McDonald's Q1 Results Fall Short of Sales Expectations as Consumers Tighten Their Wallets

McDonald’s customers might think twice before grabbing a Big Mac and fries.

The chain reported first-quarter results that missed sales growth and same-store sales estimates across all segments, while profits also fell short of expectations.

“As consumers become more sophisticated with every dollar they spend, we will continue to earn their visits,” CEO Chris Kempczinski said in a press release.

The fast-food giant posted revenue of $6.17 billion, up 4% from a year ago and slightly above Wall Street estimates of $6.15 billion. Adjusted earnings per share rose 2% to $2.70, below expectations of $2.72.

Global same-store sales growth was 1.9% year-over-year, compared with Wall Street’s hoped-for 2.33% increase. That’s also far less than the 12.6% increase in the first quarter of 2023.

In the US, comparable store sales rose 2.5%, slightly below the expected 2.55%. Higher menu prices increased average check size, while marketing campaigns and growth in digital and delivery helped boost sales.

In international markets where McDonald’s operates its own stores, same-store sales rose 2.7%, compared with growth of 12.6% a year ago.

Select international markets where McDonald’s operates through franchisees, such as Europe, Latin America and Asia, experienced positive sales growth. But overall same-store sales in the segment fell 0.2%, due to “the ongoing 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 impacts due to the war and related misinformation affecting brands like McDonald’s.”

The company’s loyalty program played a key role in its success. As consumers seek value and offers, loyalty 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 compared to the S&P 500 (^GSPC) 8.5% profit.

Ahead of the release, Deutsche Bank research analyst Lauren Silberman said in a note to clients that sentiment toward the company “appears to be negative… reflecting concerns about international same-store sales and risks to the numbers.” .

Although 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 to outperform over time, particularly in a more difficult period.” Consumer environment.”

This is happening because competition is heating up and Wendy’s (WEN), Burger King (QSR) and Taco Bell (YUM) are vying for market share with promotional activities.

Citi analyst Jon Tower identified the bull and bear scenarios for the Golden Arches in a recent note.

As for the bull case, he said the company has a “precedent for focusing on value to drive incremental market share gains in a weaker macroeconomic environment, and digital relationships offer a new path to pursuing these goals.”

As for the bear case: McDonald’s value isn’t what it once was.

“Wage increases and their associated prices have fundamentally destroyed the consumer’s value relationship with quick-service restaurants, convenience stores offer an increasingly competitive alternative to lower prices, and wage increases in California are an additional key to attracting franchisees to national value across the board.” , wrote Tower.

Experts told Yahoo Finance that the sheer size of McDonald’s and other large chains could help protect them from recent legislation in California that raised the minimum wage to $20 for most fast-food restaurants. However, as menu prices rise, companies may need to compete more aggressively with discounts and promotions.