Yahoo Finance’s Zack Guzman, Akiko Fujita, and Brooke DiPalma discuss McDonald’s latest earnings report with Peter Saleh, BTIG Restaurants Analyst.

Video Transcript

AKIKO FUJITA: Let's turn our attention back to the markets. One stock in focus today, McDonald's. A big rebound for the company in the first quarter. Net sales and earnings returned to pre-pandemic levels for the fast food giant. McDonald's earned $1.92 a share on $5.1 billion in revenue. The company also raised its outlook for sales growth. Let's bring in BTIG Restaurants analyst Peter Saleh. We've also got Brooke DiPalma joining in on the conversation. Peter, good to talk to you today. Same store sales in the US certainly very strong in the quarter, but the international side was a bit of a mixed picture. What stood out to you in the quarter?

PETER SALEH: Yeah, no, thanks for having me on. No, look, I think the results were pretty fantastic this quarter. Clearly, they're taking a share. And in the United States, they have the ability to really grow their sales tremendously. They're already above 2019 levels in terms of same store sales and total revenue. And really, that's a function of the drive-through and the digital experience and delivery, essentially, off-premise. 90% of their business is going through the drive-through. Historically, that number was closer to 70%, 75%.

So you're getting a lot more consumers coming through the drive-through. Internationally, they don't have as many drive-throughs. They have more in Australia and some of the other markets. But you've got some markets that are more sit-down, like France and maybe Germany. And those-- some of the dining rooms are still-- or a lot of the dining rooms are still closed. And that definitely weighs on same store sales. So it's a little bit of a mixed bag, but I would say the US business, which represents 40% of their sales and a good portion of their profits, is performing and outperforming many of their peers.

BROOKE DIPALMA: And Peter, this was a strong quarter for McDonald's chicken portfolio in particular. We saw the return of the Spicy Chicken Nuggets and its entry into the chicken sandwich wars. Do you expect that excitement from both Main Street and Wall Street to continue as we make way into Q2?

PETER SALEH: Absolutely. It does seem like the chicken sandwich wars are in full swing. I mean, you're going to see them innovate around this product. They're going to continue to market this product. From our conversations with management and franchisees, it is performing very well.

I mean, you probably saw Yum Brands reported yesterday. They talked about the performance of their chicken sandwich at KFC, which was two times as many sold as previous chicken sandwiches. So I think when-- especially when McDonald's goes out and markets a product, I think it lifts the rest of the categories. So I think you're going to continue to see more innovation and more marketing and more, really, sales shifting to this chicken sandwich.

BROOKE DIPALMA: And we're also keeping a close eye on that loyalty program set to launch in late summer of this year. And, you know, just recently, they launched a free McFlurry on their digital app. Do you think that it will take those online only, app only deals to really entice customers to join this program?

PETER SALEH: Yeah, look, I think if McDonald's really wants to market heavily behind this loyalty program later this summer and into the fall, I think they can likely drive a lot of sales and a lot of sign-ups to the loyalty program, which I think will benefit McDonald's Corporate. I think the question in our mind, though, is, is this going to be profitable for the franchisees? I still think that is a wild card at this point.

Can you drive sales? Yes, we think you can. Are they going to be profitable sales? Because in fact, all loyalty programs, you're giving away free food. So we still have to see-- the jury's still out to see if this is going to be a profitable program for them come the fall and next year. I think driving the sales probably a little bit easier than driving profitability with a loyalty program.

ZACK GUZMAN: All right, Peter Saleh, BTIG Restaurants analyst, alongside Yahoo Finance's Brooke DiPalma. Appreciate you both for the chat.