Improved international sales have helped McDonald’s mitigate some domestic challenges during the fourth quarter, although the company projects that sales in the U.S. will rebound later this year.
The fast-food giant has been recovering from an E. coli outbreak from the previous fall related to its Quarter Pounder hamburgers. McDonald’s has been facing difficulties attracting low-income customers back to their establishments, despite initiatives to broaden their discount offerings.
In the fourth quarter, same-store sales for McDonald’s U.S. locations — those that have been open for at least a year — decreased by 1.4%. On a recent investors’ conference call, Chris Kempczinski, the Chairman, President, and CEO of McDonald’s, noted that fast-food sales to low-income customers fell by double digits across the industry during the last quarter of the year.
Kempczinski emphasized the importance of maintaining a robust value program to navigate these market conditions, saying, “That’s the landscape that we’re looking to navigate through.” In light of sluggish sales in the first half of 2024, where customers showed discontent with rising prices, the company introduced a $5 value meal in June to entice more foot traffic. This initiative was met with substantial success, prompting McDonald’s to extend the offer until next summer.
The E. coli outbreak, which became public knowledge on October 22, impacted at least 104 individuals across 14 states, resulting in 34 hospitalizations and, unfortunately, one fatality in Colorado. The U.S. Food and Drug Administration (FDA) concluded its investigation in December, asserting that McDonald’s effectively managed to control the outbreak following the removal of the linked raw onions from their menu. However, Kempczinski pointed out that the incident affected Quarter Pounder sales, which are generally a significant source of profit for the company.
Sales in the Rocky Mountain states, particularly affected by the outbreak, remain weak, and the company does not anticipate a return to normal levels until the second quarter begins. McDonald’s aims to regain customer traffic in the U.S. before introducing new products designed to boost excitement and spending. The popular snack wrap will make a comeback this year, along with a new chicken strip offering, according to Kempczinski.
Additionally, the company is gathering valuable insights on the demand for beverages, particularly energy drinks, through its CosMc’s chain launched last year. Kempczinski mentioned that they are assessing how to harness that demand within their existing restaurant framework.
Internationally, McDonald’s company-operated markets saw a slight uptrend in sales for the fourth quarter, especially in Germany and Italy. However, the firm is facing struggles attracting lower-income customers in the U.K.
A positive highlight from the fourth quarter was experienced in McDonald’s licensed markets abroad, with same-store sales increasing by 4.1%. The company noted robust sales growth in the Middle East and Japan, regions that have previously seen challenges.
Across the board, global same-store sales for McDonald’s saw a marginal rise of less than 1% in the fourth quarter, which outperformed analysts’ predictions of a 1.1% decrease, as suggested by FactSet surveys.
Total revenue for the fourth quarter slipped slightly to $6.38 billion, falling short of the expected $6.45 billion by analysts. Additionally, the company’s net income for that quarter decreased by 1% to $2.01 billion. Adjusted earnings per share, taking into account one-time charges, amounted to $2.83, slightly lower than the anticipated $2.85 according to Wall Street expectations.
Following these announcements, McDonald’s shares experienced an increase of over 4% in early trading on Monday.
