McDonald's reported Monday its first quarterly sales target miss in nearly four years, drowned on weak sales growth at its international business division in part due to the conflict in the Middle East and boycott campaigns toward some Western goods.
The burger giant shares were down about 4%. McDonald's isn't the only U.S. company that has seen protests and boycott campaigns against them over their perceived pro-Israeli stance in the Palestinian-Israeli conflict. Starbucks said last week that it is facing boycotts in the Middle East and elsewhere because of its perceived support for Israel.
Global same-store sales – or sales at restaurants open at least a year – rose 3.4% in the October-December period, well below the 4.7% increase Wall Street was expecting, according to analysts polled by FactSet.
McDonald's said the war had "meaningfully impacted" performance in some overseas markets in the fourth quarter.
With the most pronounced hit in the Middle East, the company also saw an impact on business in countries such as Malaysia and Indonesia, as well as in France, CEO Chris Kempczinski said on a post-earnings call.
"So long as this war is going on ... we're not expecting to see any significant improvement (in these markets)."
Comparable sales in McDonald's International Developmental Licensed Markets segment rose 0.7% in the fourth quarter, widely missing estimates of 5.5% growth, according to LSEG data. The business accounted for 10% of McDonald's total revenue in 2023.
"The effects (of the war) on earnings durability would be our biggest concern ... it looks like this is going to be an issue that persists past the next quarter or maybe even two," said Brian Mulberry, client portfolio manager at Zacks Investment Management, which holds McDonald's shares.
Starbucks last week also cut its annual sales forecast, partly due to a hit to sales and traffic at stores in the Middle East.
Customers in the Middle East were outraged after McDonald’s Israel – which is operated by a local franchisee – announced in October it was providing free meals to Israeli soldiers. In response, some franchisees, like McDonald’s Oman, announced donations to relief efforts in Gaza.
Last month, CEO Kempczinski warned that "misinformation” in the Middle East and elsewhere was hurting sales. In addition to customer boycotts, McDonald’s has had to temporarily limit store hours or close some locations due to protests.
"We abhor violence of any kind and firmly stand against hate speech, and we will always proudly open our doors to anyone,” Kempczinski said in a LinkedIn post.
Consumer spending in China, McDonald's second-largest market, has also remained weak despite government support measures.
While McDonald's does not provide a breakup of sales in individual international markets, it noted industrywide promotions picked up in China during the quarter as restaurants rushed to revive flagging demand.
McDonald's U.S. business also showed signs of weakness, particularly with low-income consumers reducing order sizes or trading down to cheaper items.
That resulted in U.S. comparable sales rising 4.3% in the quarter, just shy of estimates of a 4.4% rise.
Still, McDonald's reported an adjusted per-share profit of $2.95, beating estimates of $2.82.
It was an unexpected end to an otherwise strong year for the burger giant, which said global same-store sales rose 9% in 2023. Viral marketing hits, like last spring’s Grimace shakes, and upgraded menu items helped to boost full-year revenue by 10% to nearly $25 billion.
McDonald’s revenue rose 8% to $6.4 billion in the fourth quarter, meeting analyst expectations. Net income was up 7% to $2 billion.
"It's going to take some time for the results to bounce back (in the Middle East)," Stephens analyst Joshua Long said but added he was still positive on McDonald's stock as it is "one of the best-positioned brands" to navigate a tricky macroenvironment.
McDonald's forecast 2024 operating margin to be in the mid-to-high 40% range and expects more than 1,600 net restaurant additions this year. It reported an operating margin of 45.7% for 2023.
