McDonald’s (MCD) customers are feeling the economic pinch, impacting their spending on Big Macs and other offerings. The company reported disappointing Q2 earnings on Monday, missing Wall Street estimates for revenue, earnings, and same-store sales. This downturn underscores the challenges even dominant fast-food players face in a tough macroeconomic environment.
For the quarter ending June 30, McDonald’s reported $6.49 billion in revenue, a 2.01% year-over-year increase but below the expected $6.63 billion. Adjusted earnings per share were $2.97, missing the $3.07 consensus estimate from Bloomberg.
Global same-store sales, which include both company-owned and franchise locations, decreased by 1%, contrary to the anticipated 0.84% increase. This marks the first quarterly decline in same-store sales since Q4 2020, during the height of COVID-19 lockdowns.
“Consumers are more discerning with their spending,” CEO Chris Kempczinski stated in the earnings release. He emphasized the company’s focus on “outstanding execution,” delivering “reliable everyday value,” and accelerating growth in areas like chicken and customer loyalty programs.
Struggles and Strategic Moves
In response to rising prices, fast-food chains introduced various limited-time bundle deals in Q2. McDonald’s extended its $5 meal deal, initially launched on June 25, through August. This move aims to reinforce its market position as a value leader.
“Consumers still see us as the value leader against key competitors, but our value leadership gap has narrowed recently. We are working swiftly to address this,” Kempczinski added during the earnings call.
Regional Performance and Global Impact
In the U.S., same-store sales fell by 0.7%, the first decline in 16 quarters, primarily due to reduced foot traffic. However, this was partially offset by increased menu prices and growth in digital and delivery sales. Internationally owned locations saw a 1.1% decline, driven by negative sales growth in several markets, particularly France. International franchised locations experienced a 1.3% drop, influenced by ongoing conflicts in the Middle East and declining sales in China.
“China’s market is highly competitive with weak consumer sentiment. Consumers are increasingly seeking deals,” Kempczinski noted.
Despite these challenges, loyalty members contributed nearly $7 billion in digital sales across 50 markets, up from $6 billion in Q1. Over the past year, these members accounted for $26 billion in systemwide sales.
Looking Ahead
Analysts and investors are closely watching McDonald’s strategy for the second half of the year, particularly its ability to regain sales momentum and foot traffic. The extended $5 meal deal could play a pivotal role. A memo obtained by Yahoo Finance indicated that 93% of McDonald’s restaurants supported the extension, seeing it as beneficial for driving incremental sales and enhancing the brand’s affordability image.
US President Joe Erlinger highlighted the deal’s success among low-income customers and its potential to attract additional purchases. Despite this, the deal’s limited variety poses challenges, and its long-term viability is uncertain.
“Customers will continue to feel the economic strain and high living costs for several more quarters in this competitive landscape. It’s critical to consider these factors to grow market share and return to sustainable guest count-led growth,” Erlinger said.
Analysts suggest that the $5 deal may be extended further while McDonald’s develops a permanent value platform, potentially impacting margins.
“Franchisees report that the $5 deal affects their margins, making it less profitable,” BTIG analyst Peter Saleh told Yahoo Finance. Some franchisees are reducing marketing efforts for the deal due to profitability concerns.
