Adult Happy Meals and other limited-time promotions boosted traffic at McDonald’s restaurants during the fourth quarter despite higher prices. But the company warned that inflation — particularly in Europe — will continue to weigh on its operations this year.
Global same-store sales — or sales at stores open at least a year — rose 12.6% in the October-December period, the Chicago company said Tuesday. That beat Wall Street expectations for an 8.8% increase, according to analysts polled by FactSet.
U.S. same-store sales rose 10.3%. Sales soared in October after McDonald’s launched adult Happy Meals featuring limited-edition toys designed by the streetwear brand Cactus Plant Flea Market. Half of the toys for those meals were gone in the first four days of the promotion.
A “farewell tour” for the cult favorite McRib sandwich drew in more U.S. customers in November and World Cup promotions fueled double-digit increases in delivery sales in McDonald’s ten largest markets.
“Our brand is clearly in the strongest position it’s been in years, attributable in part to our best-in-class marketing engine,” CEO Chris Kempczinski said Tuesday during a conference call with investors.
Strong sales at home helped overcome weakness in China due to government COVID-19 restrictions, yet McDonald’s still opened 700 restaurants in the country last year.
McDonald’s raised prices in the fourth quarter as its costs for food, wages and energy continued to climb. But that had little impact on customer demand. Kempczinski said some lower-income consumers are ordering cheaper items or including less in each order, but they are coming more often.
“Overall, the consumer — whether it’s in Europe or the U.S. — is actually holding up better than what I would have expected a year ago or six months ago,” Kempczinski said. But he said the company will have to remain disciplined about pricing this year to keep customers coming in.
Ian Borden, McDonald’s chief financial officer, said inflation in the U.S. appears to have peaked, but the company still expects higher-than-usual prices for food and paper this year. He doesn’t expect inflation to ease in Europe until the middle of this year.
As a result, Borden said McDonald’s expects to spend between $100 million and $150 million on temporary financial support for franchisees this year. That will result in a lower-than-expected operating margin in the 45% range, Borden said.
McDonald’s shares fell 2% on that news Tuesday morning.
McDonald’s will also be spending more heavily on store development. Kempczinski said McDonald’s plans to open 1,900 restaurants globally, including 900 in China. Asked whether an influx of new restaurants will lower McDonald’s same-store sales figures as it has in the past, Kempczinski said the company is trying to ensure that that doesn’t happen.
“I think sometimes in the past, we were looking at an absolute number and not maybe looking at the quality of the site. So that’s why we want to take some time this year to make sure we feel confident about the exact number, the pacing, the quality of the site,” he said.
Kempczinski is also trying to increase McDonald’s speed and efficiency with a corporate restructuring announced in January. The plan will likely include layoffs; McDonald’s told employees it would share more details by April 3.
“We have historically been very decentralized in some areas where we reinvent the wheel way too often,” Kempczinski said. “And I think the other thing I’ve seen is we haven’t been as sharp around our global priorities, and so there’s been a proliferation of priorities.”
In one market, Kempczinski said, the company recently discovered a list of 300 priorities.
Fourth quarter revenue fell 1% to $5.9 billion, but that still beat analysts’ expectations for $5.7 billion. Overseas revenue was weaker because of the strong dollar; 60% of McDonald’s sales come from outside the U.S.
Net income rose 16% to $1.9 billion, or $2.59 per share, topping profit projections by 13 cents.
