McDonald's posts worst sales in 13 quarters

McDonald's is once again in a tough spot, as the second quarter results show. Customers are trying to save money and as a result, the American fast food giant's sales did not reach the expected level.

The company announced on Monday that its sales for the quarter that ended on June 30 reached $6.49 billion, an increase of 2.01% year-on-year. However, this was less than the expected $6.63 billion. Adjusted earnings per share came in at $2.97, which also fell short of the expected $3.07.

Global comparable sales, which include both corporate offices and franchises, fell 1%, while it was expected to increase 0.84%. This is the first time since the fourth quarter of 2020 that this metric has declined.

"Customers are much pickier now," CEO Chris Kempczinski commented on the results.

In the second quarter, fast food restaurants introduced a number of limited packages to offer value after years of price increases. McDonald's $MCD, for example, plans to extend its $5 offer through August, having launched the offer at the end of June.

In the U.S., comparable sales fell 0.7%, driven by a decline in traffic. This is the first time in 16 quarters that comparable sales have declined in the U.S. This was partially offset by an increase in menu prices. Positive growth in digital and delivery services was one of the few bright spots in a weak quarter.

International branches saw a 1.1% decline in sales, driven by negative growth in several markets, with France having the largest impact. Franchised international locations reported a 1.3% year-over-year sales decline due to the continued impact of the war in the Middle East and declining sales growth in China. On the other hand, positive sales growth was recorded in Latin America and Japan.

Customers looking for value and deals led loyalty members to contribute nearly $7 billion in digital sales across 50 markets, up from $6 billion in Q1. Over the past 12 months, these members accounted for $26 billion in total system sales.

Last year in Q2, McDonald's saw very strong results thanks to a popular advertising campaign featuring the Grimace Shake. Those results were hard to beat.

"Sentiment is poor, with many believing that short-term value initiatives will not deliver enough traffic growth to offset product mix issues," Citi analyst Jon Tower wrote in a note to clients ahead of the results.

"Long-term investors see the company's value as compelling," Tower added, "and believe its strategic moves will ultimately deliver results." However, it's uncertain how long it will take for U.S. revenue growth to accelerate again.

McDonald's now faces a second half of the year, when it is expected to see if it can regain momentum in sales and traffic growth. Extending the $5 offer could help. According to an internal document obtained by Yahoo Finance, 93% of all McDonald's restaurants voted to extend the offer, which was originally limited to July.

McDonald's chief marketing officer in the U.S., Tariq Hassan, said the offer has successfully brought customers back from competitors and reinforced the brand as an affordable option after several price increases.

Source: Yahoo Finance, CNN.

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