McDonald’s posts weak quarterly results as higher fast food prices hurt demand

Burger chain McDonald’s Inc. on Monday reported an unexpected drop in sales and a quarterly profit that fell short of Wall Street expectations as rising menu prices helped it struggle to attract cash-strapped customers who are opting to dine at home.

Global sales fell 1% in the second quarter, the first decline in 13 quarters, according to LSEG data, compared with analysts’ average forecast of a 0.53% increase.

Prolonged inflation has forced low-income earners to turn to affordable dining options at home, leading fast food chains like McDonald’s and Burger King to launch several deals and exclusive offers to boost footfall.

McDonald’s extends $5 meal deal at most U.S. restaurants

The bargain-set wars have intensified after rivals Burger King, Wendy’s and Starbucks rolled out bargain set menus in recent months.

McDonald’s had planned to extend its $5 meal offer at most U.S. locations through August after it began on June 25.

“The biggest hit to McDonald’s has been the sharp decline in visits from lower-income consumers, which more than offsets the typical sales declines that McDonald’s typically experiences in tough economic times,” said Brian Yarbrough, an analyst at Edward Jones.

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CEO Chris Kempczinski said consumers are becoming more cautious with their spending, but McDonald’s still maintained its 2024 operating margin forecast at the mid- to high-40s.

The company’s shares have fallen 15% this year but rose slightly in premarket trading after the company maintained its capital spending budget at up to $2.7 billion.

More than half of the funds will be used to open new restaurants in the U.S. and international markets.

U.S. same-store sales fell 0.7% in the quarter that ended June 30, after rising 10.3% in the same period a year ago. Sales in international markets fell 1.1% due to a slowdown in France.

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A slower-than-expected recovery in China and conflict in the Middle East hurt performance in McDonald’s business units where restaurants are operated by local partners, with sales falling 1.3 percent after growing 14 percent a year earlier.

Companies such as McDonald’s and Starbucks have seen sales in Middle Eastern markets hit by consumer boycotts linked to the Gaza war.

McDonald’s reported second-quarter adjusted earnings of $2.97 per share, below the $3.07 expected.