McDonald's Stumbles On Weak Traffic, Despite Margin Gains And Analyst Optimism

Goldman Sachs analyst Christine Cho on Thursday reiterated a Neutral rating on the shares of McDonald’s Corp (NYSE:MCD) and raised the price forecast to $345.

McDonald’s shares dipped 1.9%, underperforming the S&P 500 despite meeting earnings expectations due to disappointing sales trends in both U.S. and international markets.

McDonald’s U.S. sales fell 3.6% in first-quarter, below expectations, due to weaker traffic from lower and middle-income groups. Yet, upper-income spending remained strong.

The $5 meal deal is driving traffic and will be extended through year-end, although other value offers like Buy-One-Add-One-For-$1 are underperforming, noted the analyst.

Management expects first-quarter to be the year’s low point, with momentum building from promotions like the Minecraft Movie tie-in and upcoming menu additions including McCrispy strips and snack wraps.

Also Read: Wendy’s Sizzles Abroad, But US Sales Leave Investors Cold

McDonald's international operations continue to face headwinds, with a strategic focus on value offerings to maintain and grow market share.

The International Operated Markets (IOM) segment posted a 1.0% decline in same-store sales, falling short of analyst expectations. The company cited weak consumer traffic in France, Germany, and Australia, although it outperformed competitors in those regions.

France recorded its first market share gain in three years.

Meanwhile, the International Developmental Licensed Markets (IDLM) segment grew 3.5%, exceeding estimates. In the Middle East, Japan, and China, delivery expansion, affordable meal options, and chicken offerings drove results.

Management said global brand sentiment remains steady. Anti-American sentiment has reportedly risen in parts of Northern Europe and Canada. Chicago-based McDonald's hasn’t seen an impact in sales data.

McDonald's posted an operating margin of 45.6% for the quarter. That’s up 110 basis points year over year and matches analyst expectations.

This improvement was largely attributed to reduced SG&A expenses, helped by delayed investments in digital and tech.

Price Action: McDonald’s shares traded lower by 0.47% at $312.17 at last check Friday.

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