By Neil J Kanatt and Waylon Cunningham
Nov 4 (Reuters) - McDonald's said its US sales were improving on the back of promotions and marketing, following a decline in the third quarter as financially stretched consumers cut back on dining out.
Its shares were up 4.7% in early trading on Wednesday.
Executives highlighted gains from increased marketing towards entry-level meal deals and extra value meals alongside the return of promotional offers, including a $2 breakfast sandwich and free fries with a $1
minimum purchase.
This helped bring back customers who were opting for cheaper alternatives from rivals, convenience stores and home-cooked meals as they face rising costs of living.
"We're taking the right steps to improve our near-term performance in the US, and I'm encouraged by our baseline traffic trends in September and October," CEO Chris Kempczinski said.
Customer visits to McDonald's restaurants fell 4.6% from a year earlier in the third quarter, according to Placer.ai, and rose recently due to the return of the chain's Monopoly promotion and Halloween-themed Boo Buckets, though still below year-ago levels.
McDonald's announced its new turnaround strategy called "NEXT" in June. The plan includes simplifying operations, modernizing restaurant designs and investing in employee training, and aims to improve restaurant-level efficiency.
However, the company has faced mounting tensions with franchisees who have complained about eroding control and rising costs. McDonald's executives in August said execution of its under-$3 menu was hurt by a third of franchisees that did not participate.
"How deep and how lasting those meal deals are will depend on whether McDonald’s or its franchisees are willing to carry the cost," said Nagham Hassan, market analyst at eToro.
"If McDonald's leaves the cost to franchisees, expect the deals to be patchy and the recovery slow."
Kempczinski said corporate and US franchisees are in conversation about pricing, and the two sides are "in a good spot with the exception of this entry-level value".
Comparable sales in McDonald's largest market fell 0.2% in the quarter ended September 30, missing analysts' expectations for a 0.1% fall, according to data compiled by LSEG. It was the company's first such decline after five quarters of growth.
Kempczinski also said the company aims to expand the use of Archie, an AI assistant for drive-thru ordering, across the majority of US restaurants by the end of 2027.
McDonald's on Tuesday enlisted law firm White & Case to defend it against a lawsuit claiming the fast-food giant is using AI-powered tools to fix menu prices following a Reuters story from September that found McDonald's uses machine learning algorithms to generate what the company calls the "optimal price" for each menu item at each restaurant.
The company's quarterly global comparable sales rose 1.5%, in line with expectations.
Adjusted earnings rose to $3.57 per share from $3.22 a year earlier, beating expectations of $3.38, helped by a decline in operating costs and higher gains on the sale of restaurants from franchising efforts.
(Reporting by Neil J Kanatt in Bengaluru and Waylon Cunningham in New York; Editing by Devika Syamnath)
