In Q2, McDonald’s customers are cutting back on spending, causing the company to report earnings that fell short of Wall Street estimates. Despite revenue of $6.49 billion, up 2.01% from the previous year, McDonald’s missed expectations. Adjusted earnings of $2.97 were also lower than the expected $3.07. Global same-store sales decreased by 1%, the first decline since Q4 2020. CEO Chris Kempczinski acknowledged that consumers are being more selective with their spending, prompting the company to focus on providing reliable value and accelerating growth in areas like chicken and loyalty programs.
To combat the challenging market conditions, McDonald’s introduced limited-time bundle deals in Q2 to attract customers looking for value. The $5 meal deal, originally launched on June 25 and extended through August, aims to reinforce the company’s position in the market. Despite this effort, same-store sales in the US dropped by 0.7%, driven by a decrease in foot traffic. International locations also experienced declines, with France and China facing negative sales growth.
As McDonald’s works to regain momentum in sales growth and foot traffic, investors are closely watching the company’s outlook for the second half of the year. The $5 meal deal has been successful in driving incremental sales and attracting low-income customers. However, franchisees and executives are cautious about the deal’s long-term impact and are evaluating options for a national everyday value platform.
Overall, McDonald’s faces challenges in a competitive market where consumers are seeking deals. Despite efforts to provide value and boost sales, the company must navigate macroeconomic conditions and changing consumer preferences in order to drive growth in the future. “We believe it’s crucial to consider these factors in order to expand market share and achieve sustainable growth in guest counts for the brand,” he stated during the call.
According to BTIG analyst Peter Saleh, the promotion may be extended until September as McDonald’s works on developing a permanent value platform, such as a buy one, get one offer, or a variation of the $1 $2 $3 Dollar Menu.
“This promotion serves as a transition to their value menu,” Saleh mentioned before the extension announcement. He noted that some franchisees are finding that the $5 deal, which includes a choice of a McDouble burger or McChicken sandwich, four-piece chicken McNuggets, small fries, and a small soft drink, lacks variety for customers.
Extending the $5 deal could potentially impact margins.
“Franchisees are reporting that their margins are being affected by the deal, making it less profitable, or in some cases, not profitable at all,” Saleh explained. Some franchisees are scaling back on marketing efforts for the deal, such as video ads in-store or window signage.
Here are McDonald’s Q2 results compared to Wall Street expectations, based on Bloomberg consensus data:
– Revenue: $6.49 billion versus $6.63 billion
– Adjusted earnings per share: $2.97 versus $3.07
– Global same-store sales growth: -1.0% versus +0.84%
– US same-store sales growth: -0.7 versus +1.04%
– International-owned same-store sales growth: -1.1% versus +1.85%
– International franchised same-store sales growth: -1.3% versus +0.41%
Brooke DiPalma, a senior reporter for Yahoo Finance, can be followed on Twitter at @BrookeDiPalma or contacted via email at bdipalma@yahoofinance.com.
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