Happy meal? McDonald’s price hikes offset woes in Russia, China

Higher United States menu prices and easing COVID-19 restrictions in Europe helped McDonald’s offset troubled markets like China and Russia during the first quarter.

Revenue rose 11 percent to $5.66bn in the January-March period, topping Wall Street expectations of $5.57bn, according to analysts polled by FactSet.

The Chicago burger giant said US prices were up 8 percent in the first quarter compared with the same period last year as the company struggled with inflation.

McDonald’s initially predicted US costs for commodities like cooking oil and paper would rise 8 percent this year; now, the company expects those costs to rise between 12 percent and 14 percent, Chief Financial Officer Kevin Ozan said during a conference call with investors. Labour costs are also 10 percent higher after McDonald’s raised workers’ pay at its company-owned US stores last year, which account for about 5 percent of its domestic store base.

Some consumers appear to be choosing cheaper menu items or ordering fewer items at a time. But McDonald’s President and CEO Chris Kempczinski said demand is still strong.

“The overall US consumer from our vantage point is in good shape,” he said. US same-store sales, or sales at locations open at least a year, rose 3.5 percent in the January-March period.

Kempczinski said McDonald’s is analysing its options in Russia, where it temporarily closed 850 stores in early March. Kempczinski said the company will provide an update on its next steps no later than the end of the second quarter.

Ozan said McDonald’s is losing approximately $55m per month in sales from the Russian store closures.

McDonald’s continues to pay its 62,000 employees in Russia. It also closed 108 restaurants in Ukraine in February and is paying its employees there as well.

McDonald’s said it spent $27m on salaries, leases and supplier payments in Russia and Ukraine during the quarter. The company also said it has $100m worth of inventory it will probably dispose of since its restaurants are closed.

Excluding costs in Russia and Ukraine and other one-time items, McDonald’s earned $2.28 per share for the quarter, well ahead of analyst forecasts of $2.17 per share.

But the Ukraine war costs and inflation took a toll on profits. McDonald’s said its net income dropped 28 percent to $1.1bn during the quarter.

Global same-store sales rose nearly 12 percent for the quarter. The easing of COVID restrictions in many markets, including the United Kingdom, France and Brazil, boosted sales, McDonald’s said. McDonald’s said sales in many major markets, including Canada and Australia, have returned to pre-pandemic levels.

But China reported negative same-stores sales as it struggled with a COVID resurgence and new restrictions.

McDonald’s Corp shares were up 2 percent in morning trading Thursday.