(Bloomberg) -- McDonald’s Corp. investors shrugged off the burger chain’s first sales drop in four years as executives pledged to launch new promotions to help stem a decline in customer visits.
Comparable sales, a metric tracking restaurants open for over a year, slid 1% from the year prior in the second quarter, falling short of analyst expectations for modest growth. Each of McDonald’s geographic segments recorded sales declines.
A drop in U.S. foot traffic was partially offset by more expensive burgers. Chief Financial Officer Ian Borden warned of further weakness as the company pulls back on price increases with consumers’ budgets hitting a breaking point.
“We don’t expect that we’re going to see a change in that environment over the next few quarters,” Borden said, telling analysts that comparable sales have been negative at the start of the third quarter across the chain’s three geographic units.
Investors appeared to take the warnings in stride, with shares rising 3.7% on Monday — their biggest gain since 2022 — as the decline in same-store sales seemed to be less than some in Wall Street expected. McDonald’s stock had already fallen 15% this year as of Friday’s close, compared to a 14% gain for the S&P 500 index during the same period.
“Despite missing on consensus, McDonald’s results were better than feared, especially in the U.S. where the contraction was a mere -0.7% same-store sales growth,” Danilo Gargiulo, a senior analyst at Bernstein Institutional Services. McDonald’s executives had previously warned of a demand slump across the industry.
Earnings, excluding some items, were US$2.97 per share in the second quarter, missing the average analyst estimate. The company maintained its guidance for new store openings and operating margin.
McDonald’s sales growth has slowed this year as diners across the world cut back on Big Macs, pinched by years of price increases and tight household budgets. Chief Executive Officer Chris Kempczinski told analysts that the company’s “value leadership gap” has shrunk and vowed to restore it. Other strategic priorities include the chain’s chicken lineup and its loyalty program.
Joe Erlinger, president of the U.S. business, told franchisees in a message seen by Bloomberg News that the chain was “falling short.” He added that same-store guest counts were negative for the fourth consecutive quarter, and that average check sizes had been hurt by diners adding fewer items to their orders.
“We have an affordability gap to close, and we must continue to take actions that show our customers we’re listening,” Erlinger said in the memo, earlier reported by CNBC. The chain is working out “details of a future U.S. value platform,” he said on a call with analysts.
At the end of last quarter, the fast-food purveyor launched a $5 meal deal in the U.S. to convince diners that it’s still an affordable option. Early results suggest it is drawing customers, though any sales boost won’t be apparent until later this year. It also has introduced limited-edition menu items hoping to lure customers, such as a bacon cajun McCrispy and a “grandma” McFlurry.
McDonald’s U.S. President Joe Erlinger said on the company’s earnings call that the number of $5 meal deals sold was above expectations. The average check has been over $10 for those who order the bundle, suggesting diners are adding items on top of the promotion.
Outside the U.S., Kempczinski said the chain was losing market share in France as demand falls among families in Europe. It will launch a €4 Happy Meal in the country to bring them back. McDonald’s also reported same-store sales declines in China, though it said its holding share despite weaker diner sentiment.
Boycotts over the Israel-Hamas war have continued to hit sales in the segment that includes the Middle East. The company has previously warned that the slump would continue until the conflict is resolved.
System-wide sales, a metric that includes business at new restaurants, also took a downturn, suggesting openings aren’t offsetting weakness in existing units. The burger chain is in the midst of an ambitious expansion plan, looking to have 50,000 locations around the world by 2027, up from about 42,000 at the start of this year.
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