McDonald’s customers might think twice before grabbing a Big Mac and fries.
The chain reported first-quarter results that missed revenue growth and same-store sales estimates in all of its segments, while its profits also fell short of expectations.
“As consumers become more discerning with every dollar they spend, we will continue to earn their visits,” CEO Chris Kempczinski said in a statement.
The fast food giant reported revenue of $6.17 billion, up 4% year over year and slightly above Wall Street estimates of $6.15 billion. Adjusted earnings per share were up 2% to $2.70, below expectations of $2.72.
Global same-store sales growth was 1.9% year-on-year, compared to the 2.33% jump expected by Wall Street. This is also well below the 12.6% increase seen in the first quarter of 2023.
In the United States, same-store sales rose 2.5%, slightly below the 2.55% expected. Rising menu prices have increased average check sizes, while marketing campaigns and the growth of digital and delivery have helped boost sales.
In international markets where McDonald’s operates its own stores, same-store sales increased 2.7%, compared to 12.6% growth a year ago.
Some international markets in which McDonald’s operates through franchisees, such as Europe, Latin America and Asia, have recorded positive sales growth. But the segment’s overall same-store sales fell 0.2 percent, due to the “continued impact of the war in the Middle East.”
In early January, CEO Chris Kempczinski wrote in a LinkedIn post that “several markets in the Middle East and some outside the region are experiencing significant business impact due to the war and resulting disinformation affecting businesses.” brands like McDonald’s.
The company’s loyalty program played a key role in its performance. As consumers look for value and deals, loyal members generated $6 billion in digital sales across 50 markets in the first quarter, and $25 billion in the last 12 months.
Shares of the fast food giant have been under pressure, falling 8% year to date versus the S&P 500 (^GSPC) Gain of 8.5%.
Ahead of the release, Deutsche Bank research analyst Lauren Silberman said sentiment toward the company “appears to be negative… reflecting concerns over international same-store sales and the risk for the numbers” in a client note.
While there are near-term issues, Silberman wrote that “concerns about McDonald’s global strength and value leadership are overblown” and that she continues to “view the brand as well-positioned for outperform over time, particularly in a more difficult consumer context.”
This comes as competition heats up, with Wendy’s (WEN), Burger King (QSR), and Taco Bell (YUM) vying for market share through promotional activities.
Citi analyst Jon Tower identified the bull and bear case for the Golden Arches in a recent note.
Regarding the bull case, he said the company has “precedent for… leveraging value to drive function share gains in weaker macroeconomic environments, and digital relationships provide a new path to pursue these objectives.
As for the bear case, McDonald’s value is not what it once was.
“Wage increases and associated prices have fundamentally broken the consumer’s value relationship with quick-service restaurants, convenience stores offer an increasingly competitive alternative at lower prices, and California’s wage increases are a key additional to broadly rally franchisees to a national value. offer,” Tower wrote.
Experts told Yahoo Finance that the sheer scale of McDonald’s and other big chains can help protect them from recent California legislation that raised the minimum wage for most fast food establishments to $20. However, as menu prices rise, companies may need to compete more aggressively on discounts and promotions.
Here’s what McDonald’s reported compared to Wall Street estimates, according to Bloomberg:
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Income: $6.17 billion versus $6.15 billion
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Adjusted earnings per share: $2.70 vs. $2.72
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Global same-store sales growth: 1.9% versus 2.33%
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Same-store sales growth in the United States: 2.5% versus 2.55%
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International same-store sales growth: 2.7% against 3.20%
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International comparable franchise store sales growth: -0.2% against +1.17%
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email him at [email protected].
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