Behind McDonald’s “Beat”: How Price Hikes and Easy Comparisons Hide a Slowing Core
Behind McDonald’s “Beat”: How Price Hikes and Easy Comparisons Hide a Slowing Core
McDonald’s latest quarterly report might look like a win at first glance. The fast-food giant posted a 3.6% jump in global comparable sales and saw its stock climb nearly 3% to $299.21. CEO Chris Kempczinski proudly spoke of “resilience and momentum,” pointing to 8% systemwide sales growth and a booming loyalty program that racked up $9 billion in quarterly sales.
But dig a little deeper, and the story isn’t nearly as golden as the arches suggest. McDonald’s appears to be leaning on temporary boosts—price hikes, easy comparisons to last year’s weak results, and share buybacks—to keep its numbers looking strong. Investors who scratch beneath the surface see a more fragile foundation, one that raises real doubts about whether the world’s biggest burger chain can justify its lofty valuation.
The Mirage of Growth
Look closely at the numbers and you’ll spot the cracks. McDonald’s 3.6% global comparable sales increase sounds solid—until you remember the company posted a 1.5% decline during the same quarter last year. When you combine the two, the true two-year growth sits at just 2.1%.
This same pattern repeats around the world. International Operated Markets reported 4.3% growth, but that followed a 2.1% drop in the previous year—leaving only a modest 2.2% gain over two years. In its International Developmental Licensed segment, sales rose 4.7%, yet last year’s 3.5% fall drags the two-year gain down to a meager 1.2%.
In short, this isn’t vibrant expansion—it’s recovery dressed up as progress. McDonald’s isn’t sprinting forward; it’s merely catching its breath from a stumble.
Warning Signs at Home
The real red flag flaps over McDonald’s home turf: the U.S. market. Comparable sales in the States rose just 2.4%, the weakest performance of any region. What’s worse, that growth came mainly from higher menu prices, not more customers.
The company’s earnings release mentions “positive check growth”—corporate speak for “we charged more.” But there’s no mention of guest counts. That omission practically shouts that fewer people are walking through the door. With inflation still squeezing wallets, even McDonald’s budget-friendly image is losing its pull.
If customers aren’t biting despite $5 meal deals and non-stop promotions, that’s a serious problem. Industry data shows quick-service restaurant visits dropped 3.5% overall. So when McDonald’s ekes out just 2.4% growth during an era of heavy discounting, it suggests its pricing power may have hit its limit.
The Numbers Game
Then there’s the earnings per share—where the accounting magic really happens. McDonald’s reported diluted EPS of $3.18, up 2%. Sounds fine, right? Not quite.
Buried in the reconciliation tables, the adjusted, apples-to-apples number tells a different tale: $3.22 this quarter versus $3.23 a year ago. That’s actually a 1% decline in real profitability. The reported growth exists only because this year had fewer one-time expenses.
Meanwhile, the company quietly reduced its share count—from 720 million to about 716 million—thanks to buybacks. Fewer shares make per-share earnings look better even when profits don’t grow. Strip away that financial gloss, and you’re left with a flat performance wrapped in shiny numbers.
A Pricey Stock With Dimming Shine
At roughly $299 a share, McDonald’s trades at 24 to 25 times forward earnings. That’s a premium multiple for a company whose adjusted earnings just slipped.
Compare that to rivals and the gap widens. Yum! Brands, for example, reported 7% same-store sales growth at Taco Bell, while Restaurant Brands International (the parent of Burger King) saw 4% comparable sales and nearly 7% revenue growth. Yet McDonald’s—posting weaker results—still commands the richest valuation in the group.
Its revenue mix also raises eyebrows. Franchise royalties, which bring in high-margin income, rose a healthy 7%. But sales at company-owned stores dropped 3%, hinting at either ongoing refranchising or deeper operational issues.
Even more concerning, operating costs are ballooning. Selling, general, and administrative expenses jumped 21%, with an “Other” category soaring 24%—from $536 million to $664 million—with no clear explanation. McDonald’s now expects SG&A to hold around 2.2% of system sales, meaning it’s spending heavily just to tread water. That’s not what “operating leverage” looks like.
And while the loyalty program’s $34 billion in annualized sales sounds impressive, big questions linger. Are those loyalty sales actually profitable? Do heavy discounts simply shift full-price buyers to cheaper deals? And how much longer can franchisees afford to fund these promotions?
Questions the Next Call Must Answer
When McDonald’s executives face analysts, they’ll need to get specific. What’s really happening to U.S. guest traffic? How much of the 2.4% growth came from prices versus actual customer visits?
They’ll also need to explain that mysterious 24% jump in “Other” operating expenses—$128 million is too much to wave away. And investors will want to know whether the company plans to keep repurchasing shares at the same pace to cushion weak earnings.
The Bottom Line
This quarter looks fine on the surface but wobbles underneath. Analysts often call this kind of report “headline-okay, quality-weak”—numbers that please the casual observer but unravel under scrutiny.
McDonald’s is spending heavily on promotions and digital tools to hold its ground while funneling cash to shareholders through dividends and buybacks. That approach keeps investors happy for now but squeezes the company’s ability to generate clean, organic profit growth.
With U.S. traffic stalling, costs climbing, and valuation already rich, the math doesn’t look appealing. International growth helps, but it can’t offset domestic softness forever. Until customer counts rise for real—not just prices—McDonald’s premium price tag feels more like wishful thinking than justified confidence.
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