McDonald's focus on value lifts first-quarter sales, but company says gas prices could dent demand
McDonald’s posted better-than-expected sales in the first quarter but said high gas prices and consumer anxiety over the Iran war could dent sales this spring.
The average price of a gallon of gas in the U.S. was $4.55 on Thursday, according to AAA. That was 44% higher than a year ago.
McDonald's Chairman and CEO Chris Kempczinski said the company has been making progress bringing lower-income customers back into its stores with value meals. But fast food visits by customers with household incomes of $45,000 or less are still declining overall, and the spike in gas prices won't help, he said.
“Clearly, when you have elevated gas prices... that is going to disproportionately impact low-income consumers. And so we expect the pressures there are going to continue,” Kempczinski said Thursday during a conference call with investors.
McDonald's said same-store sales, or sales at locations open at least a year, fell in the U.S. and some international markets in April. That was partly due to a big surge in sales last April, when a popular Minecraft meal drove traffic. Kempczinski said it's too early to get a read on sales in May and June, although the company is hoping a new beverage lineup which launched in the U.S. this week will generate interest.
“Certainly consumer sentiment is heightened anxiety, let’s just say, and it may have an impact. But, you know, our focus is on controlling what we can control,” Kempczinski said.
McDonald's shares were flat in early trading Thursday.
In the January-March period, McDonald's global same-store sales rose 3.8%. That was better than the 3.7% increase Wall Street was expecting, according to analysts polled by FactSet.
The company kept customers interested with limited-time menu items like the Big Arch burger, a 1,020-calorie behemoth that went on sale in the U.S. in March. The burger became a viral sensation after Kempczinski posted a video of himself taking a nibble from one and was mocked for his tentative bite. Tom Curtis, president of rival Burger King, posted his own video taking a vigorous bite of his chain’s new Whopper.
The Big Arch burger costs well over $8 in many U.S. markets. So McDonald's is trying to emphasize value in other parts of its menu. The company cut prices on some U.S. combo meals in September, and starting April 21, McDonald’s U.S. stores began offering 10 items that each cost less than $3.
Kempczinski said McDonald's experience in other markets like Germany and Australia has shown that the combination of meal deals and low-priced individual items is the best value strategy.
“You need to have a meal deal offering there to be able to drive interest and excitement around some of our core menu items,” Kempczinski said. “But you also need entry-level price points for those folks who are maybe a little bit more stressed around affordability and are looking for, you know, ‘What can I get for $3 or less?’”
The Chicago chain said its revenue rose 9% in the first quarter to $6.52 billion. That was also higher than the $6.47 billion Wall Street was expecting, according to FactSet.
McDonald’s net income rose 6% to $1.98 billion. Adjusted for one-time items, the company earned $2.83 per share. That was also higher than analysts’ forecast of $2.74.
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