News

McDonald’s sees 2020 spending on tech after sales beat; breakfast competition looms

By Nivedita Balu and Hilary Russ

(Reuters) – McDonald’s Corp <MCD.N> beat quarterly sales forecasts on Wednesday and said it would spend more on technology and research in 2020, as the world’s largest burger chain bets on revamped stores and menu additions to lure diners and gain market share.

McDonald’s Chief Executive Officer Chris Kempczinski, who took charge in November after the former CEO was dismissed, said global comparable sales growth in 2019 was the chain’s highest in more than 10 years.

But the company continues to battle lower U.S. store traffic and faces stiff competition in breakfast against rivals including Starbucks Corp <SBUX.O> and Dunkin’ Brands Group Inc <DNKN.O>, as well as the Wendy’s Co <WEN.O> impending launch into morning menu items.

“Breakfast remains the area of focus to further improve U.S. traffic,” Guggenheim analyst Matthew DiFrisco said.

Over the past few years, McDonald’s has added kiosks, digital displays and delivery partners, as well as new burgers, beverages and breakfast foods.

It also began modernizing stores across the globe and bought two smaller technology firms that focus on digitizing stores and drive-thru menus.

Sales in U.S. restaurants open for more than 13 months rose 5.1% for the fourth quarter ended Dec. 31, slightly above the estimate of a 4.67% increase.

Still, the number of customers at its U.S. restaurants fell 1.9% in the quarter, though that was better than the 2.2% decline for 2018.

“Returning to guest count growth in the U.S. remains our top priority,” Chief Financial Officer Kevin Ozan said in a post-earnings conference call.

McDonald’s reported a 5.9% rise in global comparable sales, both for the full year and the fourth quarter, beating analysts’ forecast for a 5.23% growth, according to IBES Refinitiv.

The stock gained 11.3% in 2019, lagging the broader S&P 500 restaurants index <.SPLRCREST> that rose nearly 22% last year. Shares were up 2.7% at $216.12 on Wednesday morning.

CHINA CORONAVIRUS IMPACT The deadly coronavirus in China led McDonald’s to close all of its restaurants – several hundred – in the Hubei province, where the outbreak is centered.

Remaining McDonald’s stores – about 3,000 – in the rest of China are still open, Kempczinski said.

The virus, which originated in the Chinese city of Wuhan, has spread across the world and prompted companies to close stores and restrict travel.

Starbucks on Tuesday said it expected a material, though temporary, impact to its 2020 finances as the virus led it to close about 2,000 stores there.

However, for McDonald’s, China makes up only about 4% to 5% of systemwide sales and 3% of operating income. In early 2017 it sold 80% of its business there, though it still collects royalty fees and considers China important for potential growth.

In the United States, about 70% of its 14,000 stores have finished upgrading to more modern counters and dining areas.

This year, it expects to spend about $2.4 billion on capital expenditures, about the same amount as last year. About half of that will be in the United States.

It also plans to open about 1,400 new restaurants in 2020, mostly outside the United States.

(Reporting by Nivedita Balu in Bengaluru and Hilary Russ in New York; Editing by Tomasz Janowski and Matthew Lewis)