McDonald’s fell short of quarterly profit expectations for the first time in two years, with cost-conscious consumers overlooking its promotions and international sales hampered by the Middle East conflict.
Global comparable sales growth continued its decline for the fourth consecutive quarter, settling at 1.9%, as consumers tightened their purse strings, emphasizing value in their spending habits. Analysts, relying on LSEG data, had anticipated a 2.35% increase.
CEO Chris Kempczinski acknowledged the discerning nature of today’s consumers during a post-earnings call, noting that all income brackets are prioritizing value. This trend contrasted sharply with other fast-food chains, such as Burger King-owner Restaurant Brands International, which exceeded quarterly expectations, and Domino’s Pizza, which capitalized on pizza offers.
Despite raising prices by mid- to high-single-digit percentages to offset rising costs, McDonald’s observed a diminishing affordability advantage in some markets. In the United States, first-quarter same-store sales growth decelerated to 2.5%, significantly lower than the previous year’s 12.6% surge.
Internationally, the picture was mixed, with comparable sales from the company’s international licensees dipping by 0.2%, contrary to expectations of a 0.98% increase. McDonald’s CFO Ian Borden had forewarned of this downturn, citing the Middle East conflict and sluggishness in the Chinese economy.
The Middle East conflict has put pressure on US brands like McDonald’s, leading to protests and boycotts. In response, the company bought back its 30-year-old Israel franchise and addressed legal concerns in Malaysia over allegations of supporting Israel.
Analysts, such as Jim Sanderson from Northcoast Research, highlighted the uncertain impact of the Middle East conflict on US brands operating internationally, posing risks to their income streams.
McDonald’s adjusted per-share profit of US$2.70 missed estimates by two cents, attributed partly to a 10% rise in selling, general, and administrative expenses, driven by investments in digital infrastructure and restructuring efforts.
Despite the disappointing results, McDonald’s shares remained relatively stable on Tuesday.
— REUTERS
