McDonald's sees first sales drop in four years, plans new promotions to attract customers back
McDonald’s Corp. faced its first sales drop in four years, yet investors remained optimistic as executives pledged new promotions to boost customer visits, as per BNN Bloomberg.
Chief Financial Officer Ian Borden addressed analysts, noting that comparable sales have been negative at the start of the third quarter across all three geographic units. He indicated that the environment is unlikely to change in the coming quarters.
The decline in US foot traffic was partly offset by higher burger prices. However, Borden warned of continued challenges as the company reduces price increases with consumers' budgets reaching their limits.
Despite these warnings, McDonald’s shares rose 3.7 percent on Monday, marking their biggest gain since 2022. This increase suggests that the decline in same-store sales was less severe than Wall Street had expected.
As of Friday’s close, McDonald’s stock had already fallen 15 percent this year, compared to a 14 percent gain for the S&P 500 index.
Senior analyst Danilo Gargiulo from Bernstein Institutional Services noted, “Despite missing on consensus, McDonald’s results were better than feared, especially in the US where the contraction was a mere -0.7 percent same-store sales growth.”
This comes after McDonald’s executives had previously warned of a potential industry-wide demand slump.
The second quarter earnings, excluding certain items, were US$2.97 per share, falling short of the average analyst estimate. Nevertheless, McDonald’s maintained its guidance for new store openings and operating margin.
This year, McDonald’s sales growth slowed as diners worldwide reduced their spending on Big Macs due to years of price increases and tight household budgets.
CEO Chris Kempczinski acknowledged that the company’s “value leadership gap” had shrunk and committed to restoring it. The chain's strategic priorities include enhancing its chicken lineup and loyalty program.
Joe Erlinger, president of the US business, told franchisees in a message that the chain was “falling short.” He reported negative same-store guest counts for the fourth consecutive quarter and noted that diners were adding fewer items to their orders, affecting average check sizes.
Erlinger emphasized the need to address the “affordability gap” and demonstrate to customers that McDonald’s is listening. He also mentioned plans for a future US value platform.
In an effort to appeal to cost-conscious diners, McDonald’s introduced a $5 meal deal in the US last quarter. Early results indicate that it is attracting customers, though the full impact on sales will be seen later this year.
The company also launched limited-edition menu items, such as a bacon cajun McCrispy and a “grandma” McFlurry, to entice customers. Erlinger stated that the $5 meal deals exceeded expectations, with the average check for these orders surpassing $10, indicating that diners were adding extra items.
Outside the US, McDonald’s faced challenges in Europe and China. Kempczinski noted a loss of market share in France due to declining family demand and announced the launch of a €4 Happy Meal to attract customers back.
In China, same-store sales declined, though the chain maintained its market share despite weaker diner sentiment.
Boycotts related to the Israel-Hamas conflict continued to affect sales in the segment that includes the Middle East. The company had previously warned that the slump would persist until the conflict is resolved.
System-wide sales, which include business at new restaurants, also declined, indicating that new openings are not compensating for weaknesses in existing units.
McDonald’s is in the midst of an ambitious expansion plan, aiming to have 50,000 locations worldwide by 2027, up from about 42,000 at the beginning of this year.
