A McDonald's logo at restaurant in Havertown, Pa., on April 26, 2022.Matt Rourke/The Associated Press
McDonald’s MCD-N reported its first quarterly sales miss in nearly four years on Monday on weak sales growth at its international business division, partly due to the conflict in the Middle East, sending the company’s shares down 3 per cent.
The burger giant is among several Western brands that have seen protests and boycott campaigns against them over their perceived pro-Israeli stance in the Israel-Hamas conflict.
McDonald’s said the conflict had “meaningfully impacted” performance in some overseas markets in the fourth quarter.
With the most pronounced hit in the Middle East, the company also saw an impact to business in countries such as Malaysia and Indonesia, as well as in France, CEO Chris Kempczinski said on a post-earnings call.
Comparable sales in McDonald’s International Developmental Licensed Markets segment rose 0.7 per cent in the quarter, widely missing estimates of a 5.5 per cent growth, according to LSEG data. The business accounted for 10 per cent of McDonald’s total revenue in 2023.
“The effects (of the war) on earnings durability would be our biggest concern … it looks like this is going to be an issue that persists past the next quarter or maybe even two,” said Brian Mulberry, client portfolio manager at Zacks Investment Management, which holds McDonald’s shares.
Starbucks last week also cut its annual sales forecast, partly due to a hit to sales and traffic at stores in the Middle East.
Meanwhile, consumer spending in China, McDonald’s second-largest market, has also remained weak despite government support measures.
Chicago-based McDonald’s does not provide a breakup of sales in individual international markets.
The company’s U.S. business is also starting to show signs of weakness. Traffic at McDonald’s U.S. stores slumped 13 per cent in October, according to Placer.ai data cited by Wells Fargo. It declined 4.4 per cent and 4.9 per cent in November and December, respectively.
Comparable sales in the U.S. climbed 4.3 per cent in the fourth quarter, just shy of estimates of a 4.4 per cent rise.
Still, the company reported an adjusted profit of $2.95 per share, beating estimates of $2.82 per share.
“It’s going to take some time for the results to bounce back (in the Middle East),” Stephens analyst Joshua Long said, adding he was still positive on McDonald’s stock given it is “one of the best positioned brands” to navigate a tricky macroenvironment.
McDonald’s projected 2024 operating margin to be in the mid-to-high 40 per cent range and expects more than 1,600 net restaurant additions this year.
It reported an operating margin of 45.7 per cent for 2023.
The company’s global same-store sales increased 3.4 per cent in the quarter, missing estimates of a 4.9 per cent rise. That represented the slowest sales growth in about three years.