McDonald’s is losing about $55 million a month in sales from the closure of its Russian stores, the fast-food giant said.
Higher menu prices in the United States and the relaxation of COVID-19 restrictions in Europe helped McDonald’s offset troubled markets like China and Russia during the first quarter.
Revenue rose 11 percent to $5.66 billion in the January-March period, beating Wall Street expectations of $5.57 billion, according to analysts surveyed by FactSet.
The Chicago burger giant said prices in the United States rose 8 percent in the first quarter compared to the same period last year as the company battled inflation.
McDonald’s initially predicted that US costs for raw materials such as cooking oil and paper would rise 8 percent this year; now the company expects those costs to rise 12 percent to 14 percent, Chief Financial Officer Kevin Ozan said during a conference call with investors. Labor costs are also 10 percent higher after McDonald’s raised pay for workers at company-owned US stores last year, which make up about 5 percent of its US store base.
Some consumers appear to be choosing cheaper menu items or ordering fewer items at a time. But McDonald’s Chairman and CEO Chris Kempczinski said demand remains strong.
“From our point of view, the American consumer in general is in good shape,” he said. U.S. same-store sales, or sales at locations open at least a year, rose 3.5 percent in the January-March period.
Kempczinski said McDonald’s is reviewing its options in Russia, where it temporarily closed 850 stores in early March. Kempczinski said the company will provide an update on its next steps no later than the end of the second quarter.
Ozan said McDonald’s is losing an estimated $55 million a month in sales due to store closures in Russia.
McDonald’s continues to pay its 62,000 employees in Russia. It also closed 108 restaurants in Ukraine in February and is paying its employees there as well.
McDonald’s said it spent $27 million on salaries, leases and supplier payments in Russia and Ukraine during the quarter. The company also said it has $100 million worth of inventory that it will likely get rid of as its restaurants are closed.
Excluding costs in Russia and Ukraine and other one-off items, McDonald’s earned $2.28 a share in the quarter, well above analysts’ forecasts of $2.17 a share.
But the costs of the Ukraine war and inflation hurt profits. McDonald’s said its net income fell 28 percent to $1.1 billion during the quarter.
Global same-store sales rose nearly 12 percent in the quarter. Relaxation of COVID restrictions in many markets, including the UK, France and Brazil, boosted sales, McDonald’s said. McDonald’s said sales in many major markets, including Canada and Australia, have returned to pre-pandemic levels.
But China reported negative same-store sales as it struggled with a resurgence of COVID and new restrictions.
Shares of McDonald’s Corp rose 2 percent in morning trading on Thursday.