McDonald's sees US rebound but says low-income diners remain stressed
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NEW YORK — McDonald’s profits rose in the second quarter behind a rebound in U.S. sales but executives said Wednesday that low-income consumers remained under economic stress.
The fast-food chain notched a 2.5 per cent rise in U.S. comparable sales after the same benchmark shrunk by 3.6 per cent in the first quarter.
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McDonald’s chief executive Christopher Kempczinski described the U.S. consumer base as “bifurcated,” with weakness in low-income consumers a reason for lingering caution on the outlook, he said at the outset of an earnings conference call.
Later, in response to an analyst question, Kempczinski said “real incomes are down” for this population despite higher wages.
“There’s a lot of anxiety and unease with that low-income consumer,” Kempczinski said. “I think we could all speculate the reasons for that, probably tariffs and the impact that might have, be questions around the employment situation.”
People are either skipping meals like breakfast, “or they’re trading down, either within our menu or they’re trading down to eating at home,” he said.
In terms of the results, McDonald’s reported an 11 per cent rise in profits to $2.3 billion, while revenues increased five percent to $6.7 billion.
Global comparable sales increased 3.8 per cent.
Executives pointed to strength in Japan, while promotions in Germany for the Chicken Big Mac and France for the Big Arch burger also boosting demand.
McDonald’s has also unveiled meal promotions in the United States such as the $5 Meal Deal and the Snack Wrap for $2.99.
However, executives said they were still working to implement the offering throughout its network. US franchisees have sometimes resisted such promotions because of profit concerns.
“Too often” consumers may drive up to a McDonald’s “and you’re seeing combo meals that could be priced over $10 and that absolutely is shaping value perceptions … in a negative way,” Kempczinski said.
“We’ve got to get that fixed,” he said, adding that the company is holding “active and productive” conversations with franchisees.
Shares of McDonald’s jumped three per cent near midday.
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