McDonald’s faced a cautious consumer base in Q1 as reflected in its disappointing revenue and same-store sales performance across all segments. Despite CEO Chris Kempczinski’s acknowledgment of consumers’ discerning spending habits amidst elevated prices, the fast-food giant fell short of Wall Street estimates, indicating a challenging macroeconomic environment.
Q1 revenue reached $6.17 billion, marking a 4% year-over-year increase but slightly missing analysts’ projections of $6.15 billion. Adjusted earnings per share rose by 2% to $2.70, falling below expectations of $2.72.
Global same-store sales growth stood at 1.9% year over year, notably lower than the anticipated 2.33% surge and a stark contrast to the 12.6% growth witnessed in Q1 2023.
Kempczinski highlighted stagnant to declining industry traffic in major markets such as the U.S., Australia, Canada, Germany, Japan, and the U.K. Foot traffic slowdowns are prevalent amid a challenging macroeconomic landscape where consumers prioritize value.
McDonald’s U.S. same-store sales increased by 2.5%, marginally below the expected 2.55%. Elevated menu prices contributed to larger average check sizes, while marketing initiatives and digital expansion bolstered sales.
Internationally, same-store sales in McDonald’s-operated stores rose by 2.7%, a notable decline from the 12.6% growth recorded a year ago. However, markets operating through franchisees in regions like Europe, Latin America, and Asia experienced positive sales growth, albeit offset by a 0.2% decline in overall same-store sales due to ongoing Middle East conflicts.
The company’s loyalty program played a pivotal role, generating $6 billion in digital sales across 50 markets during Q1 and $25 billion over the past year.
McDonald’s shares have faced pressure, declining by 9% year-to-date compared to the S&P 500’s 8.5% gain. Analysts like Lauren Silberman from Deutsche Bank view near-term concerns as overstated, affirming McDonald’s global strength and value leadership.
Despite intensifying competition from rivals like Wendy’s (NASDAQ:WEN), Burger King, and Taco Bell, Citi analyst Jon Tower outlines both bullish and bearish scenarios for McDonald’s. While digital relationships offer growth avenues, challenges persist with wage increases impacting consumer perception of value.
Kempczinski emphasized digital promotions like the “buy one Big Mac, get one for $0.29” offer, underlining the necessity to enhance awareness of McDonald’s value proposition. Despite labor inflation concerns, the company anticipates continued resilience, supported by its scale and strategic initiatives.