McDonald's (MCD +4%) is trading higher despite a challenging quarter. The company missed on adjusted EPS for the second consecutive time, a first since Q1-Q2 of 2020. Revenue slightly decreased by 0.1% year-over-year to $6.49 billion, falling short of analyst expectations. This marks MCD's first year-over-year revenue decline since Q4 2022.
- MCD noted a more discriminating consumer, especially among lower-income households. As the year progressed, discretionary spending tightened, with more people eating at home.
- The QSR sector has slowed in most of MCD's markets, with industry traffic declining in key areas like the US, Australia, Canada, and Germany. The war in the Middle East also negatively impacted several markets. MCD expects these pressures to continue due to economic strains and higher living costs.
- Global comp sales dropped to -1.0%, down from +1.9% in Q1 and +3.4% in Q4. US comps fell to -0.7%, driven by fewer guest counts but slightly offset by strategic menu price increases. The decline is notable given the robust +10.3% US comps in Q2 of last year.
- International Operated Markets (IOM) comps decreased by -1.1%, mainly due to weak performance in France and other markets. Lower-income households and families in Europe are eating at home more. International Developmental Licensed (IDL) comps fell by -1.3%, with negative comps in China offsetting positive results in Latin America and Japan.
- MCD emphasized the need to focus on value offerings. Although still seen as a value leader, MCD acknowledged its value leadership gap has shrunk and is working to address it.
- The $5 value meal deal has exceeded sales expectations, particularly popular among lower-income consumers. This offer has improved brand sentiment regarding value and affordability. Currently, 93% of MCD restaurants in the US plan to extend the $5 offer further into the summer. The company also aims to provide value through consistent mobile app offers.
Overall, it's surprising to see MCD shares rise after a weak quarter. The stock's recovery may be due to the negativity already being priced in, as shares have fallen 17% since mid-January. Investors seem pleased with MCD's renewed focus on value, which has been a point of criticism as competitors offered better value deals. This shift appears to have positively impacted investor sentiment.
