McDonald’s Reports Sales Decline Due to Inflation and Lower-Income Cutbacks
McDonald’s reported a surprising drop in global sales on Monday. This decline marks the first in 13 quarters. The company attributes this downturn to consumers avoiding higher-priced menu items like the Big Mac. Inflation has pushed lower-income customers to choose more affordable options at home.
CEO Chris Kempczinski noted that consumers are now more price-conscious. “There is a lot more deal-thinking from consumers who have become very discriminating,” Kempczinski said. He added that consumer sentiment in major markets remains low. The company saw global comparable sales fall by 1% in the second quarter. Analysts had expected a 0.5% increase. Despite this, overall revenue rose by 1%.
To counteract the decline, McDonald’s introduced a $5 meal deal in June at most U.S. locations. This deal will continue into August to attract customers who have cut back on dining out. Edward Jones analyst Brian Yarbrough explained that the low-income consumers have significantly reduced their visits. This cutback has offset the usual increase in value-seeking customers during tough economic times.
The recent financial results mirror broader industry trends. Coca-Cola CEO James Quincey recently mentioned a “softness in away-from-home channels” in North America. This suggests fewer people are eating out. Despite the drop in sales, McDonald’s maintained its 2024 operating margin forecast at the mid-to-high 40% range. The company also kept its capital expenditure budget up to $2.7 billion. More than half of this will fund new restaurant openings in the U.S. and international markets.
McDonald’s shares, which have dropped 15% this year, remained flat at $251.20 after the announcement. U.S. comparable sales fell by 0.7% for the quarter ending June 30, down from a 10.3% increase last year. International sales, which contribute nearly half of the company’s revenue, decreased by 1.1%. Weaknesses in France were a significant factor.
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Challenges also arose in China and the Middle East. Slower-than-expected recoveries and geopolitical conflicts, including the Gaza situation, hurt sales in these regions. Sales in areas operated by local partners fell by 1.3%, compared to a 14% rise a year earlier. McDonald’s, along with companies like Starbucks, faced consumer boycotts related to the conflict, impacting sales in the Middle East.
For the second quarter, McDonald’s earned $2.97 per share on an adjusted basis. This missed the expected $3.07 per share. The company remains focused on value-driven initiatives to attract budget-conscious consumers amid a challenging economic landscape.
