On Monday, McDonald’s surpassed Wall Street’s expectations for its quarterly results, thanks to the success of recent product launches, promotional campaigns, and increased demand for its budget-friendly burgers and fries. This surge in popularity can be attributed to consumers seeking cost-effective dining options amidst the persistently high prices of food and essential goods.
Shares initially opened 2% higher, but later trimmed some of their gains following a warning from the burger giant regarding a potential impact on franchisee cash flow in California. This concern arises from the forthcoming increase in minimum wages for restaurant workers, which is set to reach $20 per hour next year in the state.
The expansive size and scale of McDonald’s have contributed to maintaining comparatively affordable meal prices, despite a general increase in prices across the industry last year. This has acted as a counterbalance to the prevailing trend where consumers, affected by inflation, opt to eat at home more frequently and experience an overall decrease in in-person visits.
After successful testing in markets like Germany, the company has expanded the availability of its compact and budget-friendly meal packages, which include its core menu items, to various other regions.
“Consumers continue to be more discriminating about what and where they spend…(but) we’re seeing really no change at all in terms of customer acceptance… on pricing,” CEO Chris Kempczinski said on a post-earnings call.
Kempczinski noted that McDonald’s recorded an increase in customer traffic from lower-income demographics, even as there was a decline in overall foot traffic across the industry.
Leveraging its tradition of menu improvements, the company introduced the Cheesy Jalapeno Bacon Quarter Pounder in July and reintroduced the popular Spicy Chicken McNuggets to menus in September.
“Despite a lukewarm response, we see a solid MCD setup into (2024),” Wells Fargo analyst Zachary Fadem wrote in a note.
McDonald’s stated that it plans to mitigate some of the effects of the California wage increases by adjusting prices, without providing a detailed account of the overall impact.
In the quarter ending September 30, global comparable sales surged by 8.8%, surpassing the average analyst expectation of a 7.36% increase, as reported by LSEG data.
“The value, the affordability, and just the consistency that the McDonald’s brand can bring to the consumer” would further fuel sales momentum in the rest of the year, Stephens analyst Joshua Long said.
With an adjusted per-share profit of $3.19, the company exceeded expectations, which were set at $3.00 per share. This positive outcome was attributed to reduced costs for commodities such as vegetables and proteins. Additionally, the company raised its full-year margin projections.
