Burger chain McDonald's on Thursday reported first-quarter results that beat expectations, while pizza-delivery giant Domino's Pizza signaled that it expected more difficulties up ahead surrounding staffing shortages and inflation.
Shares of both companies diverged. McDonald's stock moved higher. Domino's stock dived.
The companies reported as Wall Street tries to gauge consumer pushback against rising prices, which have tested fast-food chains' ability to offer discount meals. Russia's invasion of Ukraine has launched fuel, corn and wheat prices higher and worsened existing supply-chain issues. Restaurants are still struggling to attract line workers and delivery drivers, pushing wages higher in some cases.
McDonald's executives said U.S. consumers, overall, were still in decent shape. So far, management said, diners had put up little resistance to higher prices.
However, the company said consumers were "definitely worried about inflation," and said it had seen "a little bit of a trade down" in some areas. And it said lower-income consumers were "probably feeling more pressure than the average consumer."
McDonald's Stock, Earnings
McDonald's earnings popped 19% to $2.28 per share. That was above estimates for $2.17 per share. Revenue swung 10% higher to $5.67 billion, topping forecasts for $5.57 billion.
Same-store-sales jumped 11.8%. That figure marked a slowdown from prior quarters. But it was still better than expectations for a 7.7% gain.
U.S. comps rose 3.5% — just ahead of the FactSet consensus target of 3.3%. McDonald's attributed to the gains to higher menu prices, marketing, digital gains and its loyalty program. Items like its Crispy Chicken Sandwich remained in demand. Delivery remained popular, despite the economy's reopening after 2020's Covid restrictions.
McDonald's stock rose 2.85% to 254.19 on the stock market today, bouncing off its 200-day line. The stock has formed a handle with a 259.71 buy point.
Executives, during McDonald's earnings call, estimated that commodity prices for its U.S. business had risen between 12% to 14% for the year. Guest counts and transactions slipped.
Internationally, easing Covid restrictions, broadly, helped results. But Covid restrictions in China, where McDonald's expects to open around 800 stores this year, weighed on results.
Following Russia's invasion of Ukraine, McDonald's has shut down its restaurants in both nations. McDonald's said the decision to temporarily suspend operations in those nations cost it $27 million in continued salary payments to employees, as well as payments for leases and suppliers. It also noted $100 million in costs for inventory "that likely will be disposed of due to restaurants being temporarily closed."
McDonald's stock has a 70 Composite Rating. Its EPS Rating is 82.
Domino's Pizza Earnings
Domino's earned $2.50 per share, down 17% and well below estimates for $3.06. Revenue of $1.01 billion missed estimates for $1.027 billion.
Same-store sales in the U.S. fell 3.6%, worse than the 0.9% drop expected. Internationally, they came in a bit better than forecasts.
"We faced a number of headwinds during the first quarter, from the Omicron surge, to staffing shortages, to unprecedented inflation, which pressured our results," CEO Ritch Allison said in a statement. "We are actively implementing strategies designed to address them; however, we expect some of these headwinds are likely to persist further into 2022."
Domino's stock sank 5.1% to 353.88 on Thursday. The stock has slid nearly 40% so far this year, as same-store sales suffered following difficulties attracting delivery drivers and other staff. Those difficulties, in the prior quarter, led to reduced store hours and hiccups in service.
Domino's has leaned into its takeout business over recent months. But as costs rise, the chain last month tweaked its Mix & Match deal for the first time in more than 12 years. Management said it would raise the price of that offering to $6.99 for delivery — a move it said would help franchisees and counterbalance higher costs associated with delivery orders. The takeout price remained the same, at $5.99.
Domino's last month also said that Allison would retire as CEO after April 30. Russell Weiner, Domino's current chief operating officer, will succeed Allison on May 1.
Domino's stock has a 44 Composite Rating, well below that of McDonald's stock. But its EPS Rating is still strong, at 96.
'Real Concerns,' 'Little Help'
RBC analysts said that in the near-term, pent-up demand would continue to carry the restaurant industry.
"However," they said, "there are real concerns around the health of the consumer and discretionary spending given a potentially softening economic environment and rising prices outside of restaurants (particularly elevated food at home prices)."
"In this environment, we think backward looking trends — including 1Q sales — will likely be little help in helping investors gauge the health of the consumer going forward," they said.
