McDonald’s has reported a surprising dip in quarterly profits, marking the first time in two years that it has fallen short of expectations. The decline comes as consumers showed less interest in its offerings, and international sales were impacted by the conflict in the Middle East.
Global comparable sales growth continued its downward trend for the fourth consecutive quarter, reaching just 1.9%. Analysts had anticipated a higher increase of 2.35%. McDonald’s CEO, Chris Kempczinski, noted that consumers are becoming more selective with their spending habits, seeking value across all income brackets.
While McDonald’s and its competitors have been relying on value menu items to attract customers, the results have not been uniform across the industry. Burger King-owner Restaurant Brands International exceeded expectations for the quarter, while Domino’s Pizza benefited from promotional offers.
McDonald’s, like its peers, has faced rising costs of raw materials such as eggs, prompting price increases of mid- to high-single-digit percentages over the past year. Despite this, the company has observed a decline in its affordability advantage in certain markets.
In the United States, McDonald’s first-quarter same-store sales grew by only 2.5%, a significant drop from the 12.6% growth seen the previous year. International sales from the company’s licensees, accounting for 10% of overall revenue, declined by 0.2%, contrary to analyst expectations of a 0.98% rise.
The Middle East conflict and a sluggish Chinese economy have contributed to the challenges faced by McDonald’s international operations. Western brands like McDonald’s and Starbucks have encountered protests and boycotts due to their perceived support for Israel.
McDonald’s has also faced internal challenges regarding its operations in regions affected by the conflict. In response to backlash from franchises in Muslim countries, the company bought back its Israel franchise and addressed concerns raised by its Malaysia franchise.
Looking ahead, uncertainties surrounding the impact of the Middle East conflict on U.S. brands operating internationally pose risks for firms with significant operations in the region.
McDonald’s adjusted per-share profit fell slightly below estimates at $2.70, with selling, general, and administrative expenses rising by 10% due to investments in digital initiatives and restructuring efforts. Despite these challenges, the company’s shares remained relatively stable.
