TLDR
- McDonald’s Q1 revenue missed expectations at $5.96 billion vs $6.1 billion forecast
- US comparable sales dropped 3.6% due to decreased customer traffic
- Global comparable sales declined 1% overall
- International markets showed mixed results with 3.5% growth in developmental markets
- CEO cited consumer uncertainty but expressed confidence in navigating tough market conditions
McDonald’s reported disappointing first-quarter results on Thursday, with revenue falling short of Wall Street expectations as US sales continued to decline. The fast-food giant’s stock fell in premarket trading following the announcement.
The company posted revenue of $5.96 billion for the quarter, below analysts’ expectations of $6.1 billion. This marked a 3% decline from the previous year.
Adjusted earnings per share came in at $2.67, just above the $2.66 analysts had anticipated according to FactSet data, but below the $2.68 expected according to Bloomberg.
US comparable sales dropped by 3.6%, a steeper decline than the 1% fall Wall Street had expected. The company attributed this to “negative comparable guest counts,” indicating fewer customers visited McDonald’s restaurants compared to the same period last year.
Global comparable sales were down 1% overall. When excluding the effect of Leap Day, they were essentially flat year over year.
International Performance Varies
Not all markets performed poorly. McDonald’s reported a 3.5% increase in comparable sales within its International Developmental Licensed Markets segment, which includes 75 international markets such as Japan, China, and Brazil.
This growth was primarily driven by strength in the Middle East and Japan, exceeding analysts’ expectations of 3.3% growth in these markets.
However, the International Operated Markets segment, which includes 16 markets such as Canada, Australia, UK, France, and Germany, saw a 1% decline. This was mainly due to falling sales in the UK.
Analysts had expected a modest 0.3% rise in these markets, making the decline particularly disappointing.
CEO and Chairman Chris Kempczinski acknowledged that customers were “grappling with uncertainty” but remained confident in the company’s ability to “navigate even the toughest of market conditions and gain market share.”
Despite the earnings miss, McDonald’s stock has performed well this year, up 10% coming into Thursday and trading near its record closing high of $321.29 reached on March 7.
This contrasts with the broader market’s performance, which has fallen in response to President Donald Trump’s tariff announcements. The S&P 500 has dropped roughly 5% this year.
Value Offerings and Consumer Behavior
McDonald’s has been working to attract budget-conscious customers through various deals over the past year as consumers became more careful with spending.
The company launched its McValue menu in January, featuring all-day deals including the “buy one, add one for $1” offer and the popular $5 meal deal introduced last summer.
However, analysts suggest the results of these value offerings might not be visible until the second half of the year.
Data from Placer.ai, which tracks visits to retailers and restaurants, showed visits to McDonald’s were down 2.6% from a year earlier during the first quarter. This compared to a 1.4% drop for the entire retail and dining sector.
When economic conditions worsen, consumers typically look for affordable dining options like fast food. But if conditions deteriorate too much, people may cut out restaurant meals entirely.
There’s also the risk that diners might shift to more expensive establishments if they perceive them as offering better value or experience.
This happened in 2024 when many fast-food chains raised prices too high and drove customers away. Fast-casual chains like Chipotle Mexican Grill and casual restaurants like Chili’s began attracting more diners despite their higher prices.
McDonald’s shares fell 1.1% to $316.21 in premarket trading, while futures tracking the S&P 500 were up 1.2%.
Some analysts remain optimistic about McDonald’s stock despite the recent results. UBS, HSBC, and Morgan Stanley have labeled it a “defensive” stock pick in recent notes to investors.
The company could face international pressures, with more than half of its revenue coming from abroad. China, McDonald’s second-largest and fastest-growing market, may be impacted by rising anti-American sentiment due to Trump’s trade war.
