Announcing a huge second quarter earnings flop usually doesn’t result in a 3.76% gain for a company’s share price the same day—but somehow McDonald’s is in the green Monday despite missing analyst earnings forecasts.
The fast-food giant fell short of earnings expectations across a number of metrics, including revenue and sales, due to customers abandoning the chain after it raised prices over the past quarter.
The company’s leadership acknowledged that McDonald’s lost its competitive edge—affordability—by making its meals more expensive at a time when consumers were more strained than ever. McDonald’s CEO Chris Kempczinski blamed inflation for forcing the chain to raise prices in order for it to stay profitable.
“These price increases disrupted long-running value programs and led consumers to reconsider their buying habits,” Kempczinski said in an earnings call with analysts.
The company reported $2.97 adjusted earnings per share, which came in lower than the $3.07 analysts expected for the second quarter. Net income fell to $2.02 billion, down from $2.31 billion 12 months ago.
McDonald’s reported revenue of $6.49 billion, below the $6.61 billion that analysts forecast and roughly flat compared to the second quarter of last year. Worst of all, same-restaurant sales dropped 0.7%, the first time the key metric has declined since late 2020.
Getting back to McBasics
The good news for Big Mac lovers? The company said it is taking a “forensic approach” to figuring out how to lower prices and recruit new customers.
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The restaurant chain plans to extend its $5 meal offering, which was launched in June, as a way to bring in customers who are looking for that classic McDonald’s affordability. Executives said that the deal was bringing in new diners to McDonald’s restaurants, and while the traffic hadn’t been reflected in this quarter’s earnings, they were optimistic about the future.
As of midday Monday, the stock was heading toward its best post-earnings day performance in five years, a shocking turnaround given its objectively awful earnings numbers. But the stock is still down 12% year to date.
In a Wall Street Journal compilation of analyst ratings on the stock, the majority have a “buy” rating on MCD. While a few recommend “holding” until investors can get more clarity on the company’s future, it should be noted that not a single analyst recommends selling the stock.
So even if customers aren’t willing to cash out more than $5 for McDonald’s cuisine, it looks like investors are buying into the golden arches’ vision for the future.—LB