McDonald’s reported a surprise drop in sales on Monday, missing Wall Street’s quarterly earnings estimates. The burger giant has struggled recently to attract cash-strapped customers who have opted to eat at home because of higher menu prices, and that was reflected in the results, The Guardian reported. Reuters.
Global sales fell 1% in the second quarter, the first decline in 13 quarters.
Contrary to analysts’ average estimate of 0.53 percent growth — according to LSEG data — this is a rather lackluster result. Persistent inflation has forced lower-income groups to turn to more affordable home-cooked options, prompting fast-food chains including McDonald’s and Burger King to offer more expensive, limited-time menus to boost traffic to start the sale.
The value-for-money meal wars have also intensified, with rivals Burger King, Wendy’s and Starbucks introducing so-called meal deals in recent months. Despite the delay, McDonald’s also introduced its $5 lunch deal at its U.S. restaurants on June 25, which the Chicago company will almost certainly keep on menus through August. That’s already a late start, though, as revenue from that will largely be understood in the third-quarter report.
The biggest hit to McDonald's is that lower-income consumers have actually slowed their visits, which offsets McDonald's usual business downturn, which it tends to do during tough economic times.
Brian Yarbrough, an analyst at Edward Jones, said.
There's nothing wrong with that.
Consumers are becoming more selective about what they spend on, said CEO Chris Kempczinski. However, McDonald's kept its 2024 operating margin forecast unchanged in the mid-to-high 40 percent range.
Shares, which are down 15 percent this year, were up slightly in premarket trading as the company maintained its $2.7 billion capital budget.
More than half of the money will be used to launch new restaurants in the United States and international markets.
In the United States, comparable sales fell 0.7 percent in the quarter ended June 30, compared with a 10.3 percent jump a year earlier. Sales in international markets fell 1.1 percent, largely due to weakness in France.
Slower-than-expected recoveries in China and the Middle East also weighed on the chain restaurant business, where restaurants are operated by local partners, with sales down 1.3 percent from a 14 percent jump a year earlier.
McDonald's earned $2.97 per share on an adjusted basis in the second quarter, missing expectations of $3.07.
However, in Hungary, there is no big problem, as we mentioned, McDonald's Hungary is constantly opening new restaurants and updating existing ones, while also taking care of the needs of local communities.
(Cover photo: McDonald's headquarters in Chicago on March 8, 2020. Photo by Raymond Boyd/Getty Images)
