McDonald’s reported a surprising drop in global sales on Monday, marking its first decline in 13 quarters. This drop, driven by a shift in consumer behavior, comes as deal-seeking customers avoid higher-priced menu items like Big Macs.
Ongoing inflation has prompted lower-income consumers to opt for more affordable food options at home, pushing fast-food chains, including McDonald’s, Burger King, Wendy’s, and Taco Bell, to focus on value meals to attract customers.
Despite a 15% drop in McDonald’s shares this year, the stock rose nearly 4% after company executives revealed that the $5 meal deal, introduced in late June, exceeded expectations. The company is working with franchisees to potentially extend this deal beyond August.
McDonald’s maintained its 2024 forecast for an operating margin in the mid-to-high 40% range and plans to be more selective with price increases to protect profitability. Brian Mulberry, a client portfolio manager at Zacks Investment Management, suggested that while traffic is currently soft, it is expected to improve with better value options on the menu in the latter part of the year.
Global comparable sales fell by 1% in the second quarter, contrary to expectations of a 0.5% increase, though overall revenue rose by 1%. CEO Chris Kempczinski noted that consumers are increasingly deal-conscious, leading to a decline in consumer sentiment across major markets.
This trend aligns with comments from Coca-Cola CEO James Quincey, who observed “softness in away-from-home channels” in North America, indicating a reduction in dining out.
Edward Jones analyst Brian Yarbrough highlighted that the biggest impact on McDonald’s is the cutback by low-income consumers, which is more significant than the typical shift toward value dining during tough economic times.
In the U.S., comparable sales fell 0.7% for the quarter ending June 30, a sharp contrast to a 10.3% increase a year ago. International sales dropped 1.1%, with France experiencing notable weakness. Sales in markets managed by local partners, including China and regions affected by the Middle East conflict, declined 1.3%, compared to a 14% increase the previous year.
Despite these challenges, McDonald’s is maintaining its capital expenditure budget of up to $2.7 billion, with a significant portion allocated for new restaurants in both the U.S. and international markets. The company earned $2.97 per share in the second quarter, missing expectations of $3.07.
