mcdonalds The company on Thursday reported quarterly profit and sales that beat analysts’ expectations, with diners spending more at its U.S. restaurants despite what CEO Chris Kempczinski called a “challenging environment.”
The company’s stock price initially rose more than 3% in premarket trading, but the stock lost some of its gains after management expressed new concerns about the current consumer environment. Stocks rose slightly in morning trading.
“I think it’s probably fair to say… it’s certainly not getting better. It might be getting a little worse,” Kempczinski said on the company’s earnings call. “We’re focused on what we can control, and given that score, we feel like we’re very balanced this year.”
Rising gasoline prices due to the war between the US and Iran have been added to the list of reasons why low-income consumers are spending less.
“Obviously, when gas prices go up, and I think that’s the core issue that you’re seeing in the media right now, gas prices and the inflation that comes with it disproportionately impacts low-income consumers,” Kempczinski said. “Therefore, we expect the pressure to continue.”
From other restaurant companies, domino pizza to Chipotle Mexican Grillreported that sales slowed in March after the conflict began. McDonald’s hopes its strong value proposition will help it steal more market share from rival restaurant chains even as consumers eat out less frequently overall.
Here’s how the company reported compared to Wall Street expectations, based on a survey of analysts by LSEG.
Earnings per share: $2.83 adjusted vs. $2.74 expected Sales: $6.52 billion vs. $6.47 billion expected
McDonald’s reported first-quarter net income of $1.98 billion, or $2.78 per share, up from $1.87 billion, or $2.60 per share, in the same period last year.
Excluding restructuring charges and other items, the chain earned $2.83 per share.
Net revenue increased 9% to $6.52 billion.
The company’s same-store sales rose 3.8% in the quarter, according to Street Accounts, roughly in line with Wall Street’s consensus estimate of 3.7%.
In McDonald’s home market, same-store sales rose 3.9% as customers spent more when they visited the store.
Fast-food giants are leaning toward value to appeal to budget-minded customers, usually at slightly higher price points, and trying to appeal to customers through marketing and innovation. Tie-up menus with “Super Mario Galaxy Movie” and “KPop Demon Hunters” were not discounted. And the limited-time extra-large Big Arch Burger, which launched in the U.S. in early March, was meant to offer a premium burger option.
One area of McDonald’s U.S. operations that has disappointed executives is the restaurants it owns. These stores account for less than 5% of total U.S. store space, and with declining profit margins, McDonald’s is considering selling them to franchisees.
The company’s International Operating Markets division also reported a 3.9% increase in same-store sales. The division includes some of McDonald’s largest markets, including France, Germany and Australia.
McDonald’s International Development License Market segment’s same-store sales increased 3.4%. In the first quarter, Japan was the top performer in the category.
McDonald’s expects sales to decline in the second quarter as conditions are tough compared to the same period last year, when it released a tie-up menu with the movie “Minecraft.” Chief Financial Officer Ian Bowden said McDonald’s was already expecting a slowdown from the first quarter, even before consumer sentiment weakened.
“Coming off of a difficult April results, we are confident in the underlying momentum driven by the value and affordability strength that Chris just talked about, and we think that’s really true,” Borden said.
