McDonald’s experienced a surprising drop in global sales on Monday, marking its first decline in 13 quarters. This downturn is attributed to consumers increasingly avoiding higher-priced menu items, such as Big Macs, due to persistent inflation.
The shift in consumer behavior, particularly among lower-income groups, has driven many to seek more affordable food options at home. Consequently, fast food chains like McDonald’s, Burger King, Wendy’s, and Taco Bell are focusing on value meals to attract customers.
Despite a 15% drop in McDonald’s shares this year, the stock rose nearly 4% following news that the $5 meal deal introduced in late June exceeded expectations. Executives announced plans to work with franchisees to potentially extend the deal beyond August.
McDonald’s maintained its 2024 operating margin forecast in the mid-to-high 40% range but indicated a cautious approach to future price increases to safeguard profitability. Brian Mulberry of Zacks Investment Management noted that while traffic is currently weak, improvements are expected later in the year with better menu value.
Global comparable sales fell 1% in the second quarter, contrary to expectations of a 0.5% increase, though overall revenue rose by 1%. CEO Chris Kempczinski remarked that consumers are increasingly focused on deals and that sentiment remains low in major markets.
These results align with comments from Coca-Cola CEO James Quincey, who noted a decline in away-from-home dining in North America. Edward Jones analyst Brian Yarbrough pointed out that lower-income consumers have significantly reduced visits, outweighing the typical trade-down McDonald’s sees during economic downturns.
In the U.S., comparable sales decreased by 0.7% for the quarter ending June 30, a sharp contrast to a 10.3% increase the previous year. International sales, which accounted for nearly half of McDonald’s 2023 revenue, fell 1.1%, with particular weakness in France. The recovery in China and the Middle East conflict also negatively impacted performance, with sales declining 1.3% compared to a 14% increase a year earlier.
McDonald’s plans to adhere to its capital expenditure budget of up to $2.7 billion, with over half allocated for new restaurants in both the U.S. and international markets. The company earned $2.97 per share on an adjusted basis in the second quarter, falling short of the expected $3.07.
