By Evie Liu
When McDonald’s reports earnings Monday morning, investors will examine whether inflation continues to weigh on the frequency of customer visits and how much they spend at the fast-food chain.
For the three months ended in December, analysts polled by FactSet expect McDonald’s to post $6.4 billion in revenue, up 8.8% from the year-ago period. Much of that growth would likely come from international markets as the company opens up more locations.
Same-store sales are expected to increase 4.7% in the fourth quarter from a year ago, a more moderate pace compared with previous quarters as inflation eased toward the end of 2023.
Analysts expect net income to come in at $2 billion for the period, which translates to earnings of $2.83 per share. That would be 8.3% higher than a year ago.
There will likely be more growth going forward. In December, McDonald’s announced ambitious plans to open nearly 10,000 new restaurants in the next four years, pushing the total number of stores around the globe to 50,000 by the end of 2027.
The fast food giant aims to grow its loyalty program’s active users to 250 million by 2027 from the current 150 million — and more than double the program’s sales to $45 billion a year by then as well. Other initiatives include scaling up its delivery, drive-through, and mobile-order businesses, as well as improving its core menu items.
McDonald’s also launched a new drink-focused chain called CosMc’s to take on Starbucks and Dunkin’ in the afternoon beverage market. If successful, the move would be another growth engine for the fast-food chain. But investors shouldn’t expect to see any material impact in the near term.
In its latest guidance for fiscal 2024, provided in December, McDonald’s said it expects sales to grow nearly 2% in constant currency and its operating margin to come in the range of mid-to-high 40% — largely the same level as in 2023. The company expects to spend $2.5 billion in capital expenditure, an increase of 30% from fiscal 2022.
Beyond 2024, systemwide sales will grow by about 2.5% annually, McDonald’s says, with the number of restaurants increasing by 4% to 5% every year. The company has also said it expects to increase capital spending by $300 million to $500 million each year through 2027.
Despite expectations for continuous growth, investors will closely watch how much of a toll inflation has taken on consumer demand, especially for McDonald’s domestic market.
In October, McDonald’s CEO Chris Kempczinski noted that foot traffic at its U.S. restaurants fell for the first time in 2023 during the third quarter. Although middle- and higher-income customers have traded down from more expensive options, lower-income consumers made fewer visits, said Kempczinski.
Still, comparable sales at McDonald’s U.S. stores grew by 8% in the third quarter, mostly driven by price increases. But the rate of menu price hikes had already slowed in the third quarter compared with with the first two quarters of the year, and CFO Ian Borden said during the earnings call that investors should expect sales growth to further moderate as inflation levels continue to come down.
For the third quarter, total sales grew 14% from a year ago as the chain added more than 1,000 new restaurants. Increasing delivery orders also helped propel the growth, the company said.
On Wall Street, about 75% of analysts polled by FactSet have a Buy rating for the stock. Their average target price of $324 implies a 10% gain from current levels. McDonald’s has risen about 12% over the past 12 months, closing at $297.05 on Friday.
Write to Evie Liu at evie.liu@barrons.com