Yahoo Finance McDonald’s execs highlight inflation, consumer trade-down, and Grimace in Q2 earnings call
McDonald's unveiled its second quarter earnings results, to much fanfare, before the markets opened on Thursday. The news was all good. The restaurant chain beat all Wall Street expectations: Earnings and global same-store sales were up 97% and 11.7%, respectively, thanks to the marketing campaign for its Grimace milkshake, among other things.
McDonald's stock got a boost at market open Thursday, up 2.46%, but remained relatively flat throughout the day. But that didn't dampen the enthusiasm from McDonald's execs. Following the results, CEO Christopher Kempczinski and CFO Ian Borden spoke with investors as media listened in to elaborate and describe how the Golden Arches and the Grimace are managing to thrive in a "more challenging macroeconomic environment."
Some top takeaways: Some consumers are fleeing fine dining and heading to McDonald's, sales are expected to moderate this year, and the company has lots of plans for more unit growth.
Here are the highlights from the call:
Cheaper eats
Consumers continued to be pinched by inflation, but "value positioning in the market, has put us into a good position to be able to weather that and continue to drive the share gains that you're seeing," CEO Kempczinski said.
He added: "If you look at incomes under $100,000, we're actually doing quite well there, which suggests that we're getting some benefit from trade down, from things like full-service dining, casual dining ... then even if you go to incomes of $45,000 and less, our business is performing well there. What we're seeing with that group is we are seeing a little bit of a decrease in order size. But it's being offset by a very strong or continued strength in traffic."
McDonald's did not see market share gains. But per data intelligence platform Placer.ai, foot traffic outpaced other quick-service restaurants in April, May, and June by just under 6% or more.
Speaking of value: If you're wondering about the return of the dollar menu, it isn't coming back anytime soon, said Kempczinski.
Yellow flags
Sales across the board beat expectations. Global same-store sales rose 11.7%, while analysts expected 9.4%. Nice beat.
But will it last?
"We recognize that we're operating in a challenging macro environment where costs remain elevated, customer discretionary spending is limited, and industry traffic is pressured. In line with industry trends and as inflation begins to normalize later in the year, we expect topline growth to moderate," CFO Borden said.
As McDonald's looks to the second half of the year, Borden added: "I think there are a couple of things that kind of are specific to the guidance for the full year ... I think it's the inflationary pressures and margin pressures, we certainly believe will continue."
Borden said margin performance at company-operated units for the first half of 2023 was "in line with our expectations and remains hampered by continued cost pressures ... as we look to the remainder of the year, we expect macro headwinds will continue."
Grimace and McBacon mania
The Grimace meal and shake promotion was a big win for the company. Grimace's birthday meal was a campaign that only was around for a month of the quarter (June 12 through July 9) but mustered 3 billion views on Tiktok. Kempczinski called it a "viral phenomenon."
Neither Borden nor Kempczinski revealed how much Grimace contributed to the company's US sales gain of 10.3% in the quarter. (According to McDonald's lore, the nostalgic '90s character, that was first introduced in the early '70s, Grimace, is supposed to be a taste bud.)
Another example of good marketing boosting sales was in Italy.
"The passion for the brand was also evident in Italy with the launch of a truly unique creative platform," said Borden. The company asked customers, "What would you do for a crispy McBacon?"
The results were "a new one" in Borden's 30-year McDonald's career, he said, with "customers getting tattoos of their favorite McDonald's sandwich, driving brand affinity, and elevating share gains."
More stores
Earlier this year, McDonald's shared plans to open 1,900 new locations this year, its largest expansion move since 2014. During the call, Kempczinski said the company's "primary focus is on opening traditional units," but it did unveil some new innovations. One development was a new concept — a mini McDonald's? — called CosMc.
"We will test [CosMc] in a small handful of sites in a limited geography beginning early next year. CosMc is a small format concept with all the DNA of McDonald's but its own unique personality," he said.
This new concept is another example of McDonald's looking to capture nostalgic customers. CosMc was another character from the '90s, as seen here in an ad commercial.
He also gave insight into its takeaway-only restaurant in Fort Worth, Texas, that opened in December 2022.
"The restaurant site is considerably smaller than a traditional restaurant," he said. The format is based on the future customers, the "way customers order and receive their food has changed dramatically over the past few years is [the store] geared toward customers based on their need state wherever they are."
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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