McDonald’s profits hit by inflation, Middle East boycotts over Israel-Hamas war
McDonald’s earnings fell short of expectations as spiking menu prices have begun to chase away inflation-battered, low-income families.
McDonald’s reported first-quarter net income of $1.93 billion, or $2.66 per share on Tuesday.
Excluding restructuring charges, the Golden Arches earned $2.70 per share. Though it was up from the year-ago period, it missed Wall Street’s $2.72-per-share expectations.
CEO Chris Kempczinski said on McDonald’s earnings call that “it is clear that broad-based consumer pressures persist around the world.”
“Consumers continue[d] to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending,” he added of McDonald’s recent struggle to get inflation-squeezed consumers to cough up as much as $18 for a Big Mac.
Kempczinski emphasized to shareholders Tuesday that the company must be “laser focused” on affordability to win back low-income consumers.
Keeping costs low hasn’t been top of mind for McDonald’s yet this year, which kicked off with roughly half the states in the country hikinh their minimum wage, including in New York and California, where hourly earnings were lifted to $16.
The Golden State, however, also implemented a rule on April 1 that requires fast-food workers to be paid $20 hourly.
Thus, in the first three months of this year, McDonald’s US same-store sales saw growth of 2.5%, missing expectations of 2.6%, as reports of eye-popping prices flooded in.
To offset rising labor costs, multiple franchisees across the country hiked menu prices, including McDonald’s owner Scott Rodrick, who said he’s already lifted menu prices 7% at the 18 locations he owns and is now considering reducing store hours.
Customers have also fumed for noticing that a Big Mac new tops $18 at one location in Connecticut, where an Egg McMuffin is a whopping $7.29 and a single side of hash browns will run hungry patrons $5.69.
Others expressed feeling salty over the fact that McDonald’s popular $1 $2 $3 Dollar Menu doesn’t actually have anything that’s just $1 on it.
The least expensive foods were a McChicken and small French fries for $1.99 each.
Overall, the Chicago-based burger joint has jacket its menu prices by 100% over the course of the last decade 00 more than three times the rate of US inflation, according to a study by FinanceBuzz, which cited average prices nationwide.
FinanceBuzz reported that a Quarter Pounder with Cheese meal goes for $11.99 — more than double the $5.39 it cost in 2014.
McDonald’s has claimed the report is inaccurate.
As the price of a McDonald’s meal has risen, so too has the rate of inflation. The consumer price index — which measures changes in the costs of everyday goods and services — rose at an annual rate of 3.5% in March.
McDonald’s also recorded a pre-tax charge of $35 million on Tuesday tied to its reorganization, which was announced more than a year ago and has since included a number of corporate layoffs under a strategy dubbed “Accelerating the Organization.”
The scale of the layoffs remains unclear, though the headcount reduction came at a time when labor in the US was becoming increasingly expensive.
Net sales, meanwhile, rose 5% to $6.17 billion, McDonald’s said Tuesday — a tick above the $6.16 billion expected, CNBC earlier reported.
Across the world, meanwhile, McDonald’s isn’t faring much better, McDonald’s also reported Tuesday that global same-store experienced a 1.9% rise in the quarter — again falling short of estimates of 2.1%.
The disappointing earnings report comes as the fast-food chain has been subject to boycotts and protests since franchisee Alonyal Ltd. announced shortly after the Oct. 7 attack by Palestinian Islamist group Hamas that it would be donating free meals to the Israeli military.
Kempczinski said in January the company has seen a “meaningful impact” in several markets in the Middle East and some outside the region due to the Israel-Hamas conflict.
Specifically in the Middle Estern market, McDonald’s said its same-store sales fell 0.2%, marking the first time since the pandemic that one of the company’s divisions reported a same-store sales decline, CNBC reported.
However, in other licensed markets like Japan, Latin America and the United Kingdom, McDonald’s repoorted growth in the first quarter.
The chain has since said it’s buying back its 30-year-old Israel franchise from Alonyal, taking back ownership of 225 restaurants in the country that employs more than 5,000 people in an effort to get it back on track.
The companies did not disclose the terms of the transaction.
