McDonald’s said it was seeing a “meaningful” hit to business, as customers in the Middle East and elsewhere boycott the firm for its support of Israel. In the immediate aftermath of the October 7 attack, McDonald’s Israel announced that they would provide thousands of free meals to IDF soldiers and hospitals. McDonald’s Israel owner Omri Padan pledged a daily donation of 4,000 meals to security forces, healthcare workers and residents of the affected region.
By Deborah Mary Sophia
McDonald’s reported its first quarterly sales miss in nearly four years on Monday, squeezed by weak sales growth in its business division that includes the Middle East, China and India.
The burger giant is among several Western brands that have seen protests and boycott campaigns against them over their perceived pro-Israeli stance in the Israel-Hamas conflict.
Comparable sales in McDonald’s International Developmental Licensed Markets segment rose 0.7% in the quarter, widely missing estimates of a 5.5% growth, according to LSEG data. The business accounted for 10% of McDonald’s total revenue in 2023.
Instagram user @ezzat_experience uploaded a video on Oct 22, showing the blue and white wrapper used by a McDonalds outlet in Chicago which has gained 34.2 thousand likes and two thousand comments – PIX screengrab from @ezzat_experience
CEO Chris Kempczinski last month flagged a “meaningful business impact” in McDonald’s Middle East market and some areas outside the region due to the war as well as “associated misinformation” about the brand.
“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.
Meanwhile, consumer spending in China, McDonald’s second-largest market, has also remained weak despite government support measures.
Reports , on social networking sites like Facebook and other websites that top American companies are donating profits to Israel in support of the war in Gaza prompted consumers to boycott them.
Starbucks previously said a sales recovery in China was slower than its expectations. McDonald’s would have also seen similar trends in China in the quarter, Zacks Investment’s Mulberry added.
McDonald’s Indian franchisee also reported its first revenue decline in three years.
Chicago-based McDonald’s does not break down sales in these markets.
The company’s U.S. business is also starting to show signs of weakness. Traffic at McDonald’s U.S. stores slumped 13% in October, according to Placer.ai data cited by Wells Fargo. It declined 4.4% and 4.9% in November and December, respectively.
Comparable sales in the U.S. climbed 4.3% in the fourth quarter, just shy of estimates of a 4.4% rise.
Still, the company reported an adjusted profit of $2.95 per share, beating estimates of $2.82 per share.
“It’s going to take some time for the results to bounce back (in the Middle East),” Stephens analyst Joshua Long said, adding he was still positive on McDonald’s stock given it is “one of the best positioned brands” to navigate a tricky macroenvironment.
McDonald’s projected 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. The company’s shares were down marginally in volatile premarket trading.
McDonald’s’s global same-store sales increased 3.4% in the quarter, missing estimates of a 4.9% rise. That represented the slowest sales growth in about three years.
(Reuters)
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