Hello everyone! We’re here with some updates on one of our favorite fast-food chains, McDonald’s. If you’re a regular consumer, you’ve probably noticed that their menu prices have escalated recently. McDonald’s CEO, Chris Kempczinski, confirmed this by announcing a substantial inflationary cost increase of between 20 to 40%, varying by market, over the past few years.
This significant hike has led to a necessary rise in prices to balance these costs, in conjunction with their franchisees, while maintaining profitability. Unfortunately, this change has disturbed their long-standing value programs, prompting customers to reconsider their purchasing patterns. Consequently, McDonald’s sales dipped by 1% in the second quarter, marking the first decline in 13 quarters. This is quite an unexpected turn, particularly as analysts had predicted a surge.
Nevertheless, McDonald’s is not sitting idle. Fast food chains, including the likes of McDonald’s and Burger King, are initiating numerous promotions to restore customer traffic during these ongoing inflationary times. You might have already come across the $5 meal deal that McDonald’s offered through August in most US branches. Designed to compete with rivals such as Burger King, Wendy’s, and Starbucks, this promotion has significantly boosted sales, particularly in areas such as upstate New York.
🚨MCDONALD’S SALES DROP FOR THE FIRST TIME IN 3 YEARS
McDonald’s reported a surprise 1% drop in global comparable sales, the first decline in 13 quarters, as inflation-hit consumers opt for cheaper food.
Despite a strong response to the $5 meal deal, U.S. sales fell 0.7%, while… pic.twitter.com/RdWmiISRfY
— Mario Nawfal (@MarioNawfal) July 29, 2024
Although such promotions have succeeded, Kempczinski conceded there’s still potential for improvement in their value execution, which he believes influenced the company’s recent underperformance. Nevertheless, his optimism remains unwavering, asserting, “The hallmark of a great company is its ability to perform in good times and bad, and we are resolved to reignite share growth in all our major markets, regardless of the prevailing market conditions.”
Despite the challenges, McDonald’s maintains its 2024 operating margin forecast unchanged in the mid-to-high 40% range. Their shares are also showing signs of recovery, albeit slightly, in premarket trading. They also intend to keep their capital expenditure budget of up to $2.7 billion, over half of which will be invested in opening new restaurants domestically and internationally.
Regrettably, U.S. comparable sales have declined by 0.7% in the quarter ended June 30th, compared to a 10.3% rise a year ago. Sales also fell in international markets by 1.1% due to specific weaknesses in France. Issues like a slower-than-expected recovery in China and Middle East conflicts have also impacted McDonald’s business, where restaurants are managed by local partners.
McDonald’s reported a surprise drop in sales worldwide, its first decline in 13 quarters, as deal-seeking consumers shy away from higher priced menu items including Big Macs https://t.co/2FuN1jjpkY pic.twitter.com/CB9SLUGLj3
— Reuters (@Reuters) July 29, 2024
For shareholders, it’s worth noting that McDonald’s reported earnings of $2.97 per share on an adjusted basis in the second quarter, falling short of the projected $3.07. That’s all for now. Stay tuned for more updates!
Looks like $MCD had a “McFlop” with their sales this quarter
🔴 EPS $2.97 vs $3.07 est.
🔴 Revenue: $6.49B vs $6.61B est.
🔴 Comparable Sales -1.0% vs 0.84% est.First time same-store sales have fallen in almost four years, up +0.75% PM pic.twitter.com/QBca0Z3mxG
— TheBetterBull 🐂 (@TheBetterBull) July 29, 2024
