This Restaurant Giant Is Growing Sales – Even Amid COVID-19

The COVID-19 pandemic has hit the restaurant industry hard...

With states going under lockdown orders, restaurants across the country had to shutter their indoor operations. This means that they had to rely on carryout and delivery as the only way to bring in money. As a result, sales across the industry plummeted.

Even though states have lifted lockdown restrictions, and restaurants have been allowed to open indoor seating under capacity restraints, the restaurant industry is still down sharply from the same period last year. But today's company is bucking the trend...

McDonald's (NYSE: MCD) is a $167 billion fast-food giant. This company needs little introduction. It's one of the largest restaurant chains in the world, with a giant market footprint. It has 39,000 restaurants in more than 100 countries all across the world.

McDonald's is one of the world's most recognized brands, in the league of Apple (AAPL) or Coca-Cola (KO). Its "golden arches" are unmistakable.

And it sells "addictive" products like burgers, fries, and milkshakes. These foods are high in fat, sodium, and sugar, which keeps people coming back for more.

We've covered McDonald's in the Stock of the Week before, highlighting its incredible business model...

You see, McDonald's doesn't directly sell burgers to people. It sells franchises to restaurateurs. That makes McDonald's highly capital efficient.

After the restaurant owner first pays McDonald's to buy a franchise, he then must put up all the capital to run it. McDonald's lends its name and managerial expertise, but at a fraction of the cost of owning and running the store itself.

At the end of the day, McDonald's gets to sit back and collect royalties on each sale that its franchise makes.... on top of the $45,000 franchise fee it charges up front.

This business model helps the company produce loads of free cash flow.

And McDonald's has more or less avoided the pain felt by other restaurants throughout the pandemic...

You see, 95% of McDonald's restaurants have drive-thru windows, according to company data. These allow customers to get their food quickly, without ever leaving their cars. A recent survey also found that consumers have considered drive-thrus safer throughout the pandemic than other carryout food options, according to the Wall Street Journal.

This allowed McDonald's to weather the storm of the pandemic better than other companies in the industry...

In the second quarter, which was the one most hurt by pandemic-related shutdowns, McDonald's saw U.S. comparable-store sales fall about 9% from the same quarter in 2019. While this is a steep drop, some sit-down restaurants saw half their sales (or more) evaporate because of the pandemic.

The business recovered throughout the quarter. While total U.S. comp-store sales fell 9% in the second quarter, they improved in each month in the quarter. In June (the last month of the quarter), comp-store sales were only down 2% year over year.

The third quarter brought more good news on the recovery...

The fast-food giant reported third-quarter U.S. comparable store sales growth of 4.6%. That means that sales are now about 5% above where they were at the same time last year.

And like the second quarter, McDonald's saw its results improve as the quarter went on. In September, the last month of McDonald's third quarter, the company's comparable-store sales posted "low-double-digit" growth.

So not only has McDonald's rebounded off its lows, but its business is actually growing over last year. Through this pandemic, not many companies can say that.

Better yet, McDonald's loves to reward shareholders...

Since first paying its dividend in 1976, McDonald's has raised its dividend payout every year for more than 40 consecutive years. In fact, it just raised its quarterly dividend payout by 3% to $1.29.

McDonald's said that the pace of the recovery in its business, as well as its strong financial position, allow it to increase its dividend and still have enough cash to navigate the pandemic.

Shares have rebounded strongly in recent months. Since bottoming alongside the rest of the market on March 23, McDonald's has surged 64%. That outpaces the 55% gain for the S&P 500 Index over the same period.

On a longer-term basis, you can see the power of this business model. The stock has more than doubled over the last five years, and just hit a fresh all-time high.

McDonald's has an incredibly capital-efficient business model... and one of the most recognizable brands in the world. These factors, coupled with its business's strong recovery, means that this stock should continue higher.

Sometimes investing is simple.