The reason why McDonald’s stock is soaring despite a big earnings miss: Value meals

• McDonald’s global comparable sales fell 1% year-over-year last quarter, missing analyst estimates.

• But the fast-food giant’s stock is up more than 4% as its CEO says its $5 value meal is paying off.

• The company plans to focus on value going forward as low income customers grow weary from inflation.

McDonald’s missed analyst estimates in its most recent earnings report, but the fast-food giant’s plan to bring back value for its customers is striking a chord with investors.

The stock rallied 4.5% to $263.22 as of 1:45 PM in New York on Monday following the earnings call. It climbed as much as 4.7% at intraday highs.

McDonald’s same-store sales fell 1% in the most recent quarter, marking the first decrease in same-store sales since 2020. Its net income for the quarter fell to $2.02 billion, down from $2.31 billion the year before.

CEO Chris Kempczinski said the earnings miss was fueled by high prices and an increasingly weary consumer. Low income customers, in particular, are shying away from fast food as inflation soas.

The company’s executives said these customers aren’t leaving McDonald’s for competitors, but rather passing on eating out altogether.

“We expect customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters in this very competitive landscape,” McDonald’s U.S. President Joe Erlinger said.

Kempczinski told investors the brand plans to focus on value going forward as it strives to get these customers back in the door.

Part of that plan lies in McDonald’s $5 value meal strategy, which Kempczinski said is already working after launching in late June. The program is most popular among lower-income consumers, and is improving the brand’s sentiment around value and affordability.

The program was originally planned for four weeks, but is set to continue at most locations after better-than-expected sales.

“We recognize that in several large markets, including the U.S., we have an opportunity to improve our value execution,” Kempczinski said during Monday’s call. “Consumers still recognize us as the value leader versus our key competitors, but it’s clear that our value leadership gap has recently shrunk. We are working to fix that with pace.”

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Kempczinski added that McDonald’s has an advantage because it can buy at a lower price than its competitors.

“We know how to do this. We wrote the playbook on value and we are working with our franchisees to make the necessary adjustments,” Kempczinski said.

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