McDonald's reported disappointing second-quarter earnings on Monday, highlighting the ongoing challenges faced by the fast-food giant as consumers become more price-sensitive. The company missed Wall Street estimates across the board, revealing that even dominant players in the fast-food industry are not immune to current economic pressures.
For the quarter ending June 30, McDonald's reported revenue of $6.49 billion, a 2.01% increase year-over-year but still below the expected $6.63 billion. Adjusted earnings per share came in at $2.97, missing the anticipated $3.07, according to Bloomberg consensus data. Global same-store sales, which include both company-owned stores and franchises, decreased by 1%, compared to an estimated 0.84% increase. This marks the first quarterly decline in this metric since the fourth quarter of 2020 during the COVID-19 shutdowns.
"Consumers are more discriminating with their spend," McDonald's CEO Chris Kempczinski said in the earnings release. The company is focusing on "outstanding execution" of providing "reliable, everyday value" and "accelerating strategic growth drivers like chicken and loyalty."
In the U.S., same-store sales fell by 0.7%, driven primarily by a drop in foot traffic. This was the first decline in U.S. same-store sales in 16 quarters. Despite this, McDonald's saw positive digital and delivery growth. Internationally owned locations experienced a 1.1% decline, impacted by negative sales growth in several markets, particularly France. Additionally, international franchised locations saw a 1.3% year-over-year sales drop, influenced by ongoing geopolitical tensions and declining sales in China. However, there was positive sales growth in Latin America and Japan.
To address the growing demand for value, McDonald's introduced a series of limited-time bundle deals in Q2. One notable promotion was the extension of its $5 meal deal through August, which launched toward the end of the quarter on June 25. The deal includes a choice of a McDouble burger or McChicken sandwich, four-piece chicken McNuggets, small fries, and a small soft drink.
Loyalty programs have continued to play a crucial role in driving digital sales. In Q2, loyalty members accounted for nearly $7 billion in digital sales across 50 markets, up from $6 billion in Q1. Over the past 12 months, these members contributed to $26 billion in systemwide sales.
Despite the success of some promotions, McDonald's struggled to replicate the strong performance of Q2 last year, bolstered by the popular Grimace Shake promotion. "Sentiment here is low, with many believing near-term initiatives around value offering are not enough of a traffic lift to offset mix headwinds," Citi analyst Jon Tower wrote in a note to clients before the results.
The outlook for McDonald's in the second half of the year remains a key focus for investors. A memo obtained by Yahoo Finance revealed that 93% of McDonald's restaurants voted to extend the $5 meal deal, initially limited to July. The company's U.S. chief marketing officer, Tariq Hassan, stated that the deal successfully drew foot traffic from competitors and enhanced the brand's affordable image.
BTIG analyst Peter Saleh suggested that the promotion could extend into September as McDonald's works on establishing a permanent value platform, such as a buy-one-get-one offer or a revamped Dollar Menu. However, some franchisees have expressed concerns about the impact of the deal on profit margins. "Franchisees are telling us that their margins are being impacted by [the deal], making it less profitable or, in some cases, not profitable at all," Saleh noted.
Here are the key figures McDonald's reported for Q2, compared to Wall Street expectations, per Bloomberg consensus data:
- Revenue: $6.49 billion versus $6.63 billion expected
- Adjusted earnings per share: $2.97 versus $3.07 expected
- Global same-store sales growth: -1.0% versus +0.84% expected
- U.S. same-store sales growth: -0.7% versus +1.04% expected
- International-owned same-store sales growth: -1.1% versus +1.85% expected
- International franchised same-store sales growth: -1.3% versus +0.41% expected
