McDonald's Reports Unexpected Profit Decline as Customers Turn Picky

Written by Camilla Jessen

May.01 - 2024 10:36 AM CET

McDonald's reported a rare decline in quarterly profits.

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McDonald's reported a rare miss in quarterly profits, marking its first such shortfall in two years, as budget-conscious consumers became selective with their spending amidst global economic pressures, including conflicts in the Middle East.

This downturn has caused the fast-food giant to underperform compared to its industry counterparts who have managed to attract customers with value-oriented menus.

Consumer Caution Affects Spending

"Consumers are certainly being very discriminating in how they spend their dollar. It's important to recognize that all income cohorts are seeking value," stated McDonald's CEO Chris Kempczinski during a post-earnings call, as reported by Reuters.

This shift in consumer behavior comes as individuals from all economic backgrounds look for greater value in their purchases.

In contrast to McDonald's, other fast-food chains like Burger King-owner Restaurant Brands International and Domino's Pizza have seen better results from their value menu strategies, attracting cautious customers who are reducing their restaurant visits.

McDonald's, alongside its industry peers, has increased prices by mid- to high-single-digit percentages over the past year in response to rising costs for eggs and other raw materials, even as lower-income consumers continue to feel budget pressures.

"We have seen that our relative superiority on affordability has declined in some markets," Kempczinski added.

Domestic and International Sales Insights

Domestically, McDonald's reported a modest 2.5% growth in first-quarter same-store sales, a sharp decline from last year's 12.6% growth and just below the expected 2.55%.

Internationally, sales from licensees, which account for 10% of overall revenue, dipped by 0.2%, despite positive trends in Japan, Latin America, and Europe. Analysts had anticipated a 0.98% increase for this segment.

McDonald's international performance has been particularly affected by the Middle East conflict and a sluggish Chinese economy. The company has also faced backlash and boycotts in some Muslim-majority countries following promotional actions by its Israeli franchises.

Adjusted earnings per share were reported at $2.70, slightly below the forecasted $2.72. Selling, general, and administrative expenses increased by 10% due to investments in digital capabilities and restructuring efforts.

Despite these challenges, McDonald's shares remained largely stable on Tuesday.

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