The Important Reason McDonald's Just Lost $127 Million

When McDonald's reported its results for the first quarter of 2022 on April 28, 2022, it revealed a rather striking line item: the loss of $127 million dollars in "pre-tax operating expenses" (via McDonald's press release). To characterize this expense as a departure from what investors are used to seeing from the fast food giant would be an understatement. McDonald's attributes that expense to the company's response to the Russian military invasion of Ukraine, which led to McDonald's shuttering every one of its Russian and Ukraine locations – temporarily, albeit for an indefinite time period, according to QSR Web. 

Specifically, McDonald's attributes $27 million of these expenses to its policy of continuing to pay the salaries of all the employees immediately impacted by the war-related closures, as well as its continuing to make lease payments for its facilities and equipment and keeping. The other $100 million has been attributed to "inventory ... that likely will be disposed of due to restaurants being temporarily closed." To put into perspective just how significant this loss may be to McDonald's, consider that its total operating expenses for the quarter ended March 31, 2022, were up by 17.93% compared with the first quarter of 2021 (via MacroTrends). Nevertheless, McDonald's has important reasons for incurring this $127 million loss, not to mention the significant and tragic waste of resources that it represents amid a global crisis of food insecurity.  

On March 8, McDonald's announced the temporary closure of all 847 of its restaurants in Russia, of which 84% are owned by McDonald's, itself (as opposed to franchisees). This came after McDonald's closed all of its Ukraine restaurants, all of which are McDonald's-owned (via Crain's Chicago Business). "As a system, we join the world in condemning aggression and violence and praying for peace," CEO Chris Kempczinski explained in an emailed statement (per McDonald's website).

McDonald's decision to take the resulting $127 million hit has been complicated by its reliance on its business in Russia and Ukraine, relative to other fast food chains, according to CNBC. To wit, McDonald's business in these markets has historically amounted to approximately 2% of its total sales and 9% of its total corporate revenue. McDonald's actions are also complicated by the fact that shutting down in these markets was bound to, and did, in fact, lead to approximately $100 million in food waste, per CNN. 

It also left 62,000 people unemployed, for which McDonald's has continued paying their salaries. But perhaps therein also lies the reason McDonald's was even willing to accept the inevitable losses. "Our number one priority from the start of this crisis has been — and will remain — our people," Kempczinski pointed out in his emailed statement.