MCDONALD’S SALES GROWTH LOWER THAN ANTICIPATED AFTER FREE MEALS TO ISRAELI SOLDIERS

Mon 05 February 2024:

Global same-store sales – or sales at restaurants open at least a year – rose 3.4 percent in the October-December period last year, well below the 4.7 percent increase Wall Street was expecting, according to analysts polled by FactSet.

Customers in the Middle East were angered after McDonald’s Israel – which is operated by a local franchisee – announced in October last year that it was providing free meals to Israeli soldiers.

Last month, McDonald’s President and CEO Chris Kempczinski warned that “misinformation” in the Middle East and elsewhere was hurting sales.

In addition to customer boycotts, McDonald’s has had to temporarily limit working hours or close some locations due to protests.

Comparable sales, a key metric for the restaurant industry, rose 3.4 per cent in the period, McDonald’s said Monday. That’s the slowest since the fourth quarter of 2020, and below the average estimate of analysts polled by Bloomberg. Revenue was also shy of estimates.

Shares fell 3 per cent at 9:31 a.m. in New York.

Expectations were lowered after Chief Executive Officer Chris Kempczinski’s warning earlier this year of a “meaningful business impact” in the Middle East. The segment that includes the region, which accounts for about 10 per cent of McDonald’s revenue, fell well short of estimates. McDonald’s said that it has provided some assistance, including relief from royalties, to certain franchisees impacted by the conflict.

After the war broke out, the chain became one of the most prominent targets for boycotts in Muslim nations over its perceived stance on the conflict as well as its status as one of the most recognized American brands. The company has repeatedly said its restaurants are run independently by local operators.

Growth in other regions weakened as well. In the U.S., higher prices helped drive comparable-sales growth of 4.3 per cent, which is slightly below the average market estimate and about half of the previous quarter’s rate.

2024 Outlook

In the statement, Kempczinski said the company is “confident in the resilience of our business amid macro challenges that will persist in 2024.” Executives have previously said higher interest rates and inflation are putting pressure on consumers, while also flagging China’s slowing economy.

McDonald’s expects comparable sales growth in 2024 to moderate toward more “normalized” trends, Chief Financial Officer Ian Borden said on a call with analysts. That includes rates of 3 per cent to 4 per cent for the US and international markets where McDonald’s operates and franchises restaurants. The chain expects no meaningful improvement for the segment that includes the Middle East until there’s a resolution to the war, Borden said.

The burger giant expects to add 1,600 net stores around the world this year, it said in a filing accompanying the results, as part of what it says is the biggest growth push in its history. It met its 2023 goal of opening 1,500 net restaurants, filings show.

The chain reiterated guidance that net openings will boost sales generated by franchised and company-operated stores by about 2 per cent this year, and that operating margin would rise by a percentage in the mid-to-high 40s.

SOURCE: INDEPENDENT PRESS AND NEWS AGENCIES

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