A sign is placed in front of a McDonald’s restaurant on April 28, 2022 in San Leandro, California.
Justin Sullivan | Getty Images
McDonald’s said Tuesday that both price increases and value items boosted same-store sales growth in the United States, which was higher than expected during the second quarter.
However, CEO Chris Kempczynski said the environment remains “challenging” as inflation and the war in Ukraine affected its quarterly results and consumer confidence.
“We are now at war in Europe, inflation is at its highest level in 40 years, interest rates are rising to levels not seen in years. All of this is contributing to weak consumer sentiment around the world and the possibility of a global recession,” Kempczynski told analysts on a conference call Tuesday morning. “.
The company’s shares rose by about 2% in morning trading..
Here’s what the company reported compared to what Wall Street was expecting, based on an analyst survey 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 $1.2 billion in fees related to the sale of its Russian business due to the war in Ukraine.
Excluding these fees, a French tax settlement and other items, the fast food giant earned $2.55 per share.
Inflation lowered the company’s profits, despite higher prices. For the full year, McDonald’s expects inflation of 12% to 14% for food and packaging in the United States and higher levels in Europe. Executives said U.S. inflation topped that level in the second quarter and is likely to surpass it in the third before calming down in the fourth.
Net sales fell 3% to $5.72 billion, affected in part by the closures of Russian and Ukrainian McDonald’s restaurants.
Global store sales rose 9.7% in the first quarter, driven by strong international growth. Russian sites were excluded from the company’s same-store sales calculations, but Ukrainian restaurants were included.
Same-store sales in the US rose 3.7% in the first quarter, topping StreetAccount’s estimate of 2.8%. The company attributed its strategic price hikes and value propositions to its strong performance. Last quarter, McDonald’s executives said some lower-income consumers were trading on cheaper options in response to inflation, and the trend has continued this quarter.
The company’s international authorized development markets division saw same-store sales increase 16% in the quarter. Same-store sales contracted in China as the government reimposed Covid restrictions, but growth in Brazil and Japan made up for the market’s weak performance.
McDonald’s International Operated Markets segment recorded a 13% growth in same-store sales, supported by strong demand in France and Germany. Executives said the department’s restaurants stole traffic share from other fast food chains. However, Germany, Spain and France are seeing a decline in consumer confidence, even to record low levels in some cases, according to executives.
Read the full earnings report here.