McDonald’s on Thursday reported surprisingly upbeat quarterly earnings and revenue, but CEO Chris Kempczinski — who recently went viral for his weirdly timid nibble of his own company’s burger — warned consumer spending may get “a little bit worse” as high fuel prices slam wallets.
The fast-food chain saw adjusted earnings per share of $2.38 in its first quarter – beating expectations of $2.74. It also raked in revenue of $6.52 billion, above estimates of $6.47 billion.
McDonald’s said its same-store sales rose 3.8% in the first quarter. In the US, same-store sales jumped 3.9% as customers spent big at the Golden Arches when they visited.
Shares in McDonald’s jumped 0.6% Thursday morning.
But analysts have warned that fast-food chains will likely see low-income consumers flee as the Iran war drives gasoline prices higher, taking a bite out of Americans’ savings.
“I think probably it’s fair to say that … it’s certainly not improving, and it may be getting a little bit worse,” Kempczinski said of consumer spending during a post-earnings call. “Our focus is on what we can control, and on that score, I feel very good about the balance of the year.”
Some restaurant chains, including Domino’s Pizza and Chipotle, have already reported that sales slumped in March as customers felt pain at the pump.
“Clearly, when you have elevated gas prices, which is the core issue that I think we’re all seeing about in the press right now, gas prices, inflation on that, that is going to disproportionately impact low-income consumers,” Kempczinski said. “And so we expect the pressures there are going to continue.”
McDonald’s has already been losing its low-income consumers – a large customer base for the fast-food industry – as stubborn inflation and economic anxiety keep people away from the drive-thru.
Despite what Kempczinski described as “a challenging environment,” McDonald’s managed to turn around a strong quarter by leaning into value offerings to win over cash-strapped customers.
After bringing back its Meal Deals earlier this year, the company in April launched a new Under $3 Menu with lower prices.
McDonald’s said it also found success in marketing specialty meals tied to movie releases like “The Super Mario Galaxy Movie” and “KPop Demon Hunters.” These limited-time offers are often priced at a premium.
In March, McDonald’s also launched its Big Arch Burger, a mammoth two-patty burger with special fixins. The limited-time burger also sells at a higher price – roughly $7.50 to $13 depending on the location.
The company’s international operated markets segment, including France, Germany and Australia, reported same-store sales growth of 3.9%.
Its international developmental licensed markets division, which includes Japan, also saw same-store sales growth of 3.4%.
Starbucks, Taco Bell and Burger King all defied the odds with strong sales in the first quarter – with the latter posing a threat to McDonald’s own growth.
After Kempczinski appeared to struggle to choke down a miniscule morsel of the chain’s new Big Arch burger in a promotional video gone wrong earlier this year, Burger King’s president swooped in to hype his chain’s revamped Whopper – taking a huge bite on-camera.
Soon after, Burger King – which is owned by Restaurant Brands International – saw strong store traffic growth.
On Wednesday, it reported a stunning 5.8% increase in US same-store sales – outpacing McDonald’s own 3.9% uptick in the same quarter.
