A lot is stacked against McDonald’s this quarter.
Wage inflation, tighter wallets, and global conflict are creating headwinds for the Golden Arches. Wall Street is expecting weaker foot traffic for the chain, which may take a toll on McDonald’s (MCD) Q1 report.
The fast food giant is set to report its Q1 earnings before market open on Tuesday. Expectations are muted, as the Street fears that consumers may be pulling back on their Big Mac or McNuggets in light of persistent inflation.
McDonald’s revenue is expected to grow 4.4% year over year to $6.14 billion, while adjusted earnings per share are expected to come in 3.4% higher at $2.72.
Global same-store sales growth is expected to see a 2.33% jump, down from the 3.4% growth seen in Q4 2023.
In early January, CEO Chris Kempczinski wrote in a LinkedIn post that “several markets in the Middle East and some outside the region are experiencing a meaningful business impact due to the war and associated misinformation that is affecting brands like McDonald’s.”
In the US, same-store sales are expected to grow 2.55% year over year, also lower than Q4’s 4.3% jump.
Shares of the fast food giant have been under pressure, dropping 8% year to date compared to the S&P 500’s (^GSPC) 8.5% gain.
BTIG analyst Peter Saleh said in a note to clients that foot traffic growth is expected to trend down, adding that the “average check will remain under pressure from the heavy discounting to recover lower-income consumer traffic.”
Deutsche Bank research analyst Lauren Silberman said sentiment on the company “appears to lean negative … reflecting concerns on International same-store sales and risk to numbers” in a client note.
While there are near-term issues, Silberman wrote that “concerns on McDonald’s global strength and value leadership are overblown” and that she continues “to see the brand as well positioned for outperformance over time, particularly in a more challenging consumer backdrop.”
This comes as the competition is heating up, with Wendy’s (WEN), Burger King (QSR), and Taco Bell (YUM) vying for market share with promotional activity.
Citi analyst Jon Tower identified the bull and bear case for the Golden Arches in a recent note.
For the bull case, he said the company has a “precedent for … leaning into value to drive step function gains in share in softer macro backdrops, and digital relationships offer a new avenue for pursuing these goals.”
As for the bear case, McDonald’s value isn’t what it once was.
“Wage increases and the associated price have fundamentally broken the consumer’s value-relationship with quick service restaurants, convenience stores offer an increasingly competitive alternative at lower price points, and California wage increases are an additional wrench in getting franchisees broadly on board with a national value offer,” Tower wrote.
Experts told Yahoo Finance the sheer scale of McDonald’s and other large chains can help insulate them from recent legislation in California that raised the minimum wage for most fast food establishments to $20. However, as menu prices rise, the companies may have to compete more aggressively on discounts and promotions.
Here’s what Wall Street expects from McDonald’s, per Bloomberg consensus estimates:
Revenue: $6.15 billion, compared to $5.9 billion in Q1 2023
Adjusted earnings per share: $2.72, compared to $2.45
Global same-store sales growth: 2.33%, compared to 12.6%
US same-store sales growth: 2.55%, compared to +12.6%
International-owned same-store sales growth: 3.20%, compared to 12.6%
International franchised same-store sales growth: 1.17%, compared to 12.6%
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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