After a period of heavy inflation left quick-service restaurant prices elevated, McDonald’s (MCD -0.47%) has decided to lean into value meals. In fact, on its recent fourth-quarter earnings call, the company used the word “value” or a variation of the word “affordable” more than 50 times.
When quick-service restaurant pricing competition heats up, McDonald’s has a tendency to come out on top due to its large scale and franchise model. Let’s dive into the company’s most recent results to see if this is a good time to buy the stock.
Leaning into value meals
McDonald’s overall Q4 results were largely lackluster. The company saw an E.coli scare early in the quarter that caused it to pull its popular Quarter Pounder hamburgers from its menu at some locations. It also led to some large traffic declines, particularly in the U.S. states that were affected. However, the company did a good job of finding the source, its sliced onions, and the Centers for Disease Control and Prevention (CDC) declared the outbreak over by early December.
U.S. sales hit their trough in early November after the outbreak and then began to pick up thereafter. Overall, the company’s U.S. same-store sales dropped by 1.4% in the quarter, which isn’t all that bad considering the foodborne illness outbreak. It noted that it saw a decline in check size, but that there was a slightly positive guest count.
International licensed markets, meanwhile, were much stronger, with comparable-store sales climbing by 4.1%. The company credited sales in Japan and the Middle East for the strong results. International company-operated stores saw comparable store sales edge up 0.1%, hurt by some weakness in the U.K.
Overall global same-store sales, meanwhile, rose 0.4% compared to a 3.4% increase last year. That was ahead of analyst expectations for a 1% decline in same-store sales, according to StreetAccounts. Overall revenue was flattish on the quarter at $6.39 billion. That fell just shy of the $6.44 billion analyst consensus, as compiled by LSEG. Adjusted earnings per share (EPS) declined by 4% to $2.83, but met analyst expectations.
Looking ahead, the company said it plans to spend between $3 billion and $3.2 billion this year in new unit development. It plans to open approximately 2,200 restaurants in 2025, with a quarter of them in the U.S. and international operated segments. Meanwhile, it’s looking to add 1,000 new restaurants in China. Overall, it’s looking for its unit count to grow by slightly more than 4%, with 1,800 net unit additions.
It added that it expects its adjusted operating margin to be above the 46.3% level it saw in 2024. However, it expects currency to be around a $0.20 to $0.30 headwind to EPS.
McDonald’s plans to lean heavily into value this year, starting with the launch of its McValue platform in January in the U.S. In addition, it said it is making further enhancements to its value programs in international markets in the first quarter. It noted that it has seen improvements in value perception in parts of Europe with its 4-euro Happy Meal, while its $5 Meal Deal has been resonating with customers.
When asked about the effect on gross margins, it said these deals drive other purchases and that the average check on $5 Meal Deals was above $10. It also said that its Buy 1 Add 1 for $1 promotion has been accretive to overall check transactions.
Overall, the company expects a full sales recovery from the E.coli incidents by the start of the second quarter. Meanwhile, it’s looking for margins to improve compared to 2024 levels. It also said it has some new menu innovations in store for this year, and that it will continue rolling out its Best Burger initiative, with it expected to be in all the countries it operates in by the end of 2026. This initiative includes small tweaks to how its burgers are assembled and cooked that have been leading to better customer satisfaction scores.
Image source: Getty Images.
Is McDonald’s stock a buy?
McDonald’s has done a good job navigating through its E.coli scare, keeping the damage to its sales to a minimum. While the effects could continue into Q1, it looks like it should be an overall quick recovery to get back to normal.
Meanwhile, the company is clearly leaning into value at a time when many people have been complaining about quick-service restaurant prices. This is a good move, as the company has historically done well at gaining market share during periods of pricing wars, to the detriment of its fast-food burger competitors. The combination of value meals to drive traffic and new menu items to entice customers into full-price purchases tends to be a good one.
The company is also embracing digital orders to expand the reach of its loyalty program and to help drive more sales through personalized offers. It had 175 million active loyalty members at the end of 2024.
From a valuation perspective, McDonald’s trades at a forward price-to-earnings (P/E) of just under 25 times 2025 analyst estimates. That’s around historical valuations for the company.
MCD PE Ratio (Forward) data by YCharts.
Overall, McDonald’s should be a solid stock to own over the long term. It’s an iconic brand that still has room to continue growing its store base, while also having room to drive growth through digital ordering and its loyalty program, and by embracing its value roots to gain market share.
