McDonald's on Thursday reported quarterly earnings and revenue that beat analysts' expectations as diners spend more at its U.S. restaurants even in what CEO Chris Kempczinski called “a challenging environment.”
The company's shares initially rose more than 3% in premarket trading, but the stock gave up some of those gains as executives expressed fresh concerns about the current consumer environment. Shares rose slightly in morning trading.
“I think it's probably fair to say that… it's certainly not getting better, and it may be getting a little worse,” Kempczinski said on the company's earnings conference call. “Our focus is on what we can control and, in that sense, I feel very good about the rest of the year.”
Higher prices at the pump, caused by the United States' war with Iran, are adding to the list of reasons for decreased spending by low-income consumers.
“Clearly, when you have high gas prices, which is the central issue that I think we're all seeing in the press right now, gas prices and inflation, that will disproportionately impact low-income consumers,” Kempczinski said. “And that's why we expect the pressures to continue.”
Other restoration companies, from Domino's Pizza to Chipotle Mexican GrillThey have reported that sales softened in March after the conflict began. McDonald's hopes its strong value offerings will help it steal more market share from rival restaurant chains, even as consumers overall dine out less frequently.
Here's what the company reported compared to what Wall Street expected, according to a survey of analysts by LSEG:
- Earnings per share: $2.83 adjusted vs. $2.74 expected
- Revenue: $6.52 billion vs. $6.47 billion expected
McDonald's reported first-quarter net income of $1.98 billion, or $2.78 per share, down 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 comparable 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 when they visited.
While the fast-food giant has leaned toward value to win over budget-conscious diners, it has also been trying to attract customers through marketing and innovation, usually at a slightly higher price. Meals related to “The Super Mario Galaxy Movie” and “KPop Demon Hunters” were not discounted. And its limited-time oversized Big Arch burger, which launched in early March in the US, aimed to offer a premium burger option.
One area of McDonald's U.S. business disappointed executives: its owned restaurants. Those locations, which represent less than 5% of its total U.S. presence, have been experiencing weaker margins, so McDonald's is considering selling them to franchisees.
The company's internationally operated markets segment also posted same-store sales growth of 3.9%. The division includes some of McDonald's largest markets, including France, Germany and Australia.
McDonald's International Development Licensed Markets segment saw same-store sales growth of 3.4%. Japan was the division's best-performing country in the first quarter.
Looking ahead to the second quarter, McDonald's expects weaker sales as it compares harshly to the same period a year ago, when it launched a meal tied to the movie “Minecraft.” Chief Financial Officer Ian Borden said McDonald's was already anticipating a slowdown from the first quarter, even before consumer confidence weakened.
“Obviously, now that we've put the tough April competition behind us, we're confident in our underlying momentum, driven by what Chris just mentioned, the strength of value and affordability, which we think we've really got right,” Borden said.
