In the face of inflation, McDonald's (MCD.US) has fallen 15% this year. Can its Q2 earnings report tonight "save the day"?
McDonald's (MCD.US) is expected to report its second-quarter earnings on Monday before the bell, with analysts surveyed by LSEG expecting the company to report revenue of $6.61bn and earnings per share of $3.07. The burger chain's shares have fallen 15% this year as investors worry about consumer spending and the state of the restaurant industry.
Analysts at UBS maintain a "buy" rating, while cutting their target price to $305 from $335. They note that the company's second-quarter performance may be weighed down by inflation. However, the company's performance is expected to improve in the second half of the year as customers are drawn back to restaurants by the company's focus on value. Baird analyst said: "History shows that McDonald's can drive meaningful market share gains through significant advertising budgets to highlight value-driven price points."
Moreover, a key metric to watch is same-store sales. With the impact of inflation on many customers, McDonald's same-store sales have slowed from double-digit growth in the prior year. In the second quarter of 2023, McDonald's global comparable sales grew 11.7%, with US same-store sales up slightly more than 10%.
As customers have reduced their discretionary spending in the first half of 2024, McDonald's and other restaurant companies have recognized the impact of inflation on sales and have introduced lower-priced value meals to win back price-sensitive customers and grab market share.
McDonald's in the US launched a $5 meal deal in May to attract new customers. Early signs have been positive, with Bloomberg and CNBC reporting earlier this week that nearly all restaurants have agreed to extend the promotion beyond the initial four-week period from the end of June.
Management is excited about the pace of customers returning to McDonald's, so the promotion may extend into August. Investors will look for confirmation on the future of the promotion in the earnings report on Monday.
However, it is worth noting that these discounts did not start until the end of the quarter. Wall Street is expected to call for same-store sales in the US to be flat in the quarter, according to StreetAccount.
Moreover, McDonald's sales in the Middle East may still be weighed down by the boycott. In the early part of the quarter, the company acquired 225 restaurants operated by its Israeli franchisee.