McDonald’s (MCD) reported second-quarter earnings and revenue that fell short of Wall Street expectations, as higher menu prices only partially offset decreased foot traffic.
This resulted in a decline in same-store sales for the first time since the pandemic began, highlighting challenges even as the company introduced budget-friendly options like the $5 meal deal.
McDonald’s reported revenue of $6.49 billion, a 2.01% increase year-over-year, but below the estimated $6.63 billion.
Adjusted earnings per share came in at $2.97, missing the forecasted $3.07.
Same-store sales decreased by 1%, contrary to the expected 0.84% increase. This is the first quarterly decline since Q4 2020.
In the last quarter, other food and beverage giants- from Starbucks to KFC to Pizza Hut had reported shrinking same store sales as diners became increasingly driven by value.
Same-store sales fall by 1%
In the US, same-store sales fell by 0.7%, the first decline in 16 quarters, driven by decreased foot traffic but partially offset by higher menu prices.
This was in stark contrast to the increase of 10.3% that the company had reported in US during the same quarter last year.
Sales in international owned locations dropped by 1.1%, with France experiencing significant negative growth.
International development licensed markets saw a 1.3% decline, affected by geopolitical issues like the Middle East conflict and reduced growth in China. However, there was positive growth in Latin America and Japan.
‘Outstanding execution’
McDonald’s CEO Chris Kempczinski emphasized the company’s focus on “outstanding execution” of value offerings and strategic growth drivers such as chicken products and loyalty programs.
Despite these efforts, the macroeconomic environment remains challenging.
The $5 meal deal, launched in late June and extended through August, aims to attract budget-conscious consumers.
This deal has shown some success in boosting foot traffic and brand perception as affordable.
Positive growth in digital and delivery sales was a bright spot, with loyalty members contributing nearly $7 billion in digital sales across 50 markets, up from $6 billion in Q1.
The initial market reaction to the earnings report was a 1% decline in McDonald’s stock, though it later rose by 0.7% premarket.
Analysts like Jon Tower from Citi expressed concerns over the effectiveness of McDonald’s short-term value initiatives in driving traffic.
“Longer-term investors see valuation as compelling,” with the company’s value plays “eventually” working, Tower added. But it’s uncertain how long it’ll take for US sales growth to “reaccelerate”, he said, as quoted by Yahoo Finance.
BTIG analyst Peter Saleh told Yahoo Finance that the $5 meal deal might be extended further while McDonald’s develops a permanent value platform. However, franchisees have reported that the deal impacts margins, with some pulling back on marketing efforts due to profitability concerns.
Outlook for H2 2024
Looking ahead, McDonald’s has not provided specific guidance for the upcoming quarters but remains committed to its “Accelerating the Arches” strategy.
“We are confident that Accelerating the Arches is the right playbook for our business and as consumers are more discriminating with their spend, we are focused on the outstanding execution of delivering reliable, everyday value and accelerating strategic growth drivers like chicken and loyalty,” Kempczinski said.
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