Inflation and boycotts in the Middle East have taken a toll on the world’s largest restaurant company that is likely to continue this year.
On Monday,
McDonald’s
posted lower fourth-quarter revenue and growth in same-store sales than Wall Street expected. The fast-food stock fell 4.5% to $283.74 by midday, leaving it with a gain of about 5.9% over the past 12 months.
Adjusted fourth-quarter earnings came in at $2.95 a share, while revenue was $6.41 billion. Analysts surveyed by FactSet had expected earnings of $2.83 a share from revenue of $6.45 billion.
Global growth in same-store sales for the quarter came at 3.4%, falling short of expectations for 4.7%. Comparable sales increased in all markets except the Middle East, where
McDonald’s
has been hit by the war between Israel and Hamas, according to the company.
In October, McDonald’s Israel, which is operated by local franchisees, said it would provide free meals to Israeli soldiers during the conflict. That angered many pro-Palestine consumers in the Middle East, prompting calls for a boycott.
Many McDonald’s franchisees in Muslim countries condemned the move and announced donations to relief efforts in Gaza. Countries with large Muslim populations such as Malaysia, Indonesia, and France were also affected, CEO Chris Kempczinski told analysts on a call to discuss the results.
He described the financial impact as “meaningful,” though the company didn’t disclose specific numbers. In a filing with the Securities and Exchange Commission on Monday, the company said that as long as the war continues, it will have a negative impact on systemwide sales and revenue.
In the U.S. market, comparable sales came in 4.3% higher than a year ago, driven by price increases, what management described as effective marketing efforts, and continued growth in online ordering and delivery operations. Prices increased by about 10% last year, the company said.
As a result, lower-income consumers have been visiting the fast-food chain less frequently, especially as price gains in packaged food slow down, making eating at home more affordable, Kempczinski said during the earnings call. “The battleground is certainly with low-income consumers,” he told analysts.
Pressure from inflation will continue in 2024. McDonald’s expects commodity prices to rise by a percentage in the low single digits this year. Wage growth will be in the mid to higher single digits, partly because a higher minimum wage for fast-food workers will take effect in California in April, the company said.
McDonald’s anticipates growth in comparable sales to moderate this year, returning to historical averages of 3% to 4% in the U.S. For fiscal 2024, the company expects its operating margin to be in the mid-to-high 40% range, largely the same as in 2023.
McDonald’s expects capital expenditures of between $2.5 and $2.7 billion in 2024, more than half of which will be directed toward opening restaurants.
In December, McDonald’s announced plans to open nearly 10,000 new restaurants in the next four years, pushing the total number of stores around the globe to 50,000 by the end of 2027.
In 2024 alone, McDonald’s plans to open more than 2,100 locations, including 1,000 in China. The fast-food chain recently acquired a 28% stake in McDonald’s China from the investment firm Carlyle, boosting its total share of the China business to 48%.
The restaurants opened in 2023 and planned for 2024 will contribute nearly 2% to systemwide sales growth this year, according to the company.
The company aims to expand its loyalty program to 250 million active users by 2027 from the current 150 million, more than doubling the program’s sales to $45 billion a year. Other initiatives include scaling up its delivery, drive-through, and mobile-order businesses, as well as improving its core menu.
McDonald’s also launched a new drink-focused chain called CosMc’s to take on
Starbucks
and Dunkin’ in the afternoon beverage market. If successful, the move would be another source of growth for the fast-food chain, though investors shouldn’t expect to see any significant benefit in the near term.
Corrections & Amplifications: McDonald’s reported adjusted earnings in the fourth quarter of $2.95 a share, beating analysts’ estimates of $2.83. A previous version of this article incorrectly used McDonald’s fourth-quarter non-adjusted earnings for comparison and said earnings missed expectations.
Write to Angela Palumbo at [email protected] and Evie Liu at [email protected]
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