Price hikes help McDonald’s fight inflation and war costs in Ukraine

The McDonald’s restaurant logo is seen in Arlington, Virginia, U.S., January 27, 2022. REUTERS/Joshua Roberts

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April 28 (Reuters) – Menu price hikes and a new loyalty program helped McDonald’s Corp (MCD.N) beat quarterly sales and profit estimates on Thursday, despite inflationary pressure on consumers, war in Ukraine and China’s COVID-19 lockdowns.

Shares of the Chicago-based company rose nearly 2%.

Pinched by rising gas, rent and grocery costs, low-income customers are starting to buy cheaper or fewer McDonald’s menu items in some areas, Chief Executive Chris Kempczinski said during a briefing. a call with investors.

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In “parts of the business and in certain geographies, there’s a bit of declining trade that we’re just seeing and watching,” he said. “We need to ensure that value continues to be an important part of our proposition.”

Even so, the world’s largest burger chain encountered little resistance to menu prices that were about 8% higher in the first quarter compared to a year earlier.

Most American restaurant chains have hiked prices to offset soaring costs for everything from worker wages to beef and paper wrappers.

McDonald’s raw material costs have roughly doubled even from the previous quarter in the United States and Europe and are now up to 14% higher for the year, Chief Financial Officer Kevin Ozan said.

Even so, worldwide comparable sales rose 11.8%, above estimates for an 8.2% gain. Total revenue increased 11% to $5.67 billion, beating expectations of $5.59 billion.

The introduction of a digital loyalty program late last year – which now has 26 million members – also contributed to a 3.5% increase in comparable sales in the first quarter in the United States, its bigger market.

Analysts had expected a 3.3% rise, according to Refinitiv IBES.

McDonald’s is losing about $55 million a month paying staff, owners and suppliers “for maintaining the infrastructure” at its restaurants in Ukraine and Russia, Ozan said.

McDonald’s, one of the first Western brands to enter Russia after the fall of the Soviet Union, announced in early March that it would suspend operations in Russia after Moscow invaded Ukraine. Read more

After closing restaurants, McDonald’s lost $100 million due to likely elimination of inventory from its supply chain, he said.

Kempczinski said the company is analyzing its options in the region and expects to provide clear guidance to investors no later than the end of the current quarter.

Rosinter Restaurants Holding PJSC (ROST.MM), which operates more than 200 restaurants in Russia, including nine McDonald’s locations, on Thursday reported net profit for fiscal year 2021 of 94.8 million rubles versus a loss of 1.83 billion rubles the previous year during the pandemic.

McDonald’s comparable sales in licensed international markets jumped nearly 15%, despite new COVID-19 shutdowns in China that temporarily shuttered restaurants across the country.

Excluding costs to support the company’s operations in Russia and Ukraine as well as other one-time expenses, McDonald’s earned $2.28 per share, beating estimates of $2.17.

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Reporting by Hilary Russ in New York and Uday Sampath in Bengaluru; Editing by Anil D’Silva, Bernadette Baum and Andrea Ricci

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