McDonald’s sales fall in first since 2020 as traffic drops

McDonald’s Corp. sales declined for the first time since 2020, falling short of analyst expectations for modest growth but avoiding a bigger decline than feared by investors.

Comparable sales, a metric tracking restaurants open for over a year, fell 1% from the year prior in the second quarter. Each of McDonald’s geographic segments saw sales declines. In the US, the trend was driven by a decline in foot traffic that was partially offset by higher prices.

Same-store sales have also been negative to start the third quarter across the chain’s three geographic units as consumers’ budgets are pressured, Chief Financial Officer Ian Borden said in a call with analysts.

“We don’t expect that we’re going to see a change in that environment over the next few quarters,” he said.

Investors took the warnings in stride, sending shares up about 3.8% in New York trading at 10:08 a.m., as the decline in same-store sales seems to have been less pronounced 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 US where the contraction was a mere -0.7% same store sales growth,” Danilo Gargiulo, a senior analyst at Bernstein Institutional Services.

Earnings, excluding some items, were $2.97 per share in the second quarter, missing the average analyst estimate. The company also maintained its guidance for new store openings and operating margin. McDonald’s executives had previously warned of a demand slump across the industry.

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 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.

At the end of last quarter, the fast-food purveyor launched a $5 meal deal in the US 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 US 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 US, 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.

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. McDonald’s also reported same-store sales declines in China.

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.