McDonald’s reports weak quarter as fast-food price hikes hurt demand

McDonald’s Corp MCD.N on Monday reported an unexpected drop in sales and quarterly profit that missed Wall Street expectations as higher menu prices struggled to attract cash-strapped customers who are choosing to dine at home.

Data from the London Stock Exchange showed that global sales fell 1% in the second quarter, the first decline in 13 quarters, while analysts on average expected a 0.53% increase.

Persistent inflation has forced low-income groups to turn to affordable food at home, leading fast-food chains including McDonald’s and Burger King to launch a variety of value meals and limited-time offers to increase customer traffic.

The war for value meals has intensified as rivals Burger King (QSR.TO), Wendy’s (WEN.O) and Starbucks have introduced meal deals in recent months.

McDonald’s launched a $5 meal deal at most of its U.S. stores on June 25 and extended the offer through August.

“The biggest blow to McDonald’s was that lower-income consumers significantly reduced their visits to McDonald’s, which more than offset the typical decline in consumption that McDonald’s typically experiences during tough economic times,” said Brian Yarbrough, an analyst at Edward Jones.

Chief Executive Officer Chris Kempczinski said consumers are becoming more selective in their spending. However, McDonald’s maintained its 2024 operating margin forecast at around 40%.

Shares of the company rose slightly in premarket trading as it maintained its capital spending budget at around $2.7 billion, having fallen 15% so far this year.

More than half of the proceeds will be used to open new restaurants in the U.S. and international markets.

Comparable sales in the U.S. fell 0.7% in the quarter ended June 30, compared with a 10.3% increase in the same period last year. International sales fell 1.1%, hurt by weakness in France.

A slower-than-expected economic recovery in China and conflict in the Middle East hurt performance at McDonald’s business unit where restaurants are operated by local partners, with sales falling 1.3% compared with a 14% increase a year earlier.

Companies such as McDonald’s and Starbucks (SBUX.O) have suffered consumer boycotts over the Gaza war, which has hit their sales in the Middle East market.

McDonald’s second-quarter adjusted earnings per share were $2.97, below the expected $3.07.