McDonald’s reported a sharper-than-expected decline in US comparable sales for the fourth quarter, with a 1.4% drop as consumers cut back on spending and the company faced the fallout from a brief E. coli outbreak.
McDonald’s US sales were the lowest since early COVID-19 days.
LSEG estimates had predicted a 0.4% decrease.
McDonald’s stock rose by 2.1% before the opening of pre-market trade despite lower sales.
McDonald’s temporarily halted sales of Quarter Pounder hamburgers in about 20 percent of its US outlets after an E. coli epidemic began on the 22nd of October.
On December 3, the US Centers for Disease Control and Prevention completed their investigation, reporting that hundreds of people were sickened and at least one person died.
McDonald’s profits drop, but analysts warn against discounting
McDonald’s reported a fourth quarter net profit of $2.02billion, or $2.80 a share. This is down from the $2.04billion logged yearly.
The adjusted earnings per share was $2.83 in line with expectations.
The quarter’s revenue came in slightly lower than expected at $6.44 billion.
While the company reported that customer traffic had been slightly improved, customers spent less money per visit.
McDonald’s launched a value meal for $5 last summer to appeal to budget-conscious customers.
Although the strategy initially increased sales, analysts warn that it only works when customers buy items at full price.
Analysts are concerned about McDonald’s growing reliance on discounting, which accounts for more than a third its sales.
Peter Saleh, BTIG’s analyst said: “We believe that the biggest challenge McDonald’s will face in the coming months and quarters is to wean customers away from these steep discounts.”
US, UK underperform; Middle East and Japan perform better
McDonald’s international market performed better than its domestic segment.
Sales in the International Developmental Licensed Markets Division grew 4.1%, exceeding analyst expectations for a 0.43% drop.
The UK’s performance was weakened by a weaker sales performance in Japan and Middle East.
McDonald’s Middle East recorded strong growth despite a difficult year that was marked by geopolitical tensions and boycotts.
The UK sales stagnated and contributed to an increase in international sales of only 0.1%.
Wall Street had expected a 0.6% decline in same-store sales, but the company reported a surprising rise of 0.4%.
McDonald’s revitalises growth through new value-based strategy
McDonald’s spent $100 million on marketing in a quarter to boost sales.
In January the company launched a value menu to entice customers to return who had been eating at home due to rising prices.
McDonald’s is facing ongoing challenges on the US market, despite its stock price rising nearly 2% in comparison to the previous year.
McDonald’s must strike the right balance between profitability and affordability in order to maintain its current momentum.
As updates are made, the post McDonald’s US Q4 sales slump to its lowest level in five years could be changed.
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