McDonald’s profits were lower than expected as soaring menu prices due to inflation and boycotts at franchised restaurants in the Middle East weighed on profits.
McDonald’s on Tuesday reported first-quarter net income of $1.93 billion, or $2.66 per share.
Excluding restructuring charges, Golden Arches’ earnings were $2.70 per share. Although it was up from the same period last year, it fell short of Wall Street’s expectations of $2.72 per share.
Meanwhile, net sales rose 5% to $6.17 billion, slightly above expectations of $6.16 billion. CNBC Previously reported.
The company recorded a pretax charge of $35 million related to the reorganization. The restructuring was announced more than a year ago and has since included a number of company layoffs under a strategy called “Organizational Acceleration.”
The size of the layoffs remains unclear, but the cuts come at a time when U.S. labor costs are becoming increasingly expensive.
Earlier this year, half of the states across the country raised their minimum wages, with New York and California raising wages to $16 an hour. But on April 1, the Golden State also implemented a rule requiring fast food workers to be paid $20 an hour.
As reports of eye-watering prices poured in, McDonald’s U.S. same-store sales rose 2.5% in the first three months of this year, below expectations of 2.6%.
To compensate for rising labor costs, several franchisees across the country have increased menu prices. That includes a store in Connecticut offering Big Macs for $18, Egg McMuffins for a whopping $7.29, and a side of hash browns for hungry patrons for $5.69.
Overall, the Chicago-based burger joint has slashed menu prices by 100% over the past decade, more than three times the rate of U.S. inflation. According to research by FinanceBuzzquoted national average prices.
The Quarter Pounder and Cheese costs $11.99, more than double the price of $5.39 in 2014, FinanceBuzz reports.
However, McDonald’s claims the report is inaccurate.
Meanwhile, McDonald’s performance around the world hasn’t been much better, with McDonald’s on Tuesday reporting that worldwide same-store sales rose 1.9% in the quarter, also below expectations of 2.1%.
The fast food chain has been the target of boycotts and protests since franchisee Aronyal announced it would donate free meals to the Israeli military shortly after the Oct. 7 attack by the Palestinian Islamist group Hamas. Meanwhile, this disappointing financial report was announced.
McDonald’s CEO Chris Kempczinski said in January that the conflict between Israel and Hamas has had a “significant impact” on the company in several markets in the Middle East and some markets outside the region. said.
According to a report from CNBC, McDonald’s announced a 0.2% decline in same-store sales, particularly in the Middle East market, marking the first time since the pandemic that one of the company’s divisions has reported a decline in same-store sales.
However, in other licensing markets such as Japan, Latin America, and the United Kingdom, McDonald’s reported growth in the first quarter.
The chain later announced it would buy back its 30-year-old Israeli franchise from Aronyar, take back ownership of the country’s 225 restaurants that employ more than 5,000 people, and get it back on track.
The companies did not disclose the terms of the transaction.
