McDonald’s is under pressure as U.S. same-store sales tumble to their lowest level since the peak of the COVID-19 pandemic in 2020. Read on to find out how alarming the decline is, what’s driving the slump, and how the fast-food giant plans to bounce back.
Key Factors Behind McDonald’s Major Sales Slump
McDonald’s reported a 3.6% drop in U.S. same-store sales, marking its steepest decline since the COVID-19 pandemic, when sales plummeted by 8.7%. According to StreetAccount, analysts only predicted a 1.7% drop in U.S. same-store sales for the fast-food chain in the first quarter.
McDonald’s pointed to a combination of harsh weather conditions and growing consumer anxiety as primary drivers of the downturn. As concerns mount over potential tariffs fueling inflation or triggering a recession, McDonald’s noted a broader decline in customer traffic. The company is now seeing spending slowdowns not just among low-income patrons but also among middle-income Americans who are “weighed down by the cumulative impact of inflation and heightened anxiety,” CEO Chris Kempczinski said during an earnings call on Thursday, May 1st.
“We remain cautious about the overall health of the consumer,” Kempczinski added.
How McDonald’s Is Working to Revive Its Sales
In a bid to improve its sales, McDonald’s is doubling down on its McValue menu and extending its popular $5 Meal Deal through 2025, as rising inflation and high interest rates continue to weigh on consumer sentiment. The fast-food giant is also introducing new menu items to attract customers, including the permanent return of fan-favorite Chicken Strips and a limited-edition meal in collaboration with A Minecraft Movie.
To boost profitability, McDonald’s is looking to expand its drink offerings, drawing inspiration from its CosMc’s spin-off locations, which feature trendy flavored coffees and energy drinks.
Additionally, McDonald’s plans to open 2,200 new locations and invest between $3 billion and $3.2 billion in capital expenditures this year, according to a regulatory filing. The company anticipates these new openings will drive a 2% increase in system-wide sales growth.
McDonald’s Struggles with Global Sales Drop and Missed Revenue Targets
McDonald’s also saw a global same-store sales decline of 1% during the first quarter of the year. The chain explained that this drop was due to the longer Leap Day quarter last year, and without that, same-store sales would have been flat.
In early Thursday trading, McDonald’s stock dropped 1.3%, bringing its share price to $315.42.
For the first quarter, McDonald’s reported net income of $1.87 billion, or $2.60 per share, a decrease from last year’s $1.93 billion, or $2.66 per share. Excluding certain restructuring charges, McDonald’s adjusted earnings per share were $2.67.
Revenue also dipped by 3%, totaling $5.96 billion, which was below the expected $6.09 billion.
In its international markets, including big names like the United Kingdom, Australia, and France, same-store sales fell by 1%, accounting for about half of the company’s revenue. Analysts had expected these international markets to see no change in sales.
Source: New York Post