McDonald’s on Wednesday reported quarterly earnings and revenue that topped analysts’ expectations as buzzy promotions helped its U.S. restaurants rebound.
Despite the chain’s improved performance this quarter, executives are still worried about the economic health of the low-income consumer. McDonald’s is working with its U.S. franchisees on ways to make its core menu items more affordable, beyond the $5 meal deal it rolled out last summer and the newer Daily Double burger promotion.
“Reengaging the low-income consumer is critical, as they typically visit our restaurants more frequently than middle- and high-income consumers,” CEO Chris Kempczinski told analysts on the company’s earnings conference call. “This bifurcated consumer base is why we remain cautious about the overall near-term health of the U.S. consumer.”
Executives said they anticipate that McDonald’s results will be stronger in the second half of the year, particularly as the chain faces easier comparisons in the fourth quarter to the fallout from last year’s E. coil outbreak.
Shares of the company rose more than 2% in morning trading.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by LSEG:
- Earnings per share: $3.19 adjusted vs. $3.15 expected
- Revenue: $6.84 billion vs. $6.7 billion expected
The fast-food giant reported second-quarter net income of $2.25 billion, or $3.14 per share, up from $2.02 billion, or $2.80 per share, a year earlier.
Excluding restructuring charges and other items, McDonald’s earned $3.19 per share.
Revenue rose 5% to $6.84 billion. Kempczinski in the company’s earnings release credited the chain’s value, marketing and new menu items for the 6% increase in system sales during the quarter.
Same-store sales, a metric that only tracks the performance of restaurants that have been open at least a year, increased 3.8%, the chain’s biggest jump in nearly two years.
McDonald’s U.S. restaurants saw same-store sales growth of 2.5%, reversing two straight quarters of domestic declines. Kempczinski said the burger chain outperformed its rivals by both same-store sales and comparable traffic.
“Certainly, overall [quick-service restaurant] traffic in the U.S. remained challenging, as visits across the industry by low-income consumers once again declined by double digits versus the prior year period,” he said on the call.
This quarter, the burger chain’s U.S. sales received a boost from a tie-in meal with the “Minecraft” movie and the launch of the McCrispy Chicken Strips.
Shortly after the quarter ended, Snack Wraps returned to menus for the first time in nine years; executives said that early results are “encouraging,” and franchisees have voted to maintain the $2.99 promotional price through the end of the year.
Outside the U.S., demand for its Big Macs and french fries was even stronger.
“I would just note, also on our international side, it’s not as competitive a market as it is in the U.S.,” Kempczinski said. “I think it’s a little bit easier for us to stand out and represent good value in international.”
The chain’s international developmental licensed markets division, which includes Japan and China, reported same-store sales growth of 5.6%.
Its international operated markets segment saw same-store sales growth of 4%, thanks to gains in countries like the United Kingdom, Australia and Canada. Executives said McDonald’s value and affordability scores from consumers have improved in key markets.