McDonald’s is set to release its earnings report before markets open on Monday, amidst speculation that the fast-food giant plans to extend its $5 value meal promotion into August.
Analysts forecast a modest increase in McDonald’s revenue, with expectations rising to $6.63 billion for the second quarter of 2024, up from $6.5 billion in the same period last year. However, net income is projected to decrease to $2.24 billion from $2.31 billion year-over-year, according to estimates from Visible Alpha.
UBS analysts, who have maintained a “buy” rating on McDonald’s stock, have adjusted their price target from $335 to $305. They anticipate that inflation may impact second-quarter earnings but believe that McDonald’s value-centric approach could drive better performance in the latter half of the year.
Trends in Comparable Store Sales
McDonald’s comparable-store sales have slowed from the double-digit growth observed last year. In Q2 2023, the global comparable sales growth was 11.7%, with over 10% growth in the U.S. Baird analysts express growing confidence that the company’s renewed focus on value in its advertising could improve consumer perceptions and drive foot traffic back to McDonald’s restaurants.
“McDonald’s historical data suggests that emphasizing value-oriented pricing with a substantial advertising budget can lead to significant market share gains,” Baird analysts noted.
Value Meal Promotion Extension
After acknowledging the impact of inflation on consumer spending during the first half of 2024, McDonald’s, along with other restaurants, has introduced lower-cost value meals to attract budget-conscious customers. Early reports indicate a positive response to the $5 value meal promotion, which launched in late June. Bloomberg and CNBC have reported that nearly all McDonald’s locations are expected to extend the promotion beyond the initial four-week schedule.
Company leadership is reportedly pleased with the promotion’s success and the rate at which customers are returning. Investors will be looking for confirmation of this extension when the company reports earnings on Monday.
McDonald’s stock has experienced a 15% decline since the beginning of the year, closing at $251.46 on Thursday.
