McDonald’s results fell short of expectations in the first quarter, hampered by slowing growth in the US and the reverberations of the Israel-Hamas war.
Growth in comparable sales, a metric tracking restaurants open for over a year, was 1.9 per cent – slower than analysts anticipated. Each of McDonald’s geographic segments fell short of expectations on sales by that metric, including a slight miss in the key US market. The business unit that includes the Middle East recorded a decline.
McDonald’s has taken a hit from boycotts related to the war in the Middle East, warning on Tuesday of revenue weakness “as long as the war continues”. Executives have also said that low-income consumers in the US, an important part of the company’s customer base, are pulling back.
The chain plans to focus on affordability in the US, with executives hinting at a nationwide value menu in a call with investors. Chief executive Chris Kempczinski touted the success of offers like the McSmart, a bundle available in countries including Germany.
In its home market, McDonald’s already offers deals through its app and through offers franchisees have come up with, but that approach is “very fragmented”, Kempczinski said.
Some analysts had trimmed their outlook for comparable sales before McDonald’s released results, in part on data pointing to moderating traffic. After outpacing the rest of the industry in recent years, the burger chain is facing weakened demand across the world as it embarks on an ambitious expansion strategy.
While comparable-sales growth is slowing, the company pointed to a 3 per cent expansion in systemwide sales in the quarter. That gauge also includes new restaurants, which are key to the company’s targets.
McDonald’s is hoping items such as the limited-time Bacon Cajun Ranch McCrispy will bring in diners. It’s also looking to attract customers into its loyalty programme and with bundles for under $4 at many US locations.
Still, traffic might not improve in a sustained way in the first half of the year, BTIG LLC analyst Peter Saleh said in a note before the earnings release. He sees discounts, which can erode profitability, likely remaining prevalent.
Earnings, excluding some items, were $2.70 a share in the first quarter. Analysts polled by Bloomberg were expecting $2.72. – Bloomberg
