McDonald’s has reported a miss in quarterly profit estimates for the first time in two years. The shortfall is attributed to customers overlooking promotions and the impact of the Middle East conflict on international sales.
The company experienced a continued decline in global comparable sales growth, which dropped to 1.9% this quarter. This marks the fourth consecutive quarter of sliding growth. Based on LSEG data, analysts had projected a rise of 2.35%.
Chris Kempczinski, McDonald’s CEO, discussed consumer behaviour during a post-earnings call. “Consumers are very discriminating in how they spend their dollar,” he noted. He emphasized that all income groups are now seeking value.
Other fast-food chains have seen better results from similar strategies. For example, Restaurant Brands International, which owns Burger King, surpassed expectations this Tuesday. Similarly, Domino’s Pizza saw gains from its pizza promotions.
Despite raising prices in response to higher costs for eggs and other raw materials, McDonald’s noted a decrease in its affordability compared to competitors. This has particularly affected lower-income consumers.
McDonald’s same-store sales in the U.S. grew by 2.5%, a sharp decline from last year’s 12.6% and slightly under the expected 2.55%.
International sales, representing 10% of total revenue in 2023, fell by 0.2%. This decline was influenced by adverse conditions in the Middle East and a slow Chinese market. Analysts had anticipated a 0.98% increase for this segment.
Western brands like McDonald’s and Starbucks have faced boycotts in some regions due to their perceived support for Israel. These boycotts intensified after McDonald’s Israeli outlets offered free meals to the Israeli military.
McDonald’s recently purchased its Israel franchise, which has been operational for 30 years under Alonyal Ltd. This move followed backlash from franchises in some Muslim-majority countries in October.
In December, McDonald’s Malaysia took legal action against a group promoting boycotts against Israel, accusing them of making harmful false statements.
Jim Sanderson of Northcoast Research highlighted the broader implications of the Middle East conflict. He suggested that all U.S. brands operating internationally might face risks and uncertainties due to the conflict.
McDonald’s reported an adjusted per-share profit of $2.70, falling short of the anticipated $2.72. The company also reported a 10% increase in selling, general, and administrative expenses attributed to digital investments and restructuring efforts.
