Global fast-food giant McDonald’s has reported its first quarterly sales miss in almost four years, with weak sales growth in its international business division cited as a significant factor. The impact was particularly pronounced in the Middle East, where the company faced challenges due to the ongoing conflict in the region.
The quarterly report, released on Monday, revealed that McDonald’s international business division experienced a 0.7% rise in comparable sales in the fourth quarter, falling significantly short of the estimated 5.5% growth, according to data from the London Stock Exchange Group (LSEG). This segment accounted for 10% of McDonald’s total revenue in 2023.
CEO Chris Kempczinski acknowledged the notable impact in the Middle East, as well as in countries such as Malaysia, Indonesia, and France. The conflict in the Middle East has “meaningfully impacted” performance in these overseas markets, he stated during a post-earnings call. Kempczinski indicated that as long as the conflict persists, the company does not anticipate any significant improvement in these affected markets.
The burger giant’s shares dipped approximately 4% following the announcement of the rare sales miss, underlining the severity of the challenges faced by McDonald’s in the international arena.
McDonald’s is among several Western brands that have been subject to protests and boycott campaigns over perceived pro-Israeli stances amid the Israel-Hamas conflict. The company acknowledged that the war has had a tangible impact on its performance in some overseas markets during the fourth quarter.
Apart from geopolitical challenges, McDonald’s U.S. business also showed signs of weakness, particularly with low-income consumers reducing order sizes or opting for cheaper items. U.S. comparable sales rose 4.3% in the quarter, slightly below estimates of a 4.4% rise.
Starbucks faced a similar situation last week, cutting its annual sales forecast due to a hit in sales and traffic at stores in the Middle East. Consumer spending in China, McDonald’s second-largest market, remained weak despite government support measures.
Analysts expressed concerns about the durability of earnings, particularly regarding the persisting impact of the Middle East conflict on McDonald’s international business. Brian Mulberry, client portfolio manager at Zacks Investment Management, which holds McDonald’s shares, noted that this issue may persist past the next quarter or even two.
Despite the challenges, McDonald’s reported an adjusted per-share profit of $2.95, surpassing estimates of $2.82. The company remains optimistic about its future, forecasting a 2024 operating margin in the mid-to-high 40% range and anticipating over 1,600 net restaurant additions this year. McDonald’s reported an operating margin of 45.7% for 2023.
Global same-store sales rose 3.4% in the quarter, missing estimates of a 4.9% rise, marking its slowest sales growth in about three years. Analysts remain cautiously optimistic about McDonald’s stock, citing its strong brand positioning to navigate the challenging macroenvironment.
The fast-food giant acknowledged that it might take some time for results to bounce back in the Middle East, emphasizing the complexity of navigating geopolitical challenges in the international business landscape.