McDonald’s sales decline for first time in years as higher fast food prices hurt demand

McDonald’s saw a drop in sales for the first time in years as it struggled to draw in cash-strapped customers amid higher menu prices. McDonald’s CEO Chris Kempczinski said that the company’s system “sustained significant inflationary cost increases” between 20 to 40%, depending on the market, over the last several years. “As we absorb these cost increases in partnership with our franchisees, we look for ways to protect restaurant profitability via productivity efforts and selective price increases,” Kempczinski said. “These price increases disrupted long-running value programs and led consumers to reconsider their buying habits.” Global sales fell 1% in the second quarter, its first decline in 13 quarters, compared with analysts’ average estimate of a 0.53% rise, according to LSEG data. To reverse the decline, fast food chains including McDonald’s and Burger King have launched several promotions in an attempt to boost customer traffic during persistent inflation. Value meal wars have ramped up as rivals Burger King, Wendy’s and Starbucks rolled out meal deals in recent months. McDonald’s was set to extend its $5 meal offer into August at most U.S. locations after its launch on June 25. The company said the deal has been highly successful in its restaurants in upstate New York, for example, with lower-income consumers “driving overall incremental sales.” Kempczinski wasn’t pleased with the company’s value execution, saying it contributed to the company’s underperformance. “The hallmark of a great company is its ability to perform in good times and bad, and we are resolved to reignite share growth in all our major markets, regardless of the prevailing market conditions,” Kempczinski added. Even though consumers were more discriminating with their spend, McDonald’s still kept its 2024 operating margin forecast unchanged in the mid-to-high 40% range. Its shares, which are down 15% this year, were up marginally in premarket trading as the company also kept its capital expenditure budget of up to $2.7 billion. More than half of the amount will be used to start new restaurants in the U.S. and international markets. U.S. comparable sales fell 0.7% in the quarter ended June 30, compared with a 10.3% jump a year ago. Sales in international markets dropped 1.1%, driven by weakness in France. A slower-than-expected recovery in China and the Middle East conflict impacted performance at McDonald’s business segment where restaurants are operated by its local partners, as sales declined 1.3% compared with a 14% jump a year earlier. McDonald’s earned $2.97 per share on an adjusted basis in the second quarter, missing expectations of $3.07.