McDonald’s on Thursday reported quarterly revenue and earnings that beat analysts’ expectations, as diners spend more at U.S. restaurants what CEO Chris Kempczinski called a “challenging environment.”
Shares of the company initially rose more than 3% in premarket trading, but the stock lost some of those gains as executives raised new concerns about the current consumer environment. Shares were slightly higher in morning trading.
“I think it’s probably fair to say that … it’s not improving, and it’s probably getting worse,” Kempczinski said on the company’s earnings conference call. “… Our focus is on what we can control, and on those points, I feel pretty good about the balance of the year.”
High prices at the gas pump, caused by the US war with Iran, add to the list of reasons to reduce spending for low-income consumers.
“Obviously, if you raise gas prices, which is the primary issue I think we’re all seeing in the press right now, gas prices, inflation on that, that’s going to have a negative impact on low-income consumers,” Kempczinski said. “Therefore, we expect that the existing pressures will continue.”
Some restaurant companies, since Domino’s Pizza to Chipotle Mexican Grillthey reported that sales dropped in March after the dispute began. McDonald’s hopes its strong value offering will help it steal more market share from rival restaurant chains, as consumers generally eat out less.
Here’s what the company reported compared to Wall Street’s expectations, based on a survey of analysts by LSEG:
- Earnings per share: $2.83 adjusted vs. $2.74 expected
- Net worth: $6.52 billion compared to $6.47 billion expected
McDonald’s reported first-quarter profit of $1.98 billion, or $2.78 per share, up from $1.87 billion, or $2.60 per share, a year earlier.
Excluding restructuring charges and other items, the chain earned $2.83 per share.
Net income rose 9% to $6.52 billion.
The company’s same-store sales rose 3.8% in the quarter, roughly in line with Wall Street consensus estimates of 3.7%, according to StreetAccount.
In McDonald’s home market, same-store sales rose 3.9%, driven by customers spending more while on vacation.
While the fast-food giant has relied on price to win over budget-conscious diners, it has also been trying to woo customers through marketing and innovation, often at slightly higher prices. Foods associated with “Super Mario Galaxy Movie” and “KPop Demon Hunters” were not discounted. And the limited-time Big Arch burger, which launched in early March in the US, aims to provide a premium burger option.
One area of McDonald’s US business disappointed executives: company-owned restaurants. Those locations, which account for less than 5% of their total US footprint, have been seeing weak margins, so McDonald’s is considering selling them to shareholders.
The company’s global operating markets segment also reported same-store sales growth of 3.9%. This division covers some of McDonald’s biggest markets, including France, Germany and Australia.
McDonald’s internationally licensed markets segment saw same-store sales grow 3.4%. Japan played well in the first round.
Looking ahead to the second quarter, McDonald’s expects weak sales as it takes a difficult time compared to the time of last year, when it released a joint meal with the movie “Minecraft”. CFO Ian Borden said McDonald’s already expected a decline from the first quarter, even before consumer sentiment weakened.
“Obviously, as we head into April now, we’re confident in our fundamentals, driven by what Chris just talked about, pricing power and affordability, which we think we’ve done well,” Borden said.
