McDonald’s (MCD) customers are once again trying to save money in the second quarter as they struggle to pay for Big Macs.
The company announced Monday morning that its second-quarter revenue, profit and same-store sales results all missed Wall Street expectations, proving that even America’s most powerful fast-food company is not immune to tough macroeconomic conditions.
For the quarter ended June 30, McDonald’s reported revenue of $6.49 billion, up 2.01% from a year ago, versus expectations of $6.63 billion.
Adjusted profit of $2.97 also missed the $3.07 expected based on Bloomberg consensus data.
Global same-store sales, which include company-operated and franchised stores, fell 1%, versus expectations of a 0.84% increase. This marked the first quarterly decline for the metric since the fourth quarter of 2020, when coronavirus closures continued.
“Consumers are becoming more cautious with their spending,” CEO Chris Kempczinski said in the earnings call. He said the team is focused on “execution excellence” in delivering “trusted, everyday value” and “accelerating strategic growth drivers like chicken and loyalty.”
In the second quarter, fast-food restaurants introduced a slew of limited-time bundle deals in an attempt to offer value after years of price hikes: McDonald’s recently announced plans to extend its $5 meal deal through August, which began on June 25th, at the end of the quarter.
In the U.S., same-store sales fell 0.7% due to lower customer traffic. This was the first U.S. same-store sales decline in 16 quarters. This was partially offset by higher menu prices. Positive growth in digital and delivery was a bright spot in an otherwise dark quarter.
Overseas, sales declined 1.1%, with negative growth in “many markets” due to France.
International franchise sales declined 1.3% from a year ago due to the continuing impact of the Middle East war and slowing same-store sales growth in China, but sales increased in Latin America and Japan.
As consumers seek value and deals, loyalty members drove nearly $7 billion in digital sales across 50 markets, up from $6 billion reported in the first quarter. Over the past 12 months, these members accounted for $26 billion in systemwide sales.
McDonald’s had a hugely successful second quarter last year, driven by its Grimace Shake promotion, and that performance has proven difficult to top.
“Sentiment here is low and many believe that near-term efforts around a value offering will not generate enough traffic growth to offset mix headwinds,” Citi analyst John Tower wrote in a client note ahead of the earnings release.
“Long-term investors find the company attractive as a value stock,” Tower said, adding that the company’s value strategy will “ultimately” pay off. But it’s unclear how long it will take for U.S. sales growth to “re-accelerate.”
Many are focusing on McDonald’s outlook for the second half of the year and whether the company can regain momentum with sales growth and increased customer traffic.
Increasing the price of its $5 meal sets might help: According to a memo obtained by Yahoo Finance, 93% of McDonald’s locations voted to extend its $5 meal sets, which were initially limited to only through July.
Tariq Hassan, the company’s U.S. chief marketing officer, said the deal has brought traffic back from competitors and bolstered the brand’s affordable image after several price hikes. Customers attracted by the deal might also try other, more expensive items.
When the service officially launched on June 25, foot traffic was down 0.8% year-over-year that week, according to Placer.ai. Then, foot traffic increased 2.8% year-over-year the week of July 1, and 2.4% year-over-year the week of July 8.
BTIG analyst Peter Saleh told Yahoo Finance ahead of the earnings release that the promotion could potentially extend through September while McDonald’s works on a more permanent value platform like “buy one, get one free” or “$1, $2 and $3 menu items.”
“This is kind of a bridge to a value menu,” Saleh said before the extension was announced, adding that franchisees are realizing that the $5 menu item — which includes a McDouble Burger or McChicken sandwich, four Chicken McNuggets, small fries and a small soft drink — is “too narrow” and “doesn’t give customers a wide variety of options.”
A prolonged $5 trade could put pressure on profit margins.
“Franchisees are telling us their profit margins are being affected. [the deal]”This is resulting in a significant reduction in margins and, in some cases, no margins at all,” Mr. Saleh said. Some franchisees are also toning down marketing for the deal, such as video ads on in-store screens or signage in windows.
Here’s how McDonald’s reported its second-quarter results compared to Wall Street expectations, according to Bloomberg consensus data.
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Revenue: $6.49 billion vs. $6.63 billion
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Adjusted earnings per share: $2.97 vs $3.07
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Global same-store sales growth: -1.0% vs +0.84%
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U.S. same-store sales growth: -0.7 vs +1.04%
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Foreign-owned same-store sales growth: -1.1% vs +1.85%
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Growth in existing overseas franchise sales: -1.3% vs +0.41%
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter.Brooke DePalma Or email me at bdipalma@yahoofinance.com
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