McDonald's CEO Chris Kempczinski said there is a lot more deal-thinking from consumers who have become 'very discriminating'.
Credit: Reuters Photo.
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 prompted fast food chains such as McDonald's, Burger King, Wendy's and Taco Bell to lean on value meals to spark customer traffic.
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.
Global comparable sales fell 1per cent in the second quarter, compared with the analysts' average estimate of a 0.5 per cent increase. Overall revenue rose 1per cent.
McDonald's launched a $5 meal deal in June at most of its US 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.
Still, McDonald's kept its 2024 operating margin forecast unchanged in the mid-to-high 40 per cent range.
Its shares, which are down 15 per cent this year, were trading flat at $251.20. 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 US and international markets.
US comparable sales fell 0.7 per cent in the quarter ended June 30, compared with a 10.3 per cent jump a year ago. Sales in international markets, which made up nearly half its 2023 revenue, dropped 1.1 per cent, 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 per cent compared with a 14 per cent 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.