McDonald’s reported second quarter results Monday before market, which included the chain’s first same-store sales decline – both domestically and internationally – since the throes of the pandemic. In the U.S., same-store sales were down 0.7%, prompting U.S. president Joe Erlinger to join the earnings call for the first time since 2021.
International operated markets were also down 1.1%, while international licensed markets fell 1.3%. Further, quarterly revenue was flat at $6.49 billion.
While those results certainly merit a headline, they perhaps shouldn’t be all that surprising. McDonald’s began flashing warning signals last year that a big chunk of its consumer set was softening. In the fourth quarter, same-store sales, while positive, fell short of expectations as CEO Chris Kempczinski noted that lower-income consumers were visiting less frequently. These traffic trends continued through the first quarter and Kempczinski conceded in April that the company had lost some of its value edge.
The crux of this issue is also no surprise. As Kempczinski noted, the company has absorbed recent inflationary cost increases ranging from 20% to 40% through pricing.
“These price increases disrupted long running value programs and led consumers to reconsider their buying habits,” he said, including more consumers opting to eat at home.
In late-June, McDonald’s launched its national $5 Meal Deal to win back some traffic, and early reports have shown that it is working. Erlinger said the number of $5 Meal Deals sold have exceeded expectations and trial rates are highest among low-income consumers. Further, the average check for Meal Deal orders is $10, proving add-on activity. Executives said the Meal Deal is doing exactly what it is intended to do – changing perceptions around affordability, increasing trial among lower-income consumers, and shifting guest counts to positive.
But the launch came a little too late to have much of an impact in Q2 and, combined with a challenging lap over last year’s wildly successful Grimace Shake campaign, the chain now finds itself in uncommon territory. As such, Kempczinski, Erlinger, and CFO Ian Borden spent much of the earnings call sharing the company’s plan to get back into positive territory.
“There were factors within our control that contributed to our underperformance, most notably our value execution. For 70 years, McDonald’s has defined value in our industry, and we are taking meaningful actions across the world to assert our leadership. The hallmark of a great company is its ability to perform in good times and bad and we’re resolved to reignite share growth in all our major markets regardless of the prevailing market conditions. This won’t happen overnight, but it will happen,” Kempczinski said.
The company plans to pull levers such as focusing on its core menu, its digital business, and its loyalty program. McDonald’s is also focused on operational improvements, speed of service, and increased customer satisfaction. Erlinger said, for instance, that the company is focused on “raising the bar on customer experience considering our customers’ current reality.”
“In this last quarter, McDonald’s USA delivered its highest ever customer satisfaction scores,” he said.
For the core menu piece, McDonald’s “Best Burger” is now available in more than 80% of global markets and has driven higher quality scores. It is expected to be available in all markets by the end of 2026. Additionally, the chain is piloting a new, “more satiating” burger – called “The Big Arch” – in three markets this year to address “unmet customer needs.” The offering includes two beef patties layered with cheese, crispy toppings, and a tangy sauce.
McDonald’s is also leaning into chicken, consumption of which is twice the size of beef globally and growing at a faster rate. Kempczinski said chicken sales are now on par with beef sales and the company continues to gain chicken market share.
On the digital side, loyalty membership has reached 166 million members, and identified users now represent 25% of systemwide sales. That said, Kempczinski admitted the chain “probably over-rotated” a little on digital versus broad-based value for all consumers because just 25% of customers are on the digital platform.
“As you think about what you need to do to drive overall business, we’re just not to the size and penetration needed [digitally] to drive the overall business yet,” he said. McDonald’s expects to get to 250 million users by 2027, which will create a “different conversation on how digital can drive value.”
Again, however, the biggest chapter in McDonald’s playbook is identifying and executing value opportunities beyond the limited-time $5 Meal Deal. To do that, the company is working with franchisees to adjust and is leaning heavily into consumer insights. It is also scaling best practices from markets like Germany and Canada into other markets, and Borden said early results have been encouraging.
Still, executives cautioned that the next several quarters will be much of the same.
“The pressures are broad based. We don’t profess to have a crystal ball, but we don’t expect we’re going to see a change in that environment over the next few quarters. That’s why we’re laser focused on getting value and affordability right,” Borden said. “We’re confident if we get value and affordability propositions right … that will encourage consumers to come back.”
“McDonald’s is a growth business. We’re not accepting negative comps as just the way it is because of consumer headwinds. We absolutely are committed to getting this business back to growth,” Kempczinski added. “The foundation of that is the value platforms, but we need to do more on menu innovation, we’ve got more levers on digital, and getting our marketing to be more of a contributor. All those things need to work in combination to get the business back to its rightful place.”
McDonald’s Q2 by the numbers
- Global comparable sales decreased 1%, reflecting negative comp sales across all segments
- U.S. comps decreased 0.7%
- International operated markets segment decreased 1.1%
- International developmental licensed markets decreased 1.3%
- Consolidated revenues were flat
- Systemwide sales decreased 1%
- Consolidated operating income decreased 6%
- Diluted earnings per share were $2.80, a decrease of 11%, or 10% in constant currencies
Contact Alicia Kelso at [email protected]
