McDonald's: Shuttered Ukraine, Russia restaurants cost $127M in Q1

Dive Brief:

McDonald's reported Thursday that shuttering operations in Ukraine and Russia has cost $127 million. The bulk of that loss ($100 million) stems from supply chain inventory "that will likely be disposed of due to restaurants being temporarily closed." The remaining $27 million represents the continuation of employee salaries, lease and supplier payments in the region.
The company expects those payments to cost between $50 million and $55 million monthly going forward because the Russian ruble has strengthened, CFO Kevin Ozan said on McDonald's Q1 2022 investor call.
CEO Chris Kempczinski told investors the chain is evaluating options and expects to make a decision for operational next steps for its Ukraine and Russian markets by the end of the second quarter.

Dive Insight:

Although Russia and Ukraine represented roughly 2% of the Golden Arches' systemwide sales in 2021, store closures in these markets "had a negligible impact on consolidated sales results for the first quarter this year," Ozan said. McDonald's temporarily halted operations in Ukraine at the end of February and in Russia in mid-March.

Russia's invasion of Ukraine hasn't negatively impacted consumer behavior in European markets, Kempczinksi said, though changes in diner sentiment is "certainly something we're keeping an eye on." Kempczinski added the company has seen significant growth in the U.K., France, Germany and additional European markets, though the company's earnings release did not provide specific metrics for these markets. Food inflation has also surged in these market due in part to the conflict, Ozan said.

McDonald's is exploring "a variety of different options" in regards to future operations strategy in Russia and Ukraine, Kempczinski said, but he did not disclose what these possibilities are. Ozan suggested there could be a change in infrastructure.

"My guess is that there probably isn't a scenario that you could come up with that we're not looking at," Kempczinski said.

McDonald's is one of several major restaurant chains that have halted business in Russia and Ukraine since the conflict began. The chain had 847 Russian units and 108 Ukrainian units at the end of 2021.