McDonald’s Corp. reported lower-than-expected sales in the fourth quarter, ending 2023 on a weak note due to boycotts of the fast food giant in the Middle East over its business in Israel. Still, the company posted higher profits for the full year, reflecting menu price increases in the face of inflationary pressures.
Fourth Quarter Sales Decline Due to International Weakness
McDonald’s said its fourth quarter revenue fell 3% to $5.93 billion, missing Wall Street’s expectations. Global same-store sales, or sales at locations open at least 13 months, dropped 2.6% in the period. The company blamed the underperformance largely on “geopolitical tensions in the Middle East region.”
Specifically, the burger chain faced boycotts in countries including Qatar, Kuwait, Oman and Jordan tied to McDonald’s continuing operations in Israel and its owner’s connection to that country.
“The boycott impacted several markets across the region, pressuring comparable sales,” McDonald’s said.
| Metric | Q4 2023 | Change | Expected |
|---|---|---|---|
| Revenue | $5.93 billion | -3% | $6.15 billion |
| EPS | $2.59 | +17% | $2.47 |
In markets not impacted by the Middle East tensions, McDonald’s business remained resilient. U.S. comparable sales increased over 12% on a two-year basis.
McDonald’s India and China both achieved record high quarterly sales thanks to value offerings and country-specific menu innovation. However, this wasn’t enough to offset weakness in the Gulf region.
“While results across the broader business remain strong, the recent geopolitical disruptions weighed heavily on fourth quarter comparable sales,” said McDonald’s Chief Financial Officer Ian Borden. He added that the company is monitoring the situation closely.
Full Year Profit Rises on Higher Prices
Despite the sales disappointment in Q4, McDonald’s full-year earnings topped views, with global comparable sales up nearly 10%. Net income increased 11% in 2023 to $9.25 billion as the company took measures to protect profitability amid high inflation.
McDonald’s said it continues to see “resilient demand” from consumers seeking affordable meal options. To balance providing value with covering elevated food, labor and energy costs, McDonald’s bumped up menu prices nearly 10% over 2022 in its top markets globally.
In addition, McDonald’s accelerated new restaurant openings in 2023, particularly across Asia. The company debuted over 1,900 locations during the year including its 50,000th site worldwide.
“We enter 2024 well-positioned to drive long-term, sustainable growth alongside franchisees and suppliers,” said CEO Chris Kempczinski.
Impact on McDonald’s Stock Price & Business
McDonald’s shares slipped 2% in early trading Monday following the sales miss in Q4 results. The stock remains up 4% over the past year, broadly in-line with the S&P 500’s gain.
Analysts say resolving Middle East tensions will take time but shouldn’t threaten McDonald’s over the long run given brand loyalty globally. Investors anticipate the company will overcome short-term headwinds.
“McDonald’s is one of the world’s most ubiquitous brands, we view recent geopolitically inspired sales weakness as temporary rather than structural,” said CFRA Research analyst Tuna Amobi.
The earnings report comes as McDonald’s and other major chains face pressure over topics like worker pay and environmental impacts. Kempczinski said McDonald’s will continue efforts in 2024 to be “a modern, progressive burger company.”
Initiatives include further raising average hourly wages for employees, expanding vegetarian options regionally and achieving net zero emissions by 2050.
While navigating tensions abroad, McDonald’s domestic growth engine keeps humming. The company’s U.S. comparable sales accelerated from 2021 levels as Americans seek value meals amid high inflation and a potential economic slowdown.
Kempczinski said McDonald’s “brand trust and market leadership” position it well moving forward even if consumers pull back spending. Affordability and convenience remain McDonald’s key draws versus full-service dining.
All told, despite recent headwinds, McDonald’s retains dominant scale and branding to drive continued expansion globally. The Middle East boycotts present a temporary blot rather than long-lasting trouble.
McDonald’s will likely leverage its “combination of value, convenience and marketing strength” to get sales moving higher again in 2024, said MarketWatch industry analyst Tonya Garcia.
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