McDonald’s misses Q2 estimates across the board, as consumers pull back on dining out

McDonald’s (MCD) customers are tightening their belts again in Q2, as they grapple with paying up for their Big Mac.

On Monday morning, the company reported Q2 earnings that missed Wall Street estimates across revenue, earnings, and same-store sales, proving not even America’s most dominant fast food player is immune to the challenging macro conditions.

For the quarter, which ended on June 30, McDonald’s reported revenue of $6.49 billion, up 2.01% year over year, compared to estimates of $6.63 billion.

Adjusted earnings of $2.97 also came in lower than the $3.07 expected, per Bloomberg consensus data.

Global same-store sales, which includes company-owned stores and franchisees, decreased 1%, compared to estimates of a 0.84% jump. That’s the first quarterly decline in that metric since Q4 2020, during the COVID shutdowns.

“Consumers are more discriminating with their spend,” CEO Chris Kempczinski said in the earnings release. The team is focusing on “outstanding execution” of providing “reliable, everyday value” and “accelerating strategic growth drivers like chicken and loyalty,” he said.

In Q2, fast food restaurants introduced a flurry of limited-time bundle deals in an effort to provide value after years of price hikes. McDonald’s recently announced plans to extend its $5 meal deal through August. The deal launched toward the end of the quarter on June 25.

In the US, same store sales decreased 0.7%, driven by a drop in foot traffic. It’s the first decline in US same-store sales in 16 quarters. That was partially offset by menu price increases. Positive digital and delivery growth was a bright spot in a bleak quarter.

Internationally owned locations saw a 1.1% decline, caused by negative sales growth “across a number of markets,” driven by France.

Its international franchised locations saw sales drop 1.3% year-over-year, caused by the continued impact of the war in Middle East and declining same-store sales growth in China. However, there was positive sales growth Latin America and Japan.

As consumers look for value and deals, loyalty members brought in nearly $7 billion in digital sales across 50 markets, more than the $6 billion reported in Q1. For the past 12 months, these members accounted for $26 billion in systemwide sales.

McDonald’s had a very successful Q2 last year, when the Grimace Shake promotion stole the show. That performance proved to be hard to beat.

“Sentiment here is low, with many believing near-term initiatives around value offering not enough of a traffic lift to offset mix headwinds,” Citi analyst Jon Tower wrote in a note to clients prior to the results.

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“Longer-term investors see valuation as compelling,” with the company’s value plays “eventually” working, Tower added. But it’s uncertain how long it’ll take for US sales growth to “reaccelerate.”

Many have their eyes on McDonald’s outlook for the second half of the year, and whether McDonald’s can regain momentum in sales growth and foot traffic.

A bump from its $5 meal deal could help. Per a memo obtained by Yahoo Finance, 93% of all McDonald’s restaurants voted to extend the $5 meal deal, originally limited to July.

The company’s US chief marketing officer, Tariq Hassan, said the deal successfully drove foot traffic back from competitors and boosted the brand’s affordable image after several price hikes. Customers drawn in by the deal may try other pricier items too.

When the offering rolled out formally on June 25, foot traffic was down 0.8% that week year over year, per Placer.ai. Traffic was subsequently up 2.8% the week of July 1 and up 2.4% the week of July 8 compared to last year.

BTIG analyst Peter Saleh told Yahoo Finance prior to the results that the promotion may even be extended to September while McDonald’s works on a permanent value platform like buy one, get one, or a version of the $1 $2 $3 Dollar Menu.

“This is kind of their bridge to that value menu,” Saleh said prior to the extension announcement. He added that franchisees are learning that the $5 deal, which consists of a choice of McDouble burger or McChicken sandwich, four-piece chicken McNuggets, small fries, and a small soft drink, is “too narrow” and “doesn’t allow the customer to have a ton of variety.”

A longer run of the $5 deal could also exert pressure on margins.

“Franchisees are telling us that … their margins are being impacted by [the deal], and it’s making this a lot less profitable, or in certain cases, not profitable at all,” Saleh said. Some franchisees are pulling back on marketing for the deal, like video ads on the in-store screen or signage on the windows.

Here’s what McDonald’s reported for Q2, compared to what Wall Street expected, per Bloomberg consensus data:

• Revenue: $6.49 billion versus 6.63 billion

• Adjusted earnings per share: $2.97 versus $3.07

• Global same-store sales growth: -1.0% versus +0.84%

  • US same-store sales growth: -0.7 versus +1.04%

  • International-owned same-store sales growth: -1.1% versus +1.85%

  • International franchised same-store sales growth: -1.3% versus +0.41%

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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