McDonald's reports lower second-quarter sales as higher prices hit demand

McDonald’s sales fell short of expectations in the second quarter as coronavirus restrictions closed stores in China and higher prices weighed on US demand.

The Chicago burger giant said its revenue fell 3% to $5.72 billion in the April-June period. That was below Wall Street’s forecast of $5.8 billion, according to analysts surveyed by FactSet.

Same-store sales, or sales in stores open at least a year, are up nearly 10% worldwide. That was higher than the 6.8% that analysts had expected.

But there were double-digit drops in comparable stores in China, where restaurants temporarily closed across the country for most of the quarter.

US same store sales increased 3.7%. McDonald’s said most of that increase was due to higher prices, with store traffic flat.

Chief Financial Officer Kevin Ozan said McDonald’s is experiencing a decline in cheaper items and lower sales of combo meals in the US, particularly among low-income consumers. The number of customers per sale has also dropped since the height of the pandemic, when families in lockdown often picked up large orders at drive-thru.

Ozan said year-over-year price increases in the US in the 8% to 9% range will likely continue for the rest of the year as McDonald’s offsets its higher costs. McDonald’s expects food and paper costs to rise 12% to 14% throughout the year, while its labor costs are up 10%.

Chief Executive Officer Chris Kempczinski said McDonald’s has benefited from another form of downward trading, as higher-income Americans some days choose to go to a McDonald’s over more expensive sit-down restaurants.

“Even though we are pushing prices up, the consumer is tolerating it well,” Kempczinski said.

McDonald’s profit fell 46% to $1.19 billion. That included $1.2 billion in charges related to the sale of its 850 stores in Russia.

In mid-May, McDonald’s sold its Russian restaurants to a McDonald’s licensee that operates 25 restaurants in Siberia. Restaurants began reopening last month under a new name: Vkusno-i Tochka (tasty period).

McDonald’s also reported a $271 million gain from the sale of its Dynamic Yield business to Mastercard. McDonald’s bought the startup, which specializes in decision logic technology, in 2019 in a bid to customize its self-service menu boards.

Excluding one-off items, McDonald’s earned $2.55 per share. That beat Wall Street’s forecast of $2.45 a share.

McDonald’s shares rose nearly 2% in early trading.

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