George Soros is betting big on the “Golden Arches.” Last quarter, the legendary investor increased the size of his position in McDonald’s Corporation (NYSE:MCD) stock nearly six-fold. Soros Fund Management purchased a more than $58.0-million stake in MCD stock, according to a U.S. Securities and Exchange Commission filing published on February 16, 2016.
So what does Soros see in McDonald’s? Let’s take a look…
Soros’ investment in McDonald’s is a sign that the company’s turnaround strategy is going according to plan.
If you recall, McDonald’s has faced sluggish and even declining sales since 2013. This is largely due to losing touch with its customers. Menu innovations over the last few years were a disappointment with customers and the company battled the perception that its food is unhealthy and over-processed.
In May of last year, the fast food chain’s newly appointed CEO, Steve Easterbook, unveiled a turnaround plan to revive the business. Easterbrook vowed that the company would strip away layers of bloated management, focus more on listening to its customers, and try to better anticipate consumers’ changing tastes.
Since than, the company cut several menu items in an attempt to speed up customer service, introduced a new higher-quality burger (the “Sirloin Third Pounder”), and announced that it would be removing antibiotics and other additives from its chicken in the U.S.
However, it’s the introduction of its all-day breakfast menu in the U.S. last quarter that might be the first real step in reviving MCD stock.
The move is proving to help lure more customers into McDonald’s restaurants. According to a report by the NPD Group in December, in the first two months of the initiative, one-third of customers who purchased breakfast items in non-traditional hours were new customers. (Source: “For McDonalds All-Day Breakfast & Improved Performance in Asia Take Stock To All-Time High,” Forbes, January 29, 2016.)
Also, about 60% of customers who purchased breakfast items during typical lunch hours also purchased non-breakfast items, which indicates the all-day breakfast menu is helping to improve sales in other categories as well. (Source: Ibid.)
Earnings for the quarter were a major victory, as the all-day breakfast menu helped power the company to an increase in global same-store sales of five percent over the previous year. U.S. comparable sales saw even better numbers, growing 5.7% in the same period. (Source: “McDonald’s Reports Fourth Quarter And Full Year 2015 Results,” PR Newswire, January 25, 2016.) It’s now the second quarter in row that McDonald’s has posted same-store sales increases.
Soros might also be attracted to McDonald’s because it’s a shareholder-friendly company.
In the latest earnings call, CFO Kevin Ozan stated that the company is continuing to finish its $30.0-billion share repurchase program, with plans to re-franchise 4,000 restaurants by the end of 2018.
The company is also keeping up on its promise of cutting down management costs, announcing it will slash annual general and administrative spending by $500 million.
On top of this, McDonald’s pays a nice dividend yield of 2.9%, with a forward dividend yield of 3.06%. The company has raised its dividend every year since issuing its first dividend in 1976.
All of this should work to increase shareholder value.
It might be a bit premature to call MCD stock’s turnaround complete, but the positive growth is a sign that McDonald’s is headed in the right direction—something George Soros might have noticed as well.