McDonald's Q2 earnings preview: Viral Grimace Shake promotion expected to boost sales
McDonald's (MCD) is expected to report its fiscal second quarter earnings results on Thursday before the market opens. Wall Street expectations: same-store sales and earnings sharply up.
Analysts predict the company to report an increase in revenue, up 9.6% year over year to $6.27 billion, while adjusted earnings per share are expected to see a 9% increase from a year ago to $2.78. Positive sales momentum is expected to continue for the fast food chain, boosted by the viral Grimace Shake promotion, digital sales, and market share gains as consumers search for bargain meals.
Wall Street expects same-store sales overall to increase 9.36%. Sales in international operated markets (like Australia, Canada, France, Germany, and the UK) are expected to increase 8.31%, while international development markets (like Brazil and Japan) are expected to increase 11.31%.
Lower adjusted operating margins for company-owned restaurants are also something to look out for, per Morningstar analyst Sean Dunlop, particularly in international operated markets where food inflation remains higher.
Meanwhile, the company continues to focus on its M-C-D strategy — maximizing marketing; committing to the chain's core products of burgers, chicken, and coffee; and delivery, drive-thru, and digital. A fourth "D" stands for restaurant development.
McDonald's plans to open 1900 new locations this year, the largest growth move since 2014. (The company laid off an undisclosed number of workers in early April.)
Shares of the fast food chain are up more than 10% so far this year.
About the Grimace Shake promotion: It kicked off June 12 in US markets and is expected to be the talk of the town on McDonald's earnings call. Young consumers, particularly Gen Z (ages 9-24), flocked to social media to drink the limited-edition purple, berry-flavored milkshake — and pretend to pass out. (See it for yourself.)
McDonald's hasn't disclosed Grimace Shake sales but it may on its earnings call. But Guillaume Huin, McDonald's marketing director, said on LinkedIn that the trend reached billions and led to millions in engagements and mentions. It was the top trend on Twitter for at least eight different days and was the top three hashtags on TikTok. U.S. sales are expected to increase 9.10%.
Digital strategy is "yielding tremendous results" despite lower check sizes as consumers look to save, per BTIG analyst Peter Saleh. In a note to clients Saleh, who has a Buy rating, said "franchisees were upbeat on the digital strategy, with digital sales growth well north of 20%" with some approaching 30%.
He added that digital is still in the "early innings of adoptions" and is "aggressively" using discounts to get customers on board. While some franchisees are frustrated with promotions like 20% off an entire order, Saleh said the company is optimistic about the success and momentum of the strategy.
In a note to investors with research led by Jon Tower of Citi, who has a Neutral rating, he pointed out a few questions he hopes the company addresses in the call, including the decision to pull US McCafe bakery items, an update on the test with Krispy Kreme, among others.
Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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