McDonalds sales surge, warns short-term inflation to persist

McDonald's sales surge, warns short-term inflation to persist

By Hilary Russ

(Reuters) – McDonalds Corp beat Wall Street estimates for quarterly comparable sales on Tuesday, boosted by higher menu prices, increased restaurant traffic and gains in most major markets.

The burger chains global same-store sales increased 12.6% in the fourth quarter ended Dec. 31, compared with estimates for an 8.6% rise, according to IBES data from Refinitiv. Sales in the UK, Germany and France rose despite fears of a recession in Europe.

The earnings report comes as investors watch for signs of a recession after record inflation last year. McDonalds could benefit if more lower-income customers switch over from higher-priced restaurants – as it did in the third quarter.

Chief Executive Officer Chris Kempczinski said in the earnings release that the company expects “short-term inflationary pressures to continue in 2023.”

The company reported profit of $2.59 per share, an increase of 19%.

Like other fast-food chains, Chicago-based McDonalds raised prices of its burgers and fries last year to keep up with surging commodity and labor costs.

Even so, traffic rose 5% for full-year 2022 as McDonalds meals remained less expensive than many competitors, drawing low-income consumers.

In October, Chief Financial Officer Ian Borden said the company was “gaining share right now among low-income consumers” in the United States because of McDonalds “affordability.”

He did not define “low income” but data provider the NPD Group defines annual household incomes of $75,000 or less as “lower income.”

The company launched its Cactus Plant Flea Market Box – an adult version of its Happy Meal for kids – with core menu items including its Big Mac and Chicken McNuggets, helping it post better-than-expected U.S. sales.

Visits to McDonalds U.S. locations rose 26% in the fourth quarter versus 2019 and were up nearly 30% compared with the previous year, according to data from location analytics firm Placer.ai. That is compared to a 0.6% decline for fast food overall in the fourth quarter over the previous year.

“While McDonald‘s reputation as a value player helps in an environment where lower- to middle-income consumers are looking to stretch household budgets, the company is also driving visits through other means like celebrity meals and other marketing partnerships, its loyalty program, and improved drive-thru operations,” said Placer.ai’s head of analytical research, R.J. Hottovy.

Visits to some other fast-food chains started to fall last summer as they hiked menu prices, he said.

McDonalds U.S. comparable sales rose 10.3% in the quarter. Global revenue dropped 1% to $5.93 billion because of the impact of the stronger U.S. dollar against foreign currencies. In constant currencies, revenue rose 5%.

(Reporting by Hilary Russ in New York and Ananya Mariam Rajesh in Bengaluru; Editing by Matthew Lewis)

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