McDonald’s Hits the Ball out of the Park with 1Q23 Results

Apr 27, 2023 | Bubble Monitor, No Bull Economics

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It appears that we were transported back to the roaring eighties judging by McDonald’s fantastic 1Q23 report. Maybe this is a harbinger of better things to come.

Sales

  • McDonald’s 1Q23 system same-store-sales increased +12.6% y/y, reflecting +8.3% from check & +4.3% from traffic. Results were attributed to strategic menu price increases; strong operations; effective marketing campaigns featuring the core menu; and continued digital & delivery growth.
  • Double-digit sales growth for the rebranded McCrispy chicken sandwich was driven by compelling creative & a new flavor offering. Chick-fil-A take note!
  • Sales continue to benefit from strong attributes around value for money & affordability.
  • Management’s expectations for a mild 2023 recession are reinforced by its observation of a slight decline in units per transaction that started last quarter. However, McDonald’s expects to offset macro pressures with growth in digital (facilitating consumer interactions on a more personal level); pricing elasticity provided by investments in the brand & customer experience; and expectations for continued share gains among low-income consumers.
  • While food-away-from-home inflation has been lower than food-at-home over the last 12 – 18 months, this trend is reverting to a more traditional dynamic.
  • While delivery growth is slowing, this channel is expected to remain an important part of McDonald’s business.

Margins

  • Food & paper inflation is expected to increase in mid-to-high single digits this year.
  • Wage inflation is expected to remain elevated during 2023, reflecting a strong labor market.
  • However, inflation is expected to improve throughout the year, helping margins as the chain maintains strong top-line performance.
  • Notably, 1Q23 franchisee unit-level cash flow has returned to growth after a challenging 2022.
McDonald's 1Q23 Financials
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