McDonald’s lost $127m from shuttering restaurants in Russia and Ukraine

After bowing to international pressure to close its 850 stores in Russia last month, McDonald’s is feeling the crunch.

Those shutdowns, prompted by growing pressure to protest the eastern European country’s invasion of Ukraine, have cost the fast-food behemoth $127m, the company said in their first quarter report released Thursday.

Speaking during a Thursday call, CEO Chris Kempczinski noted that the company continues to pay the salaries of its 62,000 employees in Russia, as well as their Ukrainian staff, who similarly saw their 108 restaurants closed in the fallout from the ongoing conflict.

“In both countries, we have continued to pay employees and provide additional support,” Mr Kempczinkski said during a conference call, according to CNN.

The total cost to keep salaries, leases and supplier payments going, in both countries, was $27m for the quarter, while the company reported that they’d have to dispose of $100m worth of inventory.

Chief Financial Officer Kevin Ozan told analysts during a conference call that the company estimates that they’re losing $55m per month in sales from the shuttering of the Russian restaurants.

That, however, might not remain the case for long as the fast-food chain’s CEO said that they’re still considering what they’re options will be in Russia in the immediate future, noting that they’ll likely have an update by the end of the second quarter.

Despite a troubling first quarter in their eastern European markets, the company said that the relaxing of Covid restrictions globally and solid demand in the domestic US market managed to offset some of those losses worn by the Chicago-based multinational.

“The overall US consumer from our vantage point is in good shape,” said the company’s CEO. At restaurants in the US that were open for at least 13 months, sales jumped 3.4 per cent in the first quarter, while internationally at those stores increased sales by 11.8 per cent.

McDonald’s, however, did still suffer a loss from the combined effects of both inflation and the ongoing war in Ukraine, a market that when combined with Russia’s 850 stores accounted for 9 per cent of the company’s revenue in 2021.

Its net income for the first quarter, they said as a result of these macroeconomic and geopolitical considerations, dropped 28 per cent to $1.1bn.

Inflation, the company’s CFO warned, is still a top-of-mind concern among consumers, particularly after the fast-food chain upped prices by 6 per cent last year.

“[Consumers are] concerned about energy and gas prices,” Mr Ozan said, before adding that the rising grocery prices could also serve as a boon to their bottom line. “We are keeping ... a close watch on lower-end consumers just to make sure that we’re still providing the right value.”

Some customers, the company noted, are buying fewer items per transaction and are tending towards cheaper menu items than they had in previous quarters.

Business in some of the company’s major markets, such as Canada and Australia, appears to be back up to pre-pandemic levels, a boost that they noted helped offset some of the losses incurred from the first quarter.