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By Hugh Cameron
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McDonald's store traffic fell unexpectedly in the first quarter of this year, with the company citing "economic uncertainty."
On Thursday, the company released results for the three months ended March 31. The earnings report revealed a 3.6 percent decline in same-store sales in the U.S., the biggest U.S. decline McDonald's has seen since 2020, and a significant drop from the 2.5 percent increase this time last year.
"During the first quarter, geopolitical tensions added to the economic uncertainty and dampened consumer sentiment more than we expected," McDonald's CEO and Chairman Chris Kempczinski said in a call with investors.
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In an accompanying press release, Kempczinski said, "McDonald's has a 70-year legacy of innovation, leadership, and proven agility, all of which give us confidence in our ability to navigate even the toughest of market conditions and gain market share."
"Consumers today are grappling with uncertainty, but they can always count on McDonald's for both exciting new menu items and delicious favorites for exceptional value, from a brand they love," he added.
Why It Matters
Concerns have been mounting that President Donald Trump's tariffs—intended to address trade imbalances and provide the U.S. with additional tax revenue—could result in higher prices for businesses and consumers while proving an overall drag on the broader economy.
Should this translate into weakening consumer confidence and any reduction in discretionary spending, the services industry—particularly historically affordable brands such as McDonald's—could see their sales suffer.
What To Know
McDonald's drop in domestic sales came alongside a 1.0 percent year-on-year decline in global comparable sales. Excluding the impact of last year's Leap Day, the company said global sales were "essentially flat." This was nevertheless below the 0.3 percent growth analysts polled by Visible Alpha had expected. The 3.6 percent drop in U.S. sales also fell well below what analysts had penciled in*—*1.4 percent according to Investopedia.
McDonald's results follow similarly weak quarters for other fast-food giants, and warnings that the current economic climate had taken a toll on their bottom lines.
Earlier this week, Domino's Pizza announced that its U.S. same store sales had dropped 0.5 percent in the first quarter compared to the previous year, with CEO Russell Weiner citing the "challenging global macroeconomic environment" in which the company is now operating.
Last week, Chipotle reported that its restaurant sales had declined by 0.4 percent in the first quarter, following a 5.4 percent increase in the previous three months. In an earnings call following the results, CEO Scott Boatwright said that the company had been grappling with a "slowdown in consumer spending."
"In February, we began to see that the elevated level of uncertainty felt by consumers are starting to impact their spending habits," Boatwright added. "We could see this in our visitation study where saving money because of concerns around the economy was the overwhelming reason consumers were reducing the frequency of restaurant visits."
Consumer sentiment has been softening in recent months, with polls revealing increasing skepticism about the state of the U.S. economy driven by Trump's trade policies.
In the University of Michigan's most recent report, consumer sentiment fell for the fourth straight month in April, with the Index of Consumer Expectations dropping 8.4 percent from March. In addition, the index fell 10.1 percent, which the report said was "in large part due to ongoing uncertainty around trade policy and the potential for a resurgence of inflation looming ahead."
Year-ahead inflation expectations, meanwhile, rose to 6.5 percent from 5.0 percent in March, reaching their highest level since 1981.
This was followed by the release of the widely monitored consumer reading from New York-based business membership and research organization The Conference Board.
The firm's Consumer Confidence Index fell by 7.9 points in April, the fifth straight month of declines, which occurred across all political affiliations. Stephanie Guichard, Senior Economist for Global Indicators at The Conference Board, said all three measures of confidence—business conditions, employment prospects and future income—had "deteriorated sharply, reflective pervasive pessimism about the future."
What People Are Saying
Chris Kempczinski, McDonald's CEO and chairman, said in an earnings call: "Low- and middle-income consumers in particular are being weighed down by the cumulative impact of inflation and heightened anxiety about the economic outlook**.**
Katie Klingensmith, Chief Investment Strategist at Edelman Financial Engines, told Newsweek last week that tariffs had caused "cracks" to emerge in consumer confidence, and that "this uncertainty is already affecting consumer behavior."
"The U.S. economy has surprised over and over again in its resilience – especially when it comes to the U.S. consumer," she added, "but this does present a new test when that all-important consumer is worried."
EMarketer analyst Sky Canaves told Reuters: "Less affluent consumers are most vulnerable to the impact of inflation and rising prices, and one of the first areas where they'll cut back is dining out."
What Happens Next?
In a regulatory filing with the Securities and Exchange Commission (SEC) on Thursday, McDonald's reiterated its full-year outlook. The company plans on spend between $3.0 and $3.2 billion on capital expenditures, primarily to open around 2,200 new restaurants.
Update, 5/2/2025, 06:20 a.m. ET: This article was updated with comments Chris Kempczinski made in the earnings call. The headline was also updated.
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