Executive Summary: McDonald’s 2Q22 same-store sales increased +3.7% with strength across all dayparts (particularly during breakfast). Quarterly results reflected a +8% to +9% menu price increase (with a 70% flow-through), lower units per transaction (reflecting a reversion of its dine-in mix), and flat traffic. While lower-income customers are trading down to value offerings & fewer combo meals, corporate reports that other consumers are trading down from casual and fast casual to McDonald’s.
MCD’s shares have been performing well recently despite 2Q22 financial results which included a -3% decline in revenues to go with a profit margin compression (reflecting the system’s inability to pass along higher prices sufficient to keep royalty revenue ahead of higher operating costs). Likely this reflects that investors view McDonald’s as a good long-term bet to gain revenue share during a recession by retaining its lower-income customers while picking up the trade-down business from more upscale restaurant chains.