McDonald’s customers are starting to balk at higher Big Mac prices
McDonald's (MCD) had a juicy first quarter, but fat sales and profits aren't guaranteed this year as consumers begin to push back on higher prices for things like Big Macs and fries.
"We are seeing in some places resistance to pricing, more resistance than we saw at the outset," McDonald's CEO Chris Kempczinski warned on the company's Tuesday earnings call.
McDonald's said it's seeing "pressure" on its key units per transaction measure. That means the typical cost-conscious McDonald's customer is balking at higher menu prices.
As a result, they may be buying a hamburger — but not getting a side of fries. Or those with a little more cash in their pockets could be buying more premium McDonald's dinner items — but leaving out a dessert.
Earlier in the call Kempczinski reiterated his expectation for a "mild recession" in the US this year.
"I think all of those things are reflective of again, a more challenging macro environment," Kempczinski said. "But again, McDonald's, we perform well in good times and in bad, and so that's what gives us the optimism as we go through the rest of this year."
How much McDonald's customers are buying per visit will be important for investors to monitor as the stock trades near a record high after a series of solid quarters.
That momentum stretched into the first quarter.
McDonald's first quarter same-store sales rose 12.6% both in the US and internationally. Wall Street analysts modeled for same-store sales rising 7.5% in the US and 8.2% globally.
"Investors are getting so used to McDonald's increasing same-store sales by double-digits that a 12.6% same-store sales growth does not even move the stock, even when lapping 11.8% in 1Q22," Bernstein analyst Danilo Gargiulo wrote in a client note.
But any disappointment in sales and, by extension, profits this year may lead to a sharp pullback in a stock Wall Street has fallen in love with again. About 71% of analysts that cover McDonald's rate the stock a Buy, according to Bloomberg data.
Shares of the McNugget maker are up 10.6% year to date, outperforming the Dow's 1.1% gain.
"The compressed margins achieved this quarter are a worrying sign of greater price resistance among consumers," Gargiulo cautioned. "That may compromise McDonald's ability to reach 45% operating margins in 2023."
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations or anything else? Email brian.sozzi@yahoofinance.com
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