McDonald’s surprised the market on Monday (July 29) by announcing a global drop in sales for the last quarter, marking the first decline in 13 quarters for the company. This unexpected dip is attributed to cost-conscious consumers hesitating to purchase higher-priced menu items, including the iconic Big Mac.
Facing ongoing inflation, many low-income consumers are opting to dine at home more often in order to save money. This trend has led fast-food chains like McDonald’s, Burger King, Wendy’s, and Taco Bell to introduce value meals to attract customers with more affordable options.
McDonald’s stock price has fallen by 15% this year. However, following the success of the $5 meal introduced at the end of June, the stock price rose by 4% in early trading on Monday.
Despite the sales decline in comparable global sales of 1% in the second quarter, with an expected growth of 0.5%, the overall revenue increased by 1%.
CEO Chris Kempczinski stated that consumers have become “very picky” and are increasingly focused on affordability. He mentioned, “Consumer sentiment in most of our key markets remains low.”
In June, McDonald’s launched a $5 meal at most of its US stores. Originally planned to run through August, this promotion aimed to attract customers who had decreased their restaurant visits.
Analyst Brian Yarbrough from financial services company Edward Jones noted that McDonald’s has been affected by a reduction in visits from low-income consumers, offsetting the typical discounted promotions the company usually offers during economic hardships.
McDonald’s performance echoes comments made by Coca-Cola CEO James Quincey last week. Quincey noted a soft performance in North American sales for Coca-Cola, indicating a decrease in dining out.
McDonald’s is maintaining a capital expenditure budget of up to $2.7 billion, with over half of it slated for opening new restaurants in the US and international markets.
For the quarter ending on June 30, comparable sales in the US market for McDonald’s dropped by 0.7%, compared to a 10.3% growth in the same period last year. International market sales, which contribute nearly half of the company’s 2023 total revenue, declined by 1.1% due to weak performance in the French market.
Slower-than-expected economic recovery in China and conflict in the Middle East have impacted the performance of McDonald’s in that region, resulting in a 1.3% decrease in sales for the quarter, while it witnessed a 14% increase in sales during the same period last year.
McDonald’s, along with companies like Starbucks, faced consumer-led boycotts related to the conflict in Gaza, affecting their sales in the Middle Eastern market.
In the second quarter, McDonald’s adjusted earnings per share stood at $2.97, lower than the expected $3.07.