Sale Growth of McDonald Slows Down Due to Israel-Hamas War.
McDonald’s, the world’s largest fast-food chain, reported on Monday that it has faced the weakest sales growth in markets of China, India and Middle East
McDonald’s, known as the burger giant, is among several Western brands that have been targeted by protests and boycott campaigns over their perceived pro-Israeli stance in Israel’s war on Gaza, which started on 7 October and has killed more than 28,000 people, mostly Palestinians.
The International Court of Justice found in January that it was plausible that Israel was violating the Genocide Convention in the strip.
McDonald’s CEO Chris Kempczinski last month flagged a “meaningful business impact” in the company’s Middle East market and some areas outside the region due to the war as well as “associated misinformation” about the brand. Starbucks, another Western brand, also cut its annual sales forecast last week, partly due to a hit to sales and traffic at stores in the Middle East.
McDonald’s comparable sales in its International Developmental Licensed Markets segment, which accounted for 10 percent of its total revenue in 2023, rose 0.7 percent in the fourth quarter, widely missing estimates of a 5.5 percent growth, according to LSEG data.
The segment includes the Middle East, China, and India, where consumer spending has also remained weak despite government support measures.
Brian Mulberry, client portfolio manager at Zacks Investment Management, which holds McDonald’s shares, said the effects of the war on the company’s earnings durability would be his biggest concern.
He said it looked like this would be an issue that persisted past the next quarter or maybe even two. He added that McDonald’s would have also seen similar trends in China as Starbucks, which previously said a sales recovery in China was slower than its expectations. McDonald’s India franchise also reported its first revenue decline in three years.
McDonald’s does not break down sales in these markets, but Stephens analyst Joshua Long said it would take some time for the results to bounce back in the Middle East.
He said he was still positive on McDonald’s stock given it was one of the best-positioned brands to navigate a tricky macroenvironment.
McDonald’s US business, which is its largest market, also showed signs of weakness in the fourth quarter. Traffic at McDonald’s US stores slumped 13 percent in October, 4.4 percent in November and 4.9 percent in December, according to Placer.ai data cited by Wells Fargo.
Comparable sales in the US climbed 4.3 percent in the quarter, just shy of estimates of a 4.4 percent rise. Still, the company reported an adjusted profit of $2.95 per share, beating estimates of $2.82 per share.
McDonald’s projected 2024 operating margin to be in the mid-to-high 40 percent range and expects more than 1,600 net restaurant additions this year.
McDonald’s global same-store sales increased 3.4 percent in the quarter, missing estimates of a 4.9 percent rise.