On Monday, McDonald’s reported an unexpected global sales decline for the first time in 13 quarters, as customers are increasingly avoiding higher-priced items like Big Macs in favor of more affordable options. Persistent inflation has led lower-income consumers to choose cheaper food alternatives at home, causing fast-food chains like McDonald’s, Burger King, Wendy’s, and Taco Bell to focus on value meals to attract customers.
CEO Chris Kempczinski noted that consumers have become much more price-sensitive, and “consumer sentiment in most of our major markets remains low.” Global comparable sales fell by one percent in the second quarter, which was below analysts’ expectations of a 0.5% increase. Despite a 1% rise in overall revenue, the company is struggling to maintain traffic.
To address this, McDonald’s introduced a $5 meal deal in June across most of its US locations and plans to extend it into August to draw back customers who have reduced their restaurant visits. However, the significant decline in visits from lower-income consumers has overshadowed the usual pattern of trading down in tougher economic times, according to Edward Jones analyst Brian Yarbrough.
This downturn aligns with Coca-Cola CEO James Quincey’s recent comments about a “softness in away-from-home channels” in North America, indicating fewer people are dining out. Despite these challenges, McDonald’s has kept its 2024 operating margin forecast steady at the mid-to-high 40% range.
McDonald’s shares have dropped 15% this year and were trading flat at $251.20. The company has maintained its capital expenditure budget of up to $2.7 billion, with over half allocated for new restaurants in both the US and international markets.
US comparable sales fell 0.7% for the quarter ending June 30, a significant decrease compared to a 10.3% increase the previous year. International sales, which accounted for nearly half of its 2023 revenue, dropped 1.1%, primarily due to weak performance in France.
Additionally, McDonald’s faced challenges in various regions, including Pakistan, where it reduced prices in response to a boycott, and Sri Lanka, where stores closed following the end of a partnership. The company also experienced a slower-than-expected recovery in China and negative impacts from the Middle East conflict, which affected sales in regions operated by local partners. Overall, sales in these areas declined by 1.3% compared to a 14% increase a year earlier.
McDonald’s reported earnings of $2.97 per share on an adjusted basis for the second quarter, falling short of expectations of $3.07 per share.
