McDonald’s on Tuesday said both price hikes and value items fueled U.S. same-store sales growth, which was higher than expected during its second quarter.
However, CEO Chris Kempczinski said the environment is still “challenging” as inflation and the war in Ukraine weighed on its quarterly results and consumer sentiment.
“We now face war in Europe, inflation is running at the highest levels in 40 years, interest rates are rising to levels we haven’t seen in years. All of this is contributing to weak consumer sentiment around the world and the possibility of a global recession,” Kempczinski told analysts on a conference call Tuesday morning.
Shares of the company were up nearly 2% in morning trading..
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: $2.55 adjusted vs. $2.47 expected
- Revenue: $5.72 billion vs. $5.81 billion expected
McDonald’s reported second-quarter net income of $1.19 billion, or $1.60 per share, down from $2.22 billion, or $2.95 per share, a year earlier. The company reported a $1.2 billion charge related to the sale of its Russian business due to the war in Ukraine.
Excluding that charge, a French tax settlement and other items, the fast-food giant earned $2.55 per share.
Inflation dragged down the company’s earnings, despite price hikes. For the full year, McDonald’s is projecting 12% to 14% inflation for food and packaging in the U.S. and even higher levels in Europe. Executives said U.S. inflation topped that level in the second quarter and will likely surpass it in the third quarter before moderating in the fourth quarter.
Net sales fell 3% to $5.72 billion, hurt in part by the closure of McDonald’s Russian and Ukrainian restaurants.
Global same-store sales rose 9.7% in the quarter, fueled by strong international growth. Russian locations were excluded from the company’s same-store sales calculations, but Ukrainian restaurants were included.
U.S. same-store sales increased 3.7% in the quarter, topping StreetAccount estimates of 2.8%. The company credited strategic price hikes and its value offerings for its strong performance. Last quarter, McDonald’s executives said some low-income consumers were trading down to cheaper options in response to inflation, and the trend continued this quarter.
The company’s international developmental licensed markets division saw its same-store sales climb 16% in the quarter. Same-store sales shrank in China as the government reimposed Covid restrictions, but growth in Brazil and Japan more than offset the market’s weak performance.
McDonald’s international operated markets segment reported same-store sales growth of 13%, fueled by strong demand in France and Germany. Executives said the division’s restaurants stole traffic share from other fast-food chains. However, Germany, Spain and France are seeing consumer sentiment fall, even to record lows in some cases, according to executives.