McDonald's  reported a surprising drop in global sales on Monday, marking its first decline in 13 quarters, as cost-conscious consumers avoid pricier menu items like Big Macs. Persistent inflation has driven lower-income customers to opt for more affordable food at home, prompting fast food chains like McDonald's, Burger King , Wendy's , and Taco Bell to emphasize value meals to attract customers. Despite a 15% decline in McDonald's shares this year, they rose nearly 4% after executives announced that a $5 meal deal, launched in late June, exceeded expectations, and discussions with franchisees are ongoing to extend it beyond August.

McDonald's maintained its 2024 operating margin forecast of mid-to-high 40%, stating it would be more selective with price increases to safeguard profitability. Brian Mulberry, client portfolio manager at Zacks Investment Management, noted that while traffic is currently soft, it is expected to improve in the latter half of the year with better value offerings on the menu. Global comparable sales fell 1% in the second quarter, against expectations of a 0.5% increase, though overall revenue rose 1%.

CEO Chris Kempczinski highlighted that consumers have become more discerning and are seeking deals, with low consumer sentiment in major markets. This sentiment aligns with Coca-Cola CEO James Quincey's recent comments about reduced activity in North America's away-from-home channels, indicating fewer people are dining out. Edward Jones analyst Brian Yarbrough pointed out that McDonald's significant loss of low-income consumers outweighs the usual downturn it experiences in tough economic times. In the U.S., comparable sales fell 0.7% for the quarter ending June 30, compared to a 10.3% increase a year ago. International sales, which contributed nearly half of McDonald's 2023 revenue, dropped 1.1%, largely due to weak performance in France.

A slower-than-anticipated recovery in China and conflicts in the Middle East negatively impacted McDonald's segment where local partners operate restaurants, resulting in a 1.3% sales decline compared to a 14% increase a year earlier. Consumer boycotts related to the Gaza conflict have also hurt sales for McDonald's and Starbucks  in the Middle East. Despite these challenges, McDonald's maintained its capital expenditure budget of up to $2.7 billion, allocating more than half for new restaurants in the U.S. and international markets. The company earned $2.97 per share on an adjusted basis in the second quarter, falling short of the $3.07 expected.