McDonald's sees unexpected global sales decline

McDonald's reported a surprise drop in quarterly global comparable sales on Monday, as the burger giant struggled to hold back budget-strapped customers from opting for cheaper meals at home.

Global sales fell 1 per cent in the second quarter, its first decline in 13 quarters, compared with analysts' average estimate of a 0.53 per cent rise, according to LSEG data.

Persistent inflation has forced lower-income group to shift to affordable food options at home, leading to muted demand in the fast food industry, including for McDonald's and Domino's PizzaDPZ.N.

This has prompted restaurants to launch several value bundles and limited time offers priced between $3 and $5 as they look to win back value-focused consumers.

Value meal wars have ramped up as rivals Burger King, Wendy's  and Starbucks rolled out meal deals in the recent months.

McDonald's was set to extend its $5 meal offer into August at most US locations after its launch on June 25.

Its CEO Chris Kempczinski said consumers were more discriminating with their spend. Still, the company kept its 2024 operating margin forecast unchanged in the mid-to-high 40 per cent range.

Shares of McDonald's, which are down 15 per cent this year, were up marginally in premarket trading as it also kept its capital expenditure budget of up to $2.7 billion.

More than half of the amount will be used to start new restaurants in the US and international markets.

US comparable sales fell 0.7 per cent in the quarter ended June 30, compared with a 10.3 per cent jump a year ago. Sales in international markets dropped 1.1 per cent, driven by weakness in France and compared with estimates of a 1.69 per cent growth. The segment had recorded an 11.9 per cent growth a year ago.

A slower-than-expected recovery in China and the Middle East conflict impacted performance at McDonald's business segment where restaurants are operated by its local partners, as sales declined 1.3 per cent compared with a 14 per cent jump a year earlier.

Companies like McDonald's and Starbucks SBUX.N have suffered from consumer boycotts linked to the Gaza war, which hit their sales in the Middle East markets.

McDonald's earned $2.97 per share on an adjusted basis in the second quarter, lower than last year's $3.17.