During the fourth quarter, Adult Happy Meals and other limited-edition products boosted traffic at McDonald's (NYSE:MCD) restaurants despite higher prices, beating Wall Street earnings and revenue estimates in its latest earnings results.
However, shares of the burger chain fell about 2.6% to $263.84 after the company warned that inflation would continue to weigh on its operations throughout 2023.
Operating margin came in at 43.6%, below the average estimate of 45.5%, while the fast-food giant forecasted its operating margin to be about 45% in 2023, compared with estimates of 46.5%.
During the October-December period, Global same-store sales rose 12.6%, with 10.3% growth in the US. Overall, McDonald's fourth-quarter sales declined 1.4% year-over-year to $5.93 billion, beating the consensus of $5.69 billion.
In October, McDonald's launched adult Happy Meals with toys designed by the streetwear brand Cactus Plant Flea Market, sending sales soaring, while half of the toys for those meals were gone within the first four days of promotion.
In addition, the favorite McRib sandwich drew in more US customers in November during its so-called "Farewell Tour," which the company said was the last chance for fans to "experience a taste" of the tangy, barbecue, boneless pork sandwich.
However, the main pullout may be that even as sales stay strong, McDonald's lower-than-expected forecast for 2023 operating margins came as an unwelcoming surprise.
Chief financial officer, Ian Borden, said while inflation in the US appears to have peaked, he doesn't expect inflation in Europe to ease until the middle of this year.
As a result, Borden said the company expects to spend between $100 million and $150 million on temporary financial support.
Elsewhere, the fast-food giant plans to spend $2.2 billion to $2.4 billion on capital expenditures, including opening 1,900 new locations in 2023.
Over 400 of the new Golden Arches will be in the US or its internationally operated markets, while the remaining locations will be in developmental licensee and affiliate markets, including 900 in China.
Price Action: McDonald's has a 52-week high of $281.67 and a 52-week low of $217.67. Based on 17 analyst ratings covered by TipRanks in the last three months, the stock is a Moderate Buy (12 Buys, 5 Holds). The average price target of $293.63 implies an upside potential of 9.81%.
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