McDonald's CEO says earnings results prove that 'difficult times' for consumers can be a good thing

By Tomi Kilgore

'Affordability perception' is helping McDonald's outperform the restaurant industry

'Between inflation remaining high, the elevated cost of fuel, interest rates, housing affordability pressures and more, consumers all over the world are paying more and more for everyday goods and services. Proving time and time again if in difficult times, the McDonald's brand and our positioning on value is an opportunity for us."McDonald's Chief Executive Officer Chris Kempczinski

That's McDonald's Corp. Chief Executive Chris Kempczinski telling a post-earnings conference call, according to an AlphaSense transcript, that the fast-food giant is winning because -- not despite -- consumers are suffering through difficult times.

The perception that McDonald's meals are cheaper makes them relatively attractive during times when consumers are struggling with rising costs elsewhere.

The stock (MCD) surged 2.4% toward a one-month high in midday trading, after the company reported third-quarter profit, revenue and same-store sales that all rose above expectations.

And as Chief Financial Officer Ian Borden said, while sales growth is slowing, as same-store sales have decelerated to an 8.8% rise in the third quarter from 11.7% the quarter before, it has been in line with what the company had been expecting.

And, Borden said the company is outperforming its restaurant peers, as "we remain the leader in value and affordability perception across most of our largest markets."

For example, the FactSet consensus for third-quarter same-store sales growth is 3.5% for rival Wendy's Co. (WEN) and 4.0% for burger chain Shake Shack Inc. (SHAK), which both report results later this week.

It's not like McDonald's hasn't raised prices, but as the company noted it has done so in a "strategic" way not to hurt same-store sales: "Comparable sales results benefited from strong average check growth, driven by strategic menu increases."

CFO Borden also indicated that a focus on digital sales has also helped sales, by increasing the company's relationship with its active members.

Digital sales in McDonald's top-six markets topped $9 billion for the third quarter and represented "over" 40% of systemwide sales, compared with over $8 billion and "nearly" 40% of sales in the second quarter.

"By continuing to elevate the McDonald's digital experience, our customers feel more connected to the brand, driving those incremental visits that we believe would otherwise go uncaptured," Borden said. "And it gives us more ways to reunite with customers who haven't visited us in a while."

McDonald's stock has dropped 10.9% over the past three months, while the Consumer Discretionary Select Sector SPDR ETF XLY has fallen 12.7% and the Dow Jones Industrial Average DJIA, of which McDonald's is a component, has declined 7.5%.

-Tomi Kilgore

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10-30-23 1230ET

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