Wednesday, February 28, 2024

McDonald's sales growth slows with mideast war hurting results

by Daniela Sirtori-Cortina Bloomberg News
| February 5, 2024 12:00 AM

McDonald's Corp.'s sales missed investor expectations in the fourth quarter as growth decelerated, hurt in part by the war in the Middle East.

Comparable sales, a key metric for the restaurant industry, rose 3.4% in the period, McDonald's said Monday. That's the slowest since the fourth quarter of 2020, and below the average estimate of analysts polled by Bloomberg. Revenue was also shy of estimates.

Expectations were lowered after Chief Executive Officer Chris Kempczinski's warning earlier this year of a "meaningful business impact" in the Middle East. The segment that includes the region, which accounts for about 10% of McDonald's revenue, fell well short of estimates.

After the war broke out, the chain became one of the most prominent targets for boycotts in Muslim nations over its perceived stance on the conflict as well as its status as one of the most recognized American brands. The company has repeatedly said its restaurants are run independently by local operators.

Growth in other regions weakened as well. In the U.S., higher prices helped drive comparable-sales growth of 4.3%, which is slightly below the average market estimate and about half of the previous quarter's rate. It was a similar story in international markets where McDonald's operates and franchises restaurants. Results were strong in the UK, Germany and Canada, but that was partly offset by a decline in same-store sales in France.

In the statement, Kempczinski said the company is "confident in the resilience of our business amid macro challenges that will persist in 2024." Executives have previously said higher interest rates and inflation are putting pressure on consumers, while also flagging China's slowing economy. Management is expected to offer an outlook for 2024 during a call with analysts on Monday morning.

The fourth-quarter results included pretax charges of $138 million, which McDonald's attributed to the write-off of software no longer in use and restructuring costs. Excluding those items, earnings per share of $2.95 were above analysts' expectations.

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