McDonald’s reported a surprise drop in sales worldwide on Monday, its first decline in 13 quarters, as deal-seeking consumers shy away from higher priced menu items, including Big Macs.
Persistent inflation has forced lower-income consumers to shift to more affordable food options at home. That has led fast food chains such as McDonald’s, Burger King, Wendy’s, and Taco Bell to lean on value meals to spark customer traffic.
McDonald’s shares, which are down 15 percent this year, rose 4 percent in early trading after company executives said the $5 meal deal that was launched late in June sold above expectations.
The company, which stuck to its 2024 forecast for operating margin of mid-to-high 40 percent range, said it would protect profitability by being more selective with price increases.
Global comparable sales fell 1 percent in the second quarter, compared with expectations of a 0.5 percent increase. Overall revenue rose 1 percent.
CEO Chris Kempczinski said there is a lot more deal-thinking from consumers who have become “very discriminating.” “Consumer sentiment in most of our major markets remains low,” he said.
McDonald’s launched a $5 meal deal in June at most of its U.S. locations. It was set to extend that offer into August to lure back customers who have cut back on frequent restaurant trips.
“The biggest hit for McDonald’s is the low-income consumer has really cut back on visits and that is more than offsetting the typical trade down McD normally sees in tougher economic times,” said Edward Jones analyst Brian Yarbrough.
McDonald’s results dovetail with comments last week from Coca-Cola CEO James Quincey, who said there had been “some softness in away-from-home channels” in North America, an indication of fewer people eating out.
The company maintained its expected capital expenditure budget of up to $2.7 billion, with more than half of that earmarked for new restaurants in the U.S. and international markets.
U.S. comparable sales fell 0.7 percent in the quarter ended June 30, compared with a 10.3 percent jump a year ago. Sales in international markets, which made up nearly half its 2023 revenue, dropped 1.1 percent, driven by weakness in France.
A slower-than-expected recovery in China and the Middle East conflict hurt the performance of McDonald’s business segment where restaurants are operated by its local partners, as sales declined 1.3 percent compared with a 14 percent jump a year earlier.
Companies like McDonald’s and Starbucks have also suffered from consumer boycotts linked to the Gaza war, which hit their sales in the Middle East markets.
McDonald’s earned $2.97 per share on an adjusted basis in the second quarter, missing expectations of $3.07.
By Savyata Mishra