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McDonald’s has reported weaker than expected same-store sales in its fourth quarter, as the fast-food chain became the latest company to warn that boycotts related to the war in Gaza have hurt its business.
The company said that global same-store sales increased 3.4 per cent in the three months to the end of December, short of analyst expectations for an increase of about 4.9 per cent.
However, the miss was greater within the division covering the more than 80 markets internationally where McDonald’s has licensed its franchising rights. Here, same-store sales edged up only 0.7 per cent in the period, sharply missing analyst expectations for an increase of 5 per cent, which McDonald’s primarily blamed on a drop in demand at its restaurants in the Middle East as well as those in predominantly Muslim countries such as Indonesia and Malaysia.
“In [international developed licensed markets], we do not expect to see meaningful improvement until there is a resolution in the Middle East,” chief executive Chris Kempczinski said on an investor call on Monday. He added that McDonald’s had also experienced challenges in France, one of its main markets, in some areas with large Muslim populations.
Shares in McDonald’s were down 4.3 per cent to $284.30 in early afternoon trading.
Kempczinski had already warned in a LinkedIn post last month that the war in the Middle East was having a “meaningful business impact” within and beyond the region and that “misinformation” was a factor.
The pro-Palestinian Boycott, Divestment, Sanctions movement (BDS), alleged last year that McDonald’s was “complicit with Israeli atrocities towards Palestinians” after outrage erupted over an Israeli franchisee’s decision to offer discounts and free meals to soldiers and security forces in October.
McDonald’s said in a statement that it “is not funding or supporting any governments involved in this conflict”, adding that “actions from our local developmental licensee business partners were made independently without McDonald’s consent or approval”.
Other companies have also been affected by boycotts and upheaval related to the Gaza conflict. Starbucks last week reported a “significant impact on traffic and sales” in the Middle East, which it attributed to “misperceptions about our position”, which also had an “impact in the US”.
Estée Lauder said on Monday that disruption in Israel and other parts of the Middle East accounted for a 1 per cent headwind in its quarterly results. Net sales fell 7 per cent year on year in the three months to the end of December to $4.28bn, with the majority of the fall due to softness in Asia sales. Net income decreased 21 per cent to $313mn.
McDonald’s reported annual revenue of about $25.5bn, an increase of 10 per cent and roughly matching analysts’ forecasts. Full-year earnings rose from $8.33 to $11.56 a share, just below analysts’ expectations of $11.62.
Annual net income rose 37 per cent to $8.5bn.
The group has experienced double-digit sales growth in recent years but this is now normalising as inflation moderates. Kempczinski added that he expects comparable sales growth to moderate in 2024 and return to a historical average of between 3 and 4 per cent.
McDonald’s reported softer sales in the US as customers with lower incomes purchased cheaper menu items, although Kempczinski expects pricing will come down roughly in line with inflation, which has fallen from its peak.
“The days of raising prices, mid to high single digits are over,” said Brian Yarbrough, an analyst at Edward Jones. “You’re not going to see the huge benefit they’ve seen over the past 12 to 18 months from inflation and higher prices.”
McDonald’s reported a “more promotional environment” in China as consumer sentiment remained weak there. “The recovery [in China] has not been near what most people thought and I don’t know if that will normalise anytime soon,” added Yarborough. “There’s a lot of choppiness.”
Additional reporting by Daria Mosolova and Anna Mutoh
