McDonald's (NYSE:MCD) shares advanced 2.1% on Wednesday, closing at $274, as investors focused on resilient franchise earnings rather than a continued decline in U.S. customer visits. The stock, which touched a high of $275.30 during the session, has now gained 3.3% since Monday's close.
The company's second-quarter results, released after the market close, showed adjusted earnings per share of $3.38, surpassing analyst expectations of $3.32 by 6 cents. Revenue came in at $7.099 billion, slightly below the $7.13 billion forecast, a shortfall of 0.4%. U.S. same-store sales increased 0.8%, missing the 1.06% consensus estimate from LSEG, while global comparable sales rose 1.3%, a significant slowdown from the 3.8% growth recorded a year earlier.
Franchised revenue proved to be the key driver of growth, contributing $180 million of the $256 million increase in total revenue, representing roughly 70% of the gain. Company-operated sales added $67 million, about 26% of the increase. This shift underscores the resilience of McDonald's franchise model, which generates steady royalty and rent income even when traffic softens. Operating income rose 3.3% to $3.338 billion, while net income climbed 4.8% to $2.362 billion, aided by a lower effective tax rate of 19.5% versus 21.3% a year ago and a favorable currency impact of 3 cents per share.
Despite the earnings beat, U.S. comparable traffic declined, and sales at company-owned locations slipped 1%. Management attributed the traffic weakness primarily to reduced digital promotions. Chief Financial Officer Ian Borden noted that the absence of certain value deals accounted for roughly two-thirds of the traffic decline, leading some customers to spend less or skip visits altogether. National promotions are slated to return next week.
CEO Chris Kempczinski framed the quarter as an execution issue rather than a strategic one. "We don't have a strategy problem, we simply didn't execute at the level we needed to in the second quarter," he said during the earnings call. The company has also made changes to its U.S. leadership, with Skye Anderson, a 26-year veteran, taking over from Joe Erlinger as head of the U.S. business. Anderson had previously served as U.S. operating chief since April.
The stock's recent performance reflects investor confidence in the company's ability to weather short-term headwinds. Shares rose 2.2% in the week ending July 31, and after the earnings release, they climbed another 1.2% in the following session. The two-day advance of 3.3% suggests that the market is willing to look past the softer sales mix, though the investment thesis remains tied to a recovery in customer visits.
Analyst sentiment remains broadly positive, with 23 buy or overweight ratings, 14 holds, and one sell, according to FactSet. The median price target stands at $312, implying a potential upside of 13.9% from Wednesday's close. However, expectations for future periods have been tempered, with consensus for 2026 EPS down 2.0% over the past three months to $12.92, and third-quarter estimates lowered 4.7% to $3.41.
Looking ahead, McDonald's is set to begin a national digital promotion trial in the week of August 10. The company also highlighted its loyalty program, which now has nearly 220 million active members and generated over $40 billion in sales over the past year. Management remains optimistic that these initiatives will help drive a traffic rebound, but risks remain. If the promotions fail to attract customers, or if deeper discounts pressure restaurant margins, the stock could face headwinds. Additionally, the lower tax rate seen in Q2 may not be sustainable, and currency gains could reverse.
