McDonald's sales came as a positive surprise in the fourth quarter. While analysts were expecting a decline in same-store sales, they actually rose by 0.4%.
This increase was driven by the two "international" divisions, in particular the one that includes Japan and the Middle East (International Developmental Licensed Markets), with sales up 4.1%, while sales were rather stable in the division that includes France and the UK (International Operated Markets).
By contrast, sales in the United States, McDonald's main market, fell by 1.4%. While the number of customers rose over the quarter, the average order value fell. An E.coli epidemic also weighed on business. The outbreak began on October 22, forcing McDonald's to temporarily suspend sales of its Quarter Pounder burgers in a fifth of its 14,000 U.S. restaurants.
Lower prices...and lower profits
McDonald's continues to roll out its low-price offers to try to bring customers back, at a time when inflation over the last few years has pushed them towards eating at home. But analysts, like Peter Saleh, warn of the dependence on discounts, which now account for over a third of the group's sales. And this could weigh on margins in the future.
For the time being, this strategy is already translating into a drop in sales to $6.39 billion from $6.41 billion in the fourth quarter of 2023. And above all, a 5% drop in net income to $2.04 billion on an adjusted basis, versus estimates of $2.07 billion.
Despite this, the stock gained 5% at the opening, and is closing in on its record levels. Higher surprise sales and lower expectations in recent weeks explain this reaction. In the 90 days prior to publication, there had been 18 downward revisions to earnings expectations, against no upward revisions.
