McDonald’s (MCD) Arches Look Pretty Golden With Nice Q3 Beat; Adult Happy Meals Was A Surprise Hit
3:52 pm Thursday, October 27th, 2022
McDonald’s (MCD) is up nicely today after reporting a nice EPS and revenue beat. But what really stood out were its same store comps. At +9.7%, this was the third quarter in a row where comps were better than analyst expectations and really impressive considering that MCD was lapping strong +12.7% comps a year ago.
US comps at +6.1% also impressed us because MCD was lapping robust +9.6% comps a year ago, a period when people were going out more thanks to widespread vaccine deployment. Comps were driven by a higher average check supported by strategic price increases and positive guest counts.
Also, MCD struck gold with its Happy Meals for adults, which spurred a lot of nostalgia among its adult consumers. About 50% of its supply of collectibles was sold in the first four days of the promotion. Also, this led to increased visits, which drove the highest weekly digital transactions ever in the US business. This is also helping Q4 get off to a great start as October US comps should be up in the low-double digits.
It was not all positive news. MCD concedes that its operating margin remains pressured by significant commodity and wage inflation as well as elevated energy costs. Unfortunately, MCD expects these pressures will continue to impact margins for the next several quarters.
Overall, this was an impressive quarter for MCD, especially the US comps. We had some concerns in light of mixed results from other fast food operators, but MCD’s value pricing, especially on its rewards app, is drawing in customers. And the adult Happy Meal was a stroke of genius. Finally, the stock has been trapped in a long term sideways trading range in the $230-270 area. We will see if this is enough to finally break above that range and hold it.
