McDonald’s posts rare sales miss

The McDonald’s company logo is seen on the front of a restaurant in London, Britain, December 10, 2021. Picture taken Dec 10, 2021. REUTERS/May James/File photo

McDonald’s reported its first quarterly sales miss in nearly four years on Monday on weak sales growth at its international business division, partly due to the conflict in the Middle East, sending the company’s shares down about 4 percent.

The burger giant is among several Western brands that have seen protests and boycott campaigns against them over their perceived pro-Israeli stance in the Israel-Hamas conflict.

McDonald’s said the war had “meaningfully impacted” performance in some overseas markets in the fourth quarter.

With the most pronounced hit in the Middle East, the company also saw an impact to business in countries such as Malaysia and Indonesia, as well as in France, CEO Chris Kempczinski said on a post-earnings call.

“So long as this war is going on … we’re not expecting to see any significant improvement (in these markets).”

Comparable sales in McDonald’s International Developmental Licensed Markets segment rose 0.7 percent in the fourth quarter, widely missing estimates of 5.5 percent growth, according to LSEG data. The business accounted for 10 percent of McDonald’s total revenue in 2023.

“The effects (of the war) on earnings durability would be our biggest concern … it looks like this is going to be an issue that persists past the next quarter or maybe even two,” said Brian Mulberry, client portfolio manager at Zacks Investment Management, which holds McDonald’s shares.

Starbucks last week also cut its annual sales forecast, partly due to a hit to sales and traffic at stores in the Middle East.

Weak consumer spending

Consumer spending in China, McDonald’s second-largest market, has also remained weak despite government support measures.

READ:McDonald’s raises China bet, buck Western firms’ derisking trend

While McDonald’s does not provide a breakup of sales in individual international markets, it noted industry-wide promotions picked up in China during the quarter as restaurants rush to revive flagging demand.

McDonald’s U.S. business also showed signs of weakness, particularly with low-income consumers reducing order sizes or trading down to cheaper items.

That resulted in U.S. comparable sales rising 4.3 percent in the quarter, just shy of estimates of a 4.4-percent rise.

Still, McDonald’s reported an adjusted per-share profit of $2.95, beating estimates of $2.82.

READ: For many in China, the economy feels like it is in recession

“It’s going to take some time for the results to bounce back (in the Middle East),” Stephens analyst Joshua Long said, but added he was still positive on McDonald’s stock as it is “one of the best positioned brands” to navigate a tricky macroenvironment.

McDonald’s forecast 2024 operating margin to be in the mid-to-high 40 percent range and expects more than 1,600 net restaurant additions this year. It reported an operating margin of 45.7 percent for 2023.

Global same-store sales rose 3.4 percent in the quarter, missing estimates of a 4.9-percent rise, in what was its slowest sales growth in about three years.