Earnings preview: Management points to gains from ‘strategic price increases and guest growth’, but analysts question competition in Europe and Chick-fil-A
Rising prices are keeping diners away from many restaurants, but not McDonald’s.
As the ubiquitous burger chain prepares to report fourth-quarter results on Tuesday and its stock is nearing a record high, Wall Street has generally turned optimistic into the report. may be more picky about the company’s signs of growth. McDonald’s (MCD)’s size has been a “defensive” strategy in the fast food world as the industry seeks to pay more workers and handle higher material costs, resulting in food prices Some say it will be higher.
However, restaurant analyst Mark Kalinowski, chief executive of Kalinowski Equity Research, said consumer anxiety from higher food prices is focused elsewhere.
“They’re not talking about the price of eggs at Denny’s (DENN),” Kalinowski said. “They’re talking about the price of eggs at the local grocery store. Prices are set in the same way as chain stores.
McDonald’s is consolidating its dominance in the burger-focused fast food industry after the pandemic wiped out many small restaurants and left surviving ones struggling with higher costs. As U.S. companies raise their own prices, either to offset those costs or to estimate what people will pay, there is growing concern about the impact on demand.
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But BofA data shows that the gap between McDonald’s U.S. same-store sales and that of its competitors has widened since the pandemic hit. When the company reported its third-quarter results in October, management pointed to gains from “strategic price increases and positive guest numbers” in the United States. And recently, it rolled out plans to speed up restaurant openings, improve traditional menu items, and expand digital ordering. ability.
Kalinowski attributes McDonald’s traffic to its thousands of stores and digital and drive-thru capacity, as well as its ability to remain relevant among younger consumers. He noted the popularity of the chain’s celebrity meals, including those based on the tastes of Travis Scott and J. Balvin, Happy Meal collaborations, and Halloween buckets dating back to the 1980s. Even a broader price hike would have spared some of the consumer anger about inflation, he added.
Kalinowski also noted that Chick-fil-A is becoming a bigger object in McDonald’s back view.
“I think McDonald’s recognizes that in the long term, it’s a competitor that needs to be monitored closely,” he said.
what to expect
Earnings: Wall Street expects McDonald’s to earn $2.46 per share in the fourth quarter, up 10% from the same quarter last year, according to FactSet. Estimate, which crowdsources predictions from hedge funds, academics and others, has the consensus at $2.51 a share.
Revenue: McDonald’s revenue is expected to be $5.72 billion, down about 5% from a year ago, according to FactSet. Contributors estimate that on average he expects $5.8 billion. Existing store sales are expected to increase 8.6%.
Stock Price Movement: McDonald’s stock price has fallen in six consecutive sessions of its last eight quarterly earnings calls, four of which fell by less than 1%. Stocks have gained 8.4% over the past year as the S&P 500 Index fell 8.2% and the Dow Jones Industrial Average, which is part of 30 constituents, including McDonald’s, fell 2.2%.
Same-store sales in the US will again be a focus for analysts, as will Europe, which is currently in a cost-of-living crisis, and China, which is navigating the post-zero COVID era. They question the competition from the fast-growing Chick-fil-A and whether McDonald’s can offer a chicken sandwich that rivals it.
Analysts at UBS said McDonald’s shares are “well-positioned given their defensive profile in an increasingly challenging macro environment.” They also said they believed “customer demand in Europe remains largely resilient.”
Details: The SEC indicts former McDonald’s CEO Easterbrook for making false statements regarding his 2019 ousting.
Elsewhere, Stevens analyst Joshua Long notes that in the United States, “prices on major platforms (e.g., breakfast, $1/$2/$3 value menus, $2 for $6) / Successful value messaging and focus on key menu items.”
Chief Executive Chris Kempzynski said in McDonald’s earnings call in October that the higher costs of the restaurants themselves, coupled with the politics of controlling the ranks of independent franchise owners, would keep any discount wars at bay. said no.
“Our expectation is that the industry will continue to be reasonable from a pricing perspective,” he said. are experiencing food and paper inflation.Everyone is experiencing labor inflation.”
“And some of our competitors have their franchisees not in the same position as our franchisees,” he continued. So, even if there is a desire to do more promotion in some areas, I think we’re going to encounter a lot of resistance from franchisees… being in a position to do that.”
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