McDonald's reported disappointing second-quarter earnings on Monday, missing analysts' expectations for both revenue and profit. Same-store sales declined across all divisions, marking the first time the company has seen a dip in this metric since the final quarter of 2020.
The fast-food giant reported net income of £1.58 billion (or £2.08 per share) for the quarter, down from £1.81 billion (or £2.47 per share) in the same period last year. Excluding charges related to the upcoming sale of its South Korean operations and other adjustments, earnings per share reached £2.33.
Revenue for the quarter came in at £5.07 billion, virtually unchanged from the previous year. However, this figure fell short of analysts' projections of £5.17 billion.
McDonald's same-store sales, a key indicator of restaurant performance, decreased by 1%. This missed StreetAccount estimates, which projected a 0.4% increase. The decline in same-store sales can be attributed to a decrease in customer footfall, particularly in the United States.
In the US market, same-store sales slipped by 0.7% during the quarter, a stark contrast to the 10.3% growth reported a year ago, which was fuelled by the popularity of the Grimace Birthday Meal. However, over the past year, consumers have become more price-conscious and have cut back on restaurant spending, especially at fast-food chains. This shift has led to a decline in McDonald's perceived value proposition.
In an attempt to regain customers, McDonald's has been offering discounts, including a £4 meal deal launched in late June, five days before the end of the quarter. The company has indicated its intention to extend this value meal beyond the planned four weeks, highlighting its commitment to attracting customers back.
McDonald's is also facing challenges in its international markets. The company's international operated markets division, which encompasses major markets like France and Germany, saw same-store sales drop by 1.1% during the quarter. The international developmental licensed markets unit, including China and Japan, reported a 1.3% decline in same-store sales. McDonald's continues to grapple with the fallout from boycotts in the Middle East, and sales in China remain sluggish.
Despite the company's efforts to win back customers with value deals and promotional offers, the declining sales figures underscore the challenging economic environment and the increasingly competitive fast-food landscape. McDonald's will need to find innovative ways to address these challenges and adapt its strategy to attract and retain customers in a more cost-conscious consumer climate.