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McDonald’s exceeded Wall Street expectations for quarterly earnings on Tuesday because to higher menu pricing, but it also issued a warning that 2023 will still see short-term inflationary headwinds.
The burger chain’s stock dropped 2.3% to $264.55 after rising nearly 6% during the previous 12 months.
Investors are keeping an eye on leading indicators like McDonald’s for any indication that consumers are reducing their spending in order to assess whether the Federal Reserve’s tightening of monetary policy would help chill the US economy without triggering a recession.
The manufacturer of the Big Mac also anticipates that its faster plan to open more new restaurants would increase sales, adding roughly 1.5% to its systemwide sales growth in constant currencies by 2023.
In order to stay up with rising labor and commodity expenses, Chicago-based McDonald’s increased the price of its burgers and fries last year, and it expects margin expansion this year.
CEO Chris Kempczinski stated in an investor conference call that “overall, the consumer, whether it’s in Europe or the US, is really holding up better than… what I would have thought a year ago or six months ago.”
Nevertheless, he stated that the producer of the Big Mac is still anticipating a mild to moderate U.S. recession this year, along with a worse, lengthier recession in Europe.
McDonald’s reported on Tuesday that traffic increased 5% for the entire year 2022 despite the fact that its meals continued to be less expensive than many rivals, attracting low-income customers.
A Big Mac in New York City currently costs around $5.39, which is cheaper than a nearby Starbucks’ Venti Cappuccino, which costs $5.65.
According to IBES statistics from Refinitiv, McDonald’s worldwide same-store sales for the fourth quarter increased by 12.6%, above predictions of an 8.6% gain on average.
Despite concerns about a European recession, McDonald’s profited from higher menu pricing, greater restaurant traffic, and rising revenues in the UK, Germany, and France.
A 16% rise in profit was announced by the corporation, coming in at $2.59 per share. On average, analysts projected a $2.45 profit.
McDonald’s also stated that it anticipates its operating margin to increase to around 45% in 2023 from 40.4% in 2022.
Because of McDonald’s “affordability,” according to Chief Financial Officer Ian Borden, the firm is “gaining share right now among low-income consumers” in the United States.
He did not define “low income,” although the NPD Group, a statistics supplier, defines it as yearly household earnings of $75,000 or less.
The Big Mac and Chicken McNuggets were among the staple menu items included in the company’s Cactus Plant Flea Market Box, an adult version of its Happy Meal for youngsters, which helped it achieve better-than-anticipated US sales.
According to Kevin McCarthy, an analyst and portfolio manager at Neuberger Berman, McDonald’s is in a position to gain market share in this scenario.
According to data from location analytics company Placer.ai, visits to McDonald’s US restaurants increased 26% in the fourth quarter compared to 2019 and were up over 30% compared to the prior year. In contrast, the overall fourth-quarter sales of fast food decreased by 0.6% from the same period the previous year.
He claimed that while other fast food companies increased menu pricing last summer, visits to some of them began to decline.
The quarter ended December 31 saw a 10.3% increase in McDonald’s comparable sales in the US. Due to the impact of the higher US dollar relative to other currencies, global revenue decreased by 1% to $5.93 billion, but in constant currencies, sales increased by 5%.
What do you think of McDonald’s Q4 performance? Please let us know in the comments.