Its signature Big Mac sandwich has been selling for over 50 years, but McDonald's (MCD -0.91%) is hoping that's just the start. The fast-food giant just announced an ambitious new growth plan for the next several years as part of its annual shareholder update.
The strategy involves McDonald's doubling down on effective initiatives like new restaurant launches and its popular drive-thru business. Executives believe they can also boost profitability well above the current record level. Here's what this plan could mean for investors.
1. Adding more restaurants
McDonald's management team thinks there's plenty of room to expand the sales footprint from here. Its growth plan calls for boosting the global restaurant base by about 10,000, in fact, to 50,000 units over the next three years. About 2,000 new stores can fit in the U.S. market between now and 2027, executives project, with the remainder launching in big international markets like China.
That's an ambitious expansion pace that amounts to between 4% and 5% annual store growth over the next several years. Management says it will be "the fastest period of growth in the brand's history," which is notable considering how competitive the fast-food industry is right now.
2. Doubling down on what works
Mickey D's isn't struggling in the growth department today. Comparable-store sales in the most recent quarter were up 9% thanks to a healthy balance between higher customer traffic and increased spending per visit. That's about on par with the growth that Chipotle Mexican Grill has seen in recent quarters. It's enough to keep the chain near the top of the fast-food industry, too.
McDonald's is planning to double down on the positive factors that helped it achieve its impressive comp growth in the post-pandemic period. In addition to fundamentals like preparing high-quality food at attractive prices, executives see lots of opportunity in the digital ordering, delivery, and drive-thru spaces.
That last channel is exciting because McDonald's already commands a dominant market position even as more companies, including Chipotle, look to establish a bigger presence. Management credits its first-mover advantage over these rivals as a major asset because many of the best locations have been secured at attractive prices.
3. Setting profit records
The goal that will have the most direct impact on investor returns is McDonald's new profit target. Wall Street was thrilled to see its operating profit margin rise to a new record of 46% of sales in 2023 thanks to the combination of faster sales growth, higher prices, cost cuts, and added efficiencies.
Investors had been concerned that McDonald's hit a limit on its profitability after it finished its refranchising program before the pandemic struck. The last year of operating results have eased those concerns, but there's likely more improvement to come.
MCD Operating Margin (TTM) data by YCharts
McDonald's is targeting an even higher profit margin ahead through 2027, which means operating profitability could climb toward 50% of sales. Investors can expect those gains to translate into higher earnings and potentially an elevated valuation for the restaurant stock. There will likely be increased cash returns from stock buybacks and dividend payments as well.
These factors should all support excellent returns for patient shareholders, assuming McDonald's makes steady progress toward its 2027 goals over the next several years.
