McDonald’s Corp.’s sales for the fourth quarter of 2023 have missed investor expectations as growth decelerated, hurt in part by the boycott campaigns in the Middle East over the Israeli aggression against Gaza.
Comparable sales, a key metric for the restaurant industry, inched up by 3.4 per cent in the period, the slowest since the fourth quarter of 2020, and below the average estimate of analysts polled by Bloomberg.
“Segment performance reflected positive comparable sales in all geographic regions, with the exception of the Middle East, which was impacted by the war in the region.” McDonald’s business results read. Its revenue was also shy of estimates.
Heavy backlash over stance on Gaza war
Expectations were lowered after CEO Chris Kempczinski’s had warned earlier this year of a “meaningful business impact” in the Middle East region. The segment that includes the Middle East region, which accounts for about 10 per cent of McDonald’s revenue, fell well short of estimates.
Since the start of the aggression, the chain became one of the most prominent targets for boycotts in several Muslim nations after McDonald’s Israel had announced in early October on its social media accounts that it has given thousands of free meals to Israel Defense Forces personnel. A week later, the franchise stated again that it was donating meals, “to all those who are involved in the defence of the state, hospitals, and surrounding areas.”
The company has repeatedly emphasised that its restaurants are run independently by local operators. Its franchises in Egypt, Saudi Arabia, Oman, Kuwait, the United Arab Emirates, Jordan, and Turkey issued statements disassociating themselves from the Israeli franchise and in most cases pledging aid to Gaza. However, a hashtag #BoycottMcDonalds gained worldwide traction on social media.
Other factors weigh on
Growth in other regions also weakened. In the U.S., higher prices helped drive comparable-sales growth of 4.3 per cent, slightly below the average market estimate and around half of the previous quarter’s rate.
It was a similar story in global markets where McDonald’s operates and franchises its restaurants. Results were strong in the UK, Germany and Canada, yet that was partly offset by a fall in same-store sales in France.
Kempczinski said in a statement that the company is “confident in the resilience of our business amid macro challenges that will persist in 2024.”
Executives have earlier referred that higher interest rates and inflation are putting pressure on consumers, while also flagging China’s slowing economy.
The fourth-quarter results involved pretax charges worth $138 million, which McDonald’s attributed to the write-off of software no longer in use and restructuring costs. Excluding those items, the company’s earnings per share of $2.95 were above analysts’ expectations.
McDonald’s expects to add 1,600 new stores worldwide this year, it said in a filing accompanying the results, as part of what it says is the biggest growth push in its history. The U.S. chain reiterated guidance that net openings will boost sales generated by franchised and company-operated stores by about 2 per cent this year, and that operating margin would go up by a percentage in the mid-to-high 40s.
