Strong McDonald's results showcase advantage amid inflation

McDonald's reported stronger-than-expected quarterly profits Thursday as executives pointed to signs it is drawing customers priced out of more expensive restaurants.

The fast-food chain, known for the Big Mac and its golden arches logo, scored a 9.5 percent jump in global comparable store sales as it benefitted from higher guest counts and "strategic" price increases.

While McDonald's has not seen significant trade down among its own consumers, the company is "benefitting from trade down" from more expensive restaurant categories, Chief Executive Chris Kempczinski said on a conference call with analysts.

Executives said the dynamics favor the brand.

"We actually think we've got pricing power right now," a McDonald's executive said on the conference call. "We're gaining share among low-income consumers and that goes back to the fact that we are positioned as the leading brand in terms of value for money and affordability."

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Profits declined eight percent to $2 billion from the year-ago period, while revenues fell five percent to $5.9 billion, reflecting the chain's smaller footprint after the sale of McDonald's Russia business earlier this year.

McDonald's said it continued to face heavy cost pressures across its operations for food, paper and energy.

The company's base economic scenario calls for a "mild to moderate" recession in the United States and one that is "potentially a little deeper and longer in Europe."

"We're going to continue to have inflation into 2023, both food and paper as well as labor, but we like our position relative to competitor in terms of where we stand," Kempczinski said on a conference call.

In the United States, McDonald's raised prices 10 percent compared with the year-ago period, executives said on the call.

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In Europe, the company plans to set up a program to provide financial support to franchise companies struggling with economic conditions, especially spiking energy prices.

The program will be akin to efforts set up early in Covid-19, when McDonald's established $1 billion in liquidity assistance to help franchisee companies facing financial stress.

Shares jumped 3.6 percent to $265.73 in afternoon trading.

Source: AFP