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McDonald's momentum is continuing as All Day Breakfast helped it notch its strongest U.S. comparable sales in nearly four years, signaling a turnaround is taking hold and putting more pressure on fast food competitors.
The U.S. is in "the trajectory change phase," CEO Steve Easterbrook said on a conference call Monday. It will take at least six more months of positive comparable sales and transactions for McDonald's largest market "to progress through the sustained and prolonged growth phases of our turnaround," he said.
McDonald's sales at U.S. restaurants open at least 13 months soared 5.7% in the fourth quarter of 2015, well ahead of the third-quarter gain of 0.9% and analysts' average forecast of 2.7%, according to Consensus Metrix.
Much of the U.S. success in the quarter stemmed from the October rollout of All Day Breakfast, which went better than the company anticipated. Serving breakfast items all day continues to boost sales and average spending by customers. It is also helping McDonald's win back market share it had ceded in recent years, said Mr. Easterbrook, who became CEO in March.
Marketing of All Day Breakfast began with a Twitter campaign in early September, followed by TV commercials from Leo Burnett and DDB, along with the company's multicultural agencies Alma, Burrell and IW.
BTIG analyst Peter Saleh said the chain's market share gains are worth noting. "When market share turns and you start to gain market share, that momentum can continue for a long period of time," Mr. Saleh said Monday. "My sense is that they will continue to take market share."
Mr. Saleh, who last week upgraded shares of McDonald's to "buy," said McDonald's is probably taking share from "just about everyone" in the quick-service category, in particular from chains where customers spend about $4 to $5 per visit. Wendy's, Sonic, Jack in the Box and Dunkin' Donuts may be feeling the most pressure from a reawakened McDonald's, Mr. Saleh said.
The Golden Arches has more work to do to bring customers back more often and keep them coming back. While its comparable sales were outpacing the industry at the end of the year, it still saw fewer patrons visited in 2015. Last year's comparable guest counts, or transactions at those restaurants open at least 13 months, fell 2.3% overall and declined a steeper 3% in the United States.
Mr. Saleh, among others, points out that McDonald's is still in the very early stages of its digital efforts, with an app that rolled out in the latter half of 2015. Plus, some breakfast items, such as the McGriddle, are still not available as part of the All Day Breakfast menu. Adding those, if feasible, could help increase customer visits.
For now, McDonald's is keeping an eye on how the recently launched McPick 2 value offer holds up in the face of increased bundle competition from Wendy's, Burger King and others. McPick 2 allows customers to choose two of four particular items including mozzarella sticks and a Double Cheeseburger, at a price of $2 in most markets. The choice allows it to stand out from pre-determined meal deals at other chains and "appears to be resonating with customers," Mr. Easterbrook said, noting that about 25% of the chain's customers are value conscious.
Taking a quick look at other markets, McDonald's said it plans to open more than 250 restaurants in China this year, more than in any other market. Japan posted its best quarterly performance in nearly four years, lapping a difficult time a year ago stemming from a supplier food safety issue in Asia. McDonald's is looking at whether to sell part of its ownership in McDonald's Japan if it can find a buyer that can help the turnaround effort in that market.
In Australia, it will take All Day Breakfast national after a 300-restaurant test. The company is gearing up for a new value strategy across the menu in Germany, where value is critical in a competitive market. And in the United Kingdom, a market Mr. Easterbrook once ran, McDonald's notched its 39th straight quarter of same-store sales growth. Plans there include rolling out table service across all of the restaurants that have been updated to the company's "Experience of the Future," or about 25% of U.K. locations.
McDonald's said that to a lesser extent, its fourth-quarter strength also stemmed from the mild start to the winter in the U.S. and some other markets. Last weekend's U.S. blizzard was not discussed during the Monday call. Major storms such as Jonas can hit sales. McDonald's and other restaurant operators have a big presence in East Coast markets that were essentially shut down by the storm.
Overall, McDonald's fourth-quarter revenue fell 4% to $6.34 billion. Profit rose 10% to nearly $1.21 billion.