McDonald’s reported strong revenues as inflationary pressures continue to drive budget-conscious consumers toward the fast food brand.
The company reported $5.93 billion in revenues against $5.68 billion expected by analysts in the fourth quarter of 2022, according to a press release. Despite revenues falling 1% year-over-year, the company also posted net income of $1.9 billion, marking a 16% increase since the fourth quarter of 2021. McDonald’s unveiled a set of tactics called Accelerating the Arches to emphasize core menu items, increase creative marketing, and scaling innovations.
“Our Accelerating the Arches strategy is driving growth and building brand strength, delivering exceptional full year performance in 2022 with over 10% comparable sales growth and 5% comparable guest count growth globally,” McDonald’s CEO Chris Kempczinski remarked. “While we expect short-term inflationary pressures to continue in 2023, we remain highly confident in Accelerating the Arches, which now includes a greater emphasis on new restaurant openings.”
Shares for McDonald’s fell 2.8% on Tuesday morning; the company’s stock has increased 1.5% over the past year, outperforming the S&P 500 Index and the Dow Jones Industrial Average.
Although rising price levels have increased input expenses, the relatively less expensive menu items offered by McDonald’s have drawn individuals seeking less expensive restaurant experiences. “We can actually look at what is our share amongst low-income consumers; we’re gaining share right now among low-income consumers. And that goes back to the fact that we are positioned as the leading brand in terms of value for money and affordability,” McDonald’s CFO Ian Borden said during a recent earnings call. “To the degree that we end up in a more challenging economic environment in 2023, that’s going to be helpful to our business trends.”
Price levels declined slightly last month amid a decrease in energy prices: year-over-year inflation fell from 7.1% in November to 6.5% in December, marking the largest overall decline in nearly three years even as food and shelter prices continue to increase, according to a report from the Bureau of Labor Statistics. The declines in headline inflation began after the Federal Reserve launched a campaign to raise target interest rates and thereby dampen rising prices.
Walmart CEO Doug McMillon has likewise said that the firm is benefiting from households which had previously shopped at higher-end stores. “Higher income families are shopping at Walmart because they’re so price sensitive right now,” he remarked. “Families making more than $100,000 in household income have driven a lot of our growth during this last quarter.”
The executive noted a gradual shift in consumer decision-making as inflationary pressures worsened through the first half of last year. “Right around the middle of the first quarter is when we saw food inflation reach a level where behavior started to change,” he continued. “It got to a level where people making less than $50,000 household income started behaving differently, and then to the $75,000 level and then to the $100,000 level.”
Biden administration officials have advanced an optimistic view of the economy despite continued volatility. Treasury Secretary Janet Yellen remarked during an interview that inflation “has really been quite moderate, quite low for the last six months or so” even as price increases remain well above the 2% annual rate seen before the lockdown-induced recession. White House Press Secretary Karine Jean-Pierre likewise dismissed layoffs at prominent technology companies while claiming that the administration “inherited an economic crisis and turned it into the strongest two years of job growth on record.”
