McDonald’s recently reported its Q1 earnings, which exceeded Wall Street expectations as the fast-food giant’s customers continued to purchase popular items like Big Macs and Shamrock Shakes. However, the company’s executives did express concerns over a possible recession looming in the United States and Europe, reiterating similar warnings from the previous quarter. McDonald’s customers in some markets are pushing back against recent price increases, and sales volume has slightly reduced as customers order fewer menu items per order. Despite these challenges, executives remain optimistic that McDonald’s can handle any economic uncertainties that may arise.
McDonald’s reported a net income of $1.8 billion, or $2.45 per share, for Q1, up from $1.1 billion, or $1.48 per share, the previous year. The company’s earnings per share of $2.63 adjusted exceeded Wall Street expectations of $2.33, while its revenue of $5.9 billion also beat expectations of $5.59 billion. However, McDonald’s did report a $180 million charge related to terminating leases and employee severance as part of its corporate reorganization.
Sales Growth and Expansion
Despite the challenges posed by the pandemic, McDonald’s reported same-store sales growth of 12.6% across all three of its divisions in Q1. In the United States, higher menu prices and increased traffic fueled same-store sales growth, which topped StreetAccount estimates of 7.9%. McDonald’s U.S. traffic rose for the third consecutive quarter, which is uncommon in the industry as menu prices typically rise in conjunction with slipping traffic.
Internationally, McDonald’s also saw better-than-expected sales growth, with its international operated markets, including the United Kingdom, France, Germany, and Australia, beating StreetAccount estimates of 8.5% same-store sales growth. The company’s international developmental licensed markets segment, which includes China and Japan, also exceeded same-store sales expectations of 10.5%.
In addition, McDonald’s is working to improve the taste of its burgers by making small changes like adding more Big Mac sauce and using softer hamburger buns. The company has already rolled out these new burgers in many West Coast cities, and initial consumer reactions have been positive.
However, U.S. franchisees have pushed back against policy changes made by McDonald’s management. For example, in January, the chain started implementing its Performance and Customer Excellence system in the U.S. to evaluate franchisees’ restaurants. Some franchisees are backing state legislation that would give them more say over their businesses in retaliation for such changes.
Overall, McDonald’s executives remain confident that the company can handle any challenges that may come its way. “At McDonald’s, we perform well in good times and in bad, so that gives us optimism as we go through the rest of the year,” said CEO Chris Kempczinski on the company’s conference call.
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