McDonald's, one of the leading fast-food chains, has experienced its first quarterly sales miss in nearly four years, with weak sales growth in its international business division. This decline was partly attributed to the conflict in the Middle East, which led to protests and boycott campaigns against Western brands. The burger giant stated that the war had significantly impacted its performance in some overseas markets during the fourth quarter. The most pronounced impact was seen in the Middle East, but countries such as Malaysia, Indonesia, and France also saw a negative effect on business. CEO Chris Kempczinski does not foresee any significant improvement in these markets as long as the conflict persists.
In the fourth quarter, comparable sales in McDonald's International Developmental Licensed Markets segment only rose by 0.7%, significantly lower than the estimated 5.5% growth. This segment accounts for 10% of the company's total revenue. Concerns are now arising about the long-term impact of the conflict on earnings durability, suggesting that it may persist beyond the next quarter or two. Starbucks, another prominent brand, recently reduced its annual sales forecast partly due to lower sales and traffic in the Middle East.
Consumer spending in China, which is McDonald's second-largest market, has also remained weak despite government support measures. While the company does not provide specific sales figures for individual international markets, it mentioned that industry-wide promotions increased in China during the quarter as restaurants tried to revive demand.
McDonald's U.S. business also showed signs of weakness, particularly with low-income consumers reducing order sizes or choosing cheaper items. As a result, U.S. comparable sales rose by only 4.3%, slightly missing the estimated 4.4% increase.
Despite these challenges, McDonald's reported an adjusted per-share profit of $2.95, surpassing estimates of $2.82. Analysts remain cautiously optimistic about the company's future prospects. Joshua Long, an analyst at Stephens, pointed out that it will take time for sales to bounce back in the Middle East. However, he expressed positivity towards McDonald's stock, considering it as one of the best-positioned brands to navigate difficult macroenvironment conditions.
Looking ahead, McDonald's has forecasted its 2024 operating margin to be in the mid-to-high 40% range and expects to add over 1,600 net restaurants this year. In 2023, the company achieved an operating margin of 45.7%. Nonetheless, global same-store sales grew by 3.4% in the quarter, falling short of the estimated 4.9% rise, marking its slowest sales growth in about three years. The challenges faced by McDonald's highlight the impact of geopolitical conflicts on multinational corporations and the importance of adapting to changing market dynamics.