McDonald’s Corporation (MCD) reported a challenging start to 2025, as the fast-food giant announced its first-quarter earnings results on May 1, revealing a 1% decline in global comparable sales. This decline, while adjusted for Leap Day effects, was compounded by a significant drop in U.S. sales, which fell by 3.6%. The performance has raised concerns among investors and analysts, particularly as the company faces ongoing economic pressures.
In the first quarter, McDonald’s consolidated revenues decreased by 3% to $5.96 billion, falling short of analysts’ expectations of $6.12 billion. The diluted earnings per share (EPS) also saw a decline, dropping 2% to $2.60. However, when excluding restructuring charges of $66 million related to organizational modernization, the adjusted EPS stood at $2.67, indicating a more modest decrease of 1% year-over-year.
CEO Chris Kempczinski highlighted the economic challenges affecting consumer behavior, stating, "The macroeconomic pressures continue to impact our major markets." This sentiment reflects a broader trend, as the company has seen its comparable sales growth struggle recently, resulting in a compound annual growth rate (CAGR) of -35%. The U.S. market specifically has been under pressure, with negative guest counts contributing to the decline.
Despite the challenges in the U.S., McDonald’s International Developmental Licensed Markets experienced a 3.5% increase in comparable sales, buoyed by strong performances in the Middle East and Japan. This segment has emerged as a key driver of growth amidst regional variances, contrasting sharply with the weaker results in the U.S. and UK markets.
The loyalty program has been a bright spot for McDonald’s, generating over $31 billion in systemwide sales across 60 markets over the past twelve months, including approximately $8 billion in the first quarter alone. This success in building lasting customer relationships underscores the company's ability to adapt to market adversities.
McDonald’s shares dipped just over 1% shortly after markets opened on Thursday, reflecting investor concerns following the earnings announcement. While the stock is up 10% year-to-date, the recent performance has prompted analysts to reassess their expectations. Analysts had anticipated a 0.5% increase in comparable sales for the quarter, but the actual figures fell short, leading to a downward adjustment in forecasts.
In the previous quarter, McDonald’s had returned to growth after two consecutive quarters of declines, but the recent performance indicates that the company is still grappling with the effects of inflation, high interest rates, and ongoing trade tensions. These economic factors have influenced consumer behavior, leading many to cut back on discretionary spending, such as dining out.
To counteract these pressures, McDonald’s has continued offering its $5 Meal Deal, aiming to attract price-conscious consumers. However, as economic uncertainty looms, it remains to be seen whether these efforts will be sufficient to maintain guest satisfaction and drive sales.
Despite the mixed results, analysts remain cautiously optimistic about McDonald’s long-term prospects. The analysts’ consensus rating for the company is a Moderate Buy, based on 15 Buy and 10 Hold ratings over the last three months. The average price target is set at $326.62, suggesting a potential upside of 2.18% for MCD stock.
As McDonald’s navigates these turbulent waters, the company’s focus on restructuring and adapting to changing market conditions will be crucial. The fast-food giant continues to engage in efforts aimed at modernizing its operations and enhancing customer experiences, which could ultimately help stabilize its performance in the face of ongoing economic challenges.
In summary, while McDonald’s first-quarter results reflect a mixed performance, the company’s ability to leverage its loyalty program and adapt to market conditions may provide a pathway for recovery. Investors and analysts will be closely monitoring how the company responds to these challenges in the upcoming quarters, as economic pressures continue to shape consumer behavior.
