Domino’s Pizza and McDonald’s both reported that government stimulus checks boosted their first-quarter results, but the two companies disagree on the longer-term impact of extra cash in consumers’ wallets.
The federal government began sending out the second round of Covid stimulus checks of up to $600 to eligible individuals at the end of December, just before the first quarter started. A third round of checks, worth up to $1,400 to qualifying individuals, were sent at the end of March. The IRS is still sending out stimulus checks to taxpayers whose payments never arrived or were too small.
Restaurant companies, ranging from Outback Steakhouse owner Bloomin’ Brands to Taco Bell parent Yum Brands, have been calling out the checks as a contributing factor to their first-quarter sales growth. A report from Rabobank and Earnest Research estimated that consumers spent 10% to 15% more money in restaurants in the four weeks following the first two stimulus checks. But it’s still unclear if the payments are actually driving momentum in the economy or just providing a temporary jolt to restaurant spending that will dissipate.
Domino’s presented one potential theory.
“We’re certainly still — you know, not just at Domino’s but across the economy — still riding a bit of the wave of government stimulus,” Domino’s CEO Ritch Allison told analysts Thursday.
The pizza chain told investors that the higher sales stemming from the stimulus checks prompted the company to not run any aggressive boost week promotions during the quarter. Even without the promotions, Domino’s reported U.S. same-store sales growth of 13.4%.
McDonald’s, on the other hand, downplayed the impact of the checks. CEO Chris Kempczinski told analysts on Thursday that there was no question that they benefited the business, but the chain’s 13.6% same-store sales growth in the quarter was “way beyond” just the checks. McDonald’s credited other company initiatives, like promotions around the favorite orders of celebrities, the launch of its Crispy Chicken Sandwich and higher digital sales, for the strong U.S. performance.
“I think you can also argue that the stimulus checks are now wearing off, generally, but we’re seeing continued momentum in our business,” Kempczinski said.
McDonald’s CFO Kevin Ozan said the U.S. consumer is still fairly healthy and ready to return to the chain’s dining rooms as they reopen.
“I don’t think we have a big concern right now about consumer ability to be able to spend,” Ozan said.
Like the rest of the fast-food sector, McDonald’s U.S. sales have bounced back quickly during the coronavirus pandemic, luring consumers with its convenient drive-thru lanes and cheap prices. Domino’s has been seeing surging demand throughout the crisis, creating concerns about potential pizza fatigue as the pandemic subsides.
Shares of McDonald’s were up more than 1% in afternoon trading after the company topped Wall Street’s estimates for its earnings and revenue and raised its full-year outlook for systemwide sales. At $180 billion, its market value is more than 10 times that of Domino’s. The pizza chain’s shares were up nearly 3% in afternoon trading after it reported mixed first-quarter results.
Source: Business - cnbc.com
