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By Savyata Mishra
(Reuters) -McDonald's posted on Monday a surprise increase in its global comparable sales in the fourth quarter, aided by demand for its cheaper items and discounted offerings from diners in the Middle East, Japan and China.
Shares of the burger chain rose nearly 5% in early U.S. trading, despite a bigger-than-expected drop in U.S. comparable sales due to an E. coli outbreak in late October, and cautious spending.
Demand pressure on fast-food chains operating in the Middle East has begun to ease after widespread informal boycotts of Western chains over their perceived pro-Israeli stance in the Gaza conflict.
The surprising sales growth in the region for McDonald's offsets some weakness in its largest market, the U.S., where it reported the biggest drop, 1.4%, since the pandemic.
KFC parent Yum Brands last week recorded positive sales growth in the Middle East.
McDonald's and its rivals leaned on value meals in 2024 to spur spending among customers preferring to eat meals at home.
"Value is helping McDonald's recover traffic from lower-income consumers, but that expansion of value will pressure store profits, which will make it difficult to drive stronger earnings longer-term," Northcoast Research analyst Jim Sanderson said.
McDonald's extended its $5 meal deal launched in June into December. CEO Chris Kempczinski said the meal was prompting U.S. diners to buy more, and that the average transaction size for the meal deal was more than $10 in the United States.
DISCOUNT PUSH CONTINUES
Executives on a call with analysts did not give any timeline for ending the company's discount push and said the fast-food industry overall still faces challenges with low-income consumers. Chief Financial Officer Ian Borden said the company had limited pricing flexibility.
Budget-conscious diners were also targeted in October with a new Chicken Big Mac, along with other special releases. The company announced in December it would bring back its snack wrap, another chicken-based option aimed at budget-conscious diners.
U.S. customer traffic increased slightly in the fourth quarter compared to a year ago, the company said, but that was offset by a smaller average amount spent by customers per visit.
Customer visits were also limited by an E. coli outbreak in October, which forced McDonald's to temporarily suspend sales of its Quarter Pounder hamburgers in a fifth of its 14,000 U.S. restaurants for roughly two weeks. Kempczinski said the episode is still having an effect in the region where the outbreak occurred, but not elsewhere, and expects even that localized effect to subside by the end of April.
The company's global same-store sales rose 0.4% in the quarter ending December 31, compared with expectations of a 0.63% decline, according to data compiled by LSEG.
This was driven by a 4.1% rise in McDonald's business segment where restaurants are operated by local partners, led by Middle East and Japan. Company executives said in a post-earnings call that demand was stabilizing in China.
Executives said the chain was on track to have 50,000 units worldwide by the end of 2027.
Quarterly adjusted earnings per share of $2.83 were in line with market expectations.
(Reporting by Savyata Mishra in Bengaluru and Waylon Cunningham in New York; Editing by Sam Holmes, Arun Koyyur and Rod Nickel)
