McDonald's Reports Rare Sales Miss Due To Raging Israel-Hamas War

McDonald’s Corporation MCD could handle it all- COVID-19 lockdowns and even the recession but Middle East turmoil hurt its business although it still reported overall growth in overall sales and earnings. Like Starbucks Corporation SBUX, McDonalds is experiencing a meaningful business impact from the war between Israel and Hamas. Weighted down by weak sales growth across the Middle East, China and India, the burger chain reported its first sales miss in almost four years.

Middle East Backlash

Both Starbucks and McDonalds issued a public statement in attempt to fight misconceptions and untangle their respective brands from controversies related to the war that led to boycotts affecting their stores not only in the Middle East but across the globe.

Weak Consumer Spending In China

Despite government support, consumer spending at McDonald’s second largest market remained weak. Starbucks also reported its recovery in China is going slower than expected.

A Mixed Fourth Quarter

For the December quarter, McDonalds reported revenue rose 8% to $6.41 billion, falling short of $6.45 billion that LSEG expected. Same-store sales grew 3.4%, also falling short of StreetAccount’s 4.7% estimate with international developmental licensed markets segment reporting a same-store sales increase of only 0.7%. Domestic store sales grew in line with expectations, more precisely at 4.3% due to price hikes, efficient marketing and increase in digital and delivery orders. However, McDonald’s did not disclose if U.S. traffic continued to fall after the reported drop in the previous, third, quarter.

Net income amounted to $2.04 billion, or $2.80 per share and adjusted earnings amounted to $2.95 per share after excluding restricting costs and other one-time items.

As for the annual 2023 revenue, sales grew 10% compared to 2022, as they amounted to $25.49 billion.

2024 Kicked Off With A Slower Start But McDonald’s Still Plans To Accelerate Its Expansion

The fast-food giant topped analyst estimates on the earnings front,  but posted a rare sales miss due to international market weaknesses. However, McDonald’s isn’t thinking of slowing down as it plans to spend between $2.5 billion and $2.7 billion on capital expenditures, with half of those funds aimed at opening new stores across the U.S. and international markets.

Last week, Starbucks lowered its annual outlook partly due to lowered sales and traffic at its Middle East stores and McDonald’s is also expecting the negative impact on its sales from the ongoing war to continue until the conflict is resolved. Yet, despite pressures, McDonald’s reiterated its December guidance with new restaurants increasing its sales growth by almost 2%, showing it remains confidence in the resilience of its business despite lingering macroeconomic challenges.

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