McDonald's Corporation MCD is focused on international expansion, loyalty program and digitalization to drive performance. The company is benefiting from robust comps growth. In the past year, the company’s shares have gained 8.5%, against the industry’s decline of 7.2%. However, high debt and dismal China comps hurt the company.

Growth Drivers

McDonald’s believes that there is a huge opportunity to grow all its brands globally by expanding its presence in existing markets and entering new ones. Its expansion efforts continue to drive performance. Despite the pandemic, the company continues to expand its global footprint. It is planning to open more than 1,800 restaurants globally in 2022, which includes 500 openings in the United States and IOM segment, and 1,300 (including nearly 800 in China) new restaurants in the IDL market. The company expects restaurant growth of nearly 3.5% for 2022.

McDonald's launched its first-ever loyalty program in the United States. The company already has a loyalty program in other countries like France. It announced that MyMcDonald’s Rewards is available via the McDonald’s app nationwide. The new loyalty program will not only aid in retaining the existing customers but also help in expanding the customer base. During the fourth-quarter 2021 conference call, the company stated that it now has the loyalty program in more than 40 markets, including the United States, Germany, and Canada, all of which were launched in 2021. During the first half of 2022, the company will expand MyMcDonald’s Rewards in the U.K. and Australia. McDonald's is very optimistic about building the world’s largest loyalty program.

The company is focusing on delivery to drive sales. McDonald’s continues to roll out mobile orders and pay with a new curbside check-in option. It has been focusing increasingly on delivery to provide enhanced experience and convenience to customers. The company’s more than 33,000 restaurants in 100 countries provide a delivery facility. McDonald's has reached new long-term strategic partnerships with Uber Eats and DoorDash for delivery. Over the past year, the delivery sales mix has doubled in Australia, Canada and the United States.

The company continues to impress investors with robust comps growth. In fourth-quarter 2021, global comps gained 12.3% against a decline of 1.3% in the prior-year quarter. This marks the fourth consecutive quarter of comps growth after reporting a decline in the preceding four quarters. In the fourth quarter, comps at the United States, international operated markets and international developmental licensed segment rose 7.5%, 16.8% and 14.2%, respectively. Japan and Latin America posted robust comps growth. The company reported comps growth for the 25th straight quarter in Japan.

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Concerns

Although overall comps have increased sharply, it is still below the pre-pandemic level in a few markets. In fourth-quarter 2021, comps in the China market were negative. Softening economy and COVID-related government restrictions have negatively impacted comps in China.

Maintaining liquidity has become a herculean task amid the pandemic. As of Dec 31, its long-term debt stood at $35.6 billion compared with $34.6 billion as of Sep 30, 2021. The company ended the fourth quarter with a cash and cash equivalent of $4,709.2 million, compared with $4,306 million at the end of third-quarter 2021. Although cash and cash equivalent has increased, it may not be enough to manage the high-debt level.

McDonald's currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key picks

Some better-ranked stocks in the Zacks Retail-Wholesale sector include Genesco Inc. GCO, Arcos Dorados Holdings Inc. ARCO and Tapestry, Inc. TPR.

Genesco sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 2,739.6%, on average. Shares of the company have gained 62.1% in the past year.

The Zacks Consensus Estimate for Genesco’s 2022 sales and EPS suggests growth of 35.5% and 677.1%, respectively, from the year-ago period’s levels.

Arcos Dorados carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth of 24.7%. Shares of the company have surged 54.5% in the past year.

The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 35% and 120.8%, respectively, from the year-ago period’s levels.

Tapestry carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 28.2%, on average. Shares of the company have declined 6.1% in the past year.

The Zacks Consensus Estimate for Tapestry’s 2022 sales and EPS suggests growth of 17.5% and 22.9%, respectively, from the year-ago period’s levels.

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