McDonald’s reported a sharper-than-expected decline in US comparable sales for the fourth quarter, with a 1.4% drop as consumers cut back on spending and the company faced the fallout from a brief E. coli outbreak.
This marked McDonald’s worst US sales performance since the early days of the COVID-19 pandemic.
Analysts had expected a smaller 0.4% decline, according to estimates compiled by LSEG.
Despite the weaker sales, McDonald’s shares rose 2.1% in pre-market trading.
Customer visits fell after an E. coli outbreak that began on October 22, prompting McDonald’s to temporarily halt sales of its Quarter Pounder hamburgers at about 20% of its 14,000 US locations.
The US Centers for Disease Control and Prevention concluded its investigation on December 3, reporting that the outbreak sickened hundreds and resulted in at least one death.
McDonald’s profit dips, analysts caution against reliance on discounts
McDonald’s posted fourth-quarter net income of $2.02 billion, or $2.80 per share, down from $2.04 billion a year earlier.
Adjusted earnings per share stood at $2.83, in line with estimates.
Revenue for the quarter came in at $6.39 billion, slightly below the expected $6.44 billion.
The company noted that while customer traffic was slightly positive, diners spent less per visit.
McDonald’s had previously tried to attract budget-conscious consumers by launching a $5 value meal last summer.
While the strategy initially boosted sales, analysts warned that deep discounting only works if customers also buy full-priced items.
Analysts have expressed concern over McDonald’s increasing reliance on discounts, which now account for over a third of its sales.
“In our view, the challenge McDonald’s faces in the months and quarters ahead will be weaning customers off these deep discounts,” said BTIG analyst Peter Saleh.
US and UK disappoint; Middle East and Japan outperform
While McDonald’s struggled in its home market, its international segment performed better.
Comparable sales in its International Developmental Licensed Markets division grew by 4.1%, beating analyst expectations of a 0.43% decline.
Strong sales in Japan and the Middle East offset weaker performance in Britain.
Despite a challenging year marked by boycotts and geopolitical tensions, McDonald’s Middle East operations recorded growth.
In contrast, sales in the UK stagnated, contributing to the overall international sales increase of just 0.1%.
The company also reported that global same-store sales rose 0.4%, a surprise turnaround compared with Wall Street’s expectations of a 0.63% decline.
McDonald’s looks to revive growth with new value strategy
To turn sales around, McDonald’s ramped up marketing efforts, spending $100 million in the quarter.
The company also launched a new value menu in January, aiming to win back cost-conscious customers who have been opting to eat at home amid rising food prices.
While McDonald’s stock is up nearly 2% compared to a year ago, the fast-food giant faces ongoing challenges in the US market.
With inflation weighing on consumer spending and promotional offers pressuring profit margins, McDonald’s will need to strike a balance between affordability and profitability to sustain its momentum in 2024.
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