McDonald’s (MCD) first quarter earnings beat expectations as more consumers sought out value amid a challenging economic backdrop.
McDonald’s posted global same-store sales growth of 3.8%, slightly below expectations, per Bloomberg consensus data. US same-store sales grew for the fourth quarter in a row, at 3.9%, as higher check sizes drove sales, but US sales slowed from a 7% jump in the previous quarter.
Adjusted earnings per share of $2.83 beat Wall Street’s forecasts for $2.75. Revenue grew 9% year over year to $6.52 billion, slightly above the $6.46 billion the Street expected.
“Consumers, low-income consumers in particular, are under pressure, and that’s why we want to just continue working so hard to make sure we’re delivering that great value for money,” McDonald’s CFO Ian Borden told Yahoo Finance.
McDonald’s stock rose 1% on Thursday following the results. It has underperformed the S&P 500 (^GSPC) year to date.
You might have seen the viral video of McDonald’s CEO Chris Kempczinski trying the new Big Arch burger, which launched in March. While Kempczinski’s taste test prompted some mocking from fast food peers, it also likely got more consumers to head to the fast food joint.
“Results from the Big Arch burger (March) were pretty good,” BTIG analyst Peter Saleh wrote in a note. “Sales did jump after Chris Kempczinski’s tasting video went viral (say what you will about his small bite and corporate-speak, he sold burgers), but have since waned and will roll off the menu soon.”
When it comes to winning back low-income consumers, value has been the name of the game for the fast food giant. In early April, McDonald’s launched a new under-$3 menu and a $4 breakfast meal deal, in addition to its ongoing $5 to $6 meal deals.
Borden said the early results from the $3 menu, which replaced McDonald’s buy-one, get-one promotion, “are encouraging,” as consumers have a “limited amount of money in their pocket.”
While US growth was up yet again, international markets saw similar momentum, with international-operated markets and international developmental markets up 3.9% and 3.4%, respectively.
Borden said McDonald’s has been working with its supply partners to navigate higher prices for commodities like beef and packaging, which make the company’s affordability push more challenging.
“There continues to be pressure on a commodity like beef,” Borden said. “The good thing you would have heard on our call this morning, we reiterated our expectations on food and paper inflation for the year in the US in the low to mid single digit range.”
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