A sign is displayed outside a McDonald’s restaurant on April 28, 2022 in San Leandro, California.
Justin Sullivan | Getty Images
McDonald’s said on Tuesday that price increases and value items fueled stronger-than-expected U.S. same-store sales growth in its second quarter.
However, CEO Chris Kempczinski said the environment was still “challenging” as inflation and the war in Ukraine weighed on its quarterly results and consumer sentiment.
“We are now facing war in Europe, inflation is at its highest level in 40 years, interest rates are rising to levels we haven’t seen in years. All of this is contributing to the weakness 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 rose nearly 2% in morning trading.
Here’s what the company reported compared to what Wall Street expected, based on a Refinitiv analyst survey:
- Earnings per share: $2.55 adjusted vs. $2.47 expected
- Revenue: $5.72 billion vs. $5.81 billion expected
McDonald’s reported net income of $1.19 billion, or $1.60 per share, compared with $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 a share.
Inflation weighed on the company’s profits, despite price increases. For the full year, McDonald’s forecasts inflation of 12-14% for food and packaging in the United States and even higher levels in Europe. Leaders said U.S. inflation rose above that level in the second quarter and would likely rise above it in the third quarter before moderating in the fourth quarter.
Net sales fell 3% to $5.72 billion, partly impacted by the closure of McDonald’s Russian and Ukrainian restaurants.
Global same-store sales increased 9.7% in the quarter, fueled by strong international growth. Russian locations were excluded from the company’s comparable store sales calculations, but Ukrainian restaurants were included.
U.S. same-store sales increased 3.7% in the quarter, beating StreetAccount’s estimate of 2.8%. The company credited strategic price increases and its value offerings for its strong performance. Last quarter, McDonald’s executives said some lower-income consumers were switching to cheaper options in response to inflation, and the trend has continued this quarter.
The company’s international licensed development markets division saw same-store sales jump 16% in the quarter. Same-store sales fell in China as the government reimposed Covid restrictions, but growth in Brazil and Japan more than offset weak market 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 confidence plummet, even reaching record highs in some cases, executives said.
Read the full earnings report here.