In a pre-open release dated April 30th 2024 McDonald’s Corporation, a bellwether for the QSR segment of the restaurant industry, reported results for the 1st quarter of FY 2024 ended March 31st 2024.The Company disappointed on revenue, earnings and sales growth. For the period, the Company earned $1,929 million on total revenue of $6,169 million with a diluted EPS of $2.66. Comparable figures for the 1st quarter of fiscal 2023 were net income of $1,802 million on total revenue of $5,898 million with a diluted EPS of $2.45.
Revenue for Q1 fell by 4.6 percent but operating margin advanced from 42.9 percent for Q1 of 2023 to 44.3 percent for the most recent quarter. Gross margin for Company-operated stores was unchanged at 13.5 percent for both quarters attributed food ingredient deflation and control of costs for packaging, rationalization of menus to offset increased labor cost. The Accelerating the Arches efficiency initiative, maintained traffic assisted by the benefit of promotions. The Company may be benefitting from trade-down from restaurant dining in the demographic with an annual income of $100,000.
In commenting on results, Chris Kempczinski, president and CEO stated, “Our global comparable sales growth in the first quarter marks 13 consecutive quarters of positive comparable sales growth with 30% growth over the last 4 years,” He added “As consumers are more discriminating with every dollar that they spend, we will continue to earn their visits by delivering leading, reliable, everyday value and outstanding execution in our restaurants. As we look to the rest of 2024 and beyond, we remain focused on leveraging the competitive advantages within our Accelerating the Arches plan and growing QSR market share to drive long-term growth.” In comments on the investor call Kempczinsky stated “Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending, which is putting pressure on the QSR industry." This suggests that McDonald’s and competitors have reached a limit with increases in menu prices consistent with a divergence in cost of food-at-home and in QSRs and casual dining restaurants.
For the fourth quarter of FY 2023, McDonald’s posted comparable store sales growth in the U.S. of 2.5 percent with comparable store sales growth for the international operated markets segment of 2.7 percent and with global comparable store sales growth of 1.9 percent. The International Developmental Licensed Market Segment posted a 0.2 percent decline in comparable sales due to turbulence in the Middle East but offset by South Korea and Japan.
Projections for 2024 in the SEC 8K report included net restaurant expansion contributing 2.0 percent to system wide sales with an operating margin of mid to high 40 percent. On December 31st 2023 there were 41,822 McDonald’s locations. Restaurant breakdown included 13,457, U.S.; 10,263 International operated and 18,102, International Developmental Licensed. During 2024 the Company intends to open 1,600 new restaurants globally. According to the report most will be traditional in design but the Company will consider alternatives including a test of a small free-standing ‘CosMC’ format.
McDonald’s Corporation had a market capitalization of $197,230 million on April 30th 2024. Total assets on December 31st 2023 amounted to $56,146 million of which 24.0 percent comprised lease right-of-use assets. Long-term debt and lease obligation were $50,211 million. MCD has ranged over the past 52-weeks from $245.73 to $302.39 with a 50-day moving average of $281.51. MCD trades with a forward P/E ratio of 21.9. The 12-month trailing operating margin was 43.6 percent and profit margin, 33.2 percent. Return on assets was 13.7 percent. Prior to release MCD closed on April 29th at $273.46 but opened lower, post-release on April 30th at $269.16, regaining the loss by noon on a down-market.