McDonald’s profits are climbing As inflation-weary customers flock to its restaurants

McDonald’s reported Tuesday that U.S. customers are visiting its restaurants more frequently, helping the fast-food giant beat Wall Street estimates for fourth-quarter revenue and earnings. For the second quarter in a row, the company saw an increase in domestic traffic, contrary to the industry trend. Many consumers have cut back on restaurant spending in response to inflation. But McDonald’s largely benefited from the change in consumer behavior, as many of them switched from full-service restaurants to their Big MacNuggets and Big MacNuggets.

“Overall, the consumer, whether in Europe or in the U.S., is actually holding up better than we probably expected a year ago or six months ago,” CEO Chris Kempczynski said on the company’s conference call Tuesday morning.
The fast-food giant expects short-term inflation to continue into 2023, though executives said U.S. inflation has probably peaked. Kempczinski said the company predicts a “mild to moderate” recession in the U.S. and a “deeper and longer” recession in Europe.

Kempczinski’s cautious tone came after a couple of positive economic statements. The eurozone surprised economists by reporting fourth-quarter growth in its GDP, and the International Monetary Fund raised its global growth forecast for 2023, though its forecast is still relatively weak.

McDonald’s stock fell more than 2 percent in morning trading Tuesday. Here’s what the company reported compared to what Wall Street expected, based on a survey of Refinitiv analysts:

Earnings per share: $2.59 versus expected $2.45
Revenue: $5.93 billion versus expected $5.68 billion
The company reported fourth-quarter net income of $1.9 billion, or $2.59 per share, compared with $1.64 billion, or $2.18 per share, a year earlier.

Net sales fell 1% to $5.93 billion, but rose 5% after excluding changes in foreign currencies. Worldwide same-store sales were up 12.6% for the quarter, thanks to strong demand in the U.S. and major European markets.

In McDonald’s domestic market, higher menu prices and increased demand drove same-store sales up 10.3%, exceeding StreetAccount’s estimate of 8.1%. Executives said low-income consumers are still ordering less, but are returning more often than in the previous two quarters. The company also highlighted the success of its McRib promotion, which dubbed its annual limited-time product revenue a “farewell tour.”
Outside the U.S., the company also posted stronger-than-expected growth. Its International Markets segment reported same-store sales growth of 12.6 percent, helped by strong performance in the U.K., Germany and France.

Its International Division of Licensed Development Markets showed same-store sales up 16.5%, driven by Japan and Brazil. However, sales in China were disappointing because of government restrictions related to Covid.
McDonald’s anticipates opening 1,900 new restaurants in 2023. More than 400 of those will be in U.S. and other markets, and the rest will be opened by licensee-developers.

Earlier in January, the company said it would accelerate new restaurant development as part of a broader shift in strategy. McDonald’s plans to open 100 more new chain restaurants this year than expected in 2022.
The company plans to use $2.2 billion to $2.4 billion in capital spending this year. About half of that money will be used to develop new restaurants in the U.S. and international markets.

In addition, McDonald’s plans to give European franchisees in need of financial assistance $100 million to $150 million in 2023. Chief Financial Officer Kevin Ozan said higher food and energy costs have put pressure on operator margins and cash flow.