McDonald’s experienced an unexpected decline in global sales on Monday, marking its first drop in 13 quarters. This decline comes as a result of boycotts and budget-conscious consumers steer clear of higher-priced menu items, such as Big Macs, due to ongoing inflation. Many lower-income customers are opting for cheaper food options at home, impacting fast food chains like McDonald’s, Burger King, Wendy’s, and Taco Bell. These chains are now emphasizing value meals to attract more customers.
CEO Chris Kempczinski noted that consumers are more cautious with their spending, saying, “Consumer sentiment in most of our major markets remains low.” During the second quarter, global comparable sales fell by one percent, contrary to analysts’ expectations of a 0.5 percent increase. Despite this, overall revenue saw a slight rise of one percent. To counteract the decline, McDonald’s introduced a $5 meal deal in June across most US locations, which is expected to continue into August to entice customers back.
Analyst Brian Yarbrough from Edward Jones pointed out that McDonald’s primary challenge is the reduced visits from low-income consumers, outweighing the typical trade-down seen during tough economic times. This trend aligns with Coca-Cola CEO James Quincey’s recent comments about decreased dining out in North America.
Despite these challenges, McDonald’s maintained its 2024 operating margin forecast in the mid-to-high 40 percent range. The company’s shares, which have dropped 15 percent this year, remained steady at $251.20. McDonald’s also upheld its capital expenditure budget of up to $2.7 billion, with more than half allocated for new restaurants in the US and international markets. In the quarter ending June 30, US comparable sales dropped 0.7 percent, compared to a significant 10.3 percent increase the previous year.
International sales, which accounted for nearly half of McDonald’s 2023 revenue, fell by 1.1 percent, with notable weakness in France. Additionally, slower-than-expected recoveries in China and conflicts in the Middle East negatively impacted sales by 1.3 percent, compared to a 14 percent rise a year earlier. Consumer boycotts related to conflict also affected McDonald’s and Starbucks sales in the Middle East. McDonald’s earned $2.97 per share on an adjusted basis in the second quarter, missing the expected $3.07.
