McDonald's stock drops, CEO promises affordability amid earnings outlook

Quick and cheap are two of the first words that come to mind when thinking about fast food. But some McDonald's customers have criticized the restaurant giant over recent higher menu prices, prompting the CEO to address the issue of affordability during the company's latest earning call.

McDonald's CEO Chris Kempczinski spoke to analysts on Monday morning about the fast food chain's mixed fourth quarter results, as well as the global market impact with ongoing conflict in the Middle East and Muslim communities, and ultimately about how to re-engage lower-income customers.

After the earnings results were posted, McDonald's shares tumbled nearly 4% on the New York Stock Exchange by closing.

While global same-store sales - meaning stores that have been open for at least a year - were up 3.4%, short of Wall Street's expectations, Kempczinski said those earnings results were impacted by the war in the Middle East.

Domestically however, same-store sales were up by 4.3%, which was more closely aligned to previous quarters and company expectations for what the CEO called "normalized growth."

In the U.S., McDonald's reported "strong average check growth driven by strategic menu price increases," but the CEO admitted that there has been a sales dip in the wake of the increased menu prices.

McDonald's noted a drop in transactions with one of its core consumers: lower-income customers who make $45K a year or less.

"Eating at home has become more affordable," Kempczinski said. "The battleground is certainly with that low-income consumer."

Kempczinski posited that these customers may have opted for less dining out, with prices and inflation on groceries cooling faster than the Consumer Price Index category for food away from home.

"What you're going to see is more attention to affordability," he emphasized. "Think about that as an absolute price point, which is more important for that consumer to get them into the restaurants than maybe value messaging. We are set up well to go after that."

Kempczinski also wrote about the earnings on LinkedIn, writing, "we remain confident in the resilience of our business."

Kempczinski further declared during the earnings call that the burger chain is already well positioned with its $1, $2, $3 menu platform.

"There will be some activity at the local level to make sure we continue to provide value for the lower-income consumer," Kempczinski said, without providing any further details on how or when that could be expected.

Over the summer, McDonald's customers in Connecticut complained of a nearly $18 price tag for a Big Mac combo meal, as first reported by the New York Post.

Franchises are allowed to set their own prices and choose whether or not to opt in for corporate promotions, which is why menu prices may vary by location.