McDonald's replaces US chief after 0.8% sales growth misses Wall Street target

McDonald's replaced the head of its US business on Tuesday and reported second-quarter sales that fell short of Wall Street expectations, as lower-income consumers continued to pull back on restaurant spending despite a wave of value deals and promotions.

US sales and the consumer squeeze

Comparable sales in the United States grew 0.8% in the three months through June, below the 1.06% rise analysts polled by LSEG had forecast. The pace was a sharp deceleration from 2.5% growth a year earlier. Higher prices for basic goods and fuel have left lower-income consumers, a key customer base for McDonald's, with less money to spend on eating out. CEO Chris Kempczinski had warned in May that rising macroeconomic uncertainty, including concerns linked to the Iran conflict, was hurting consumer spending. The number of guests in the US fell during the quarter, the company said, while growth in the average cheque and sales of higher-priced items helped prop up the top-line figure.

While our playbook is working around the world, we see an opportunity to raise the bar in the U.S. and accelerate performance in our largest market.

Leadership shake-up

McDonald's named Skye Anderson, a 26-year company veteran who became US chief operating officer in April, as president of McDonald's USA, effective immediately. She succeeds Joe Erlinger, who has decided to leave the company after more than two decades there, including almost seven years running the US business. He will work with Anderson on the handover and stay on as an advisor until early 2027. McDonald's said the appointment followed a deliberate transition plan begun earlier this year, when Anderson returned to McDonald's USA as chief operating officer. Anderson started her career in an entry-level finance position in Australia and now takes charge of roughly 14,000 restaurants. Kempczinski called her "a proven change agent who can act with urgency to mobilize our System" and said he looked forward to working with her to "accelerate performance and unlock the significant opportunity in front of us". Citi analysts read the move as a sign of management's dissatisfaction with recent performance, while TD Cowen pointed to Anderson's lengthy tenure and said the firm looks forward to her plans at the investor meeting set for September.

We don't have a strategy problem, we simply didn't execute at the level we needed to in the second quarter.

Promotions overwhelm crews

Kempczinski said a heavy calendar of promotions, including the "K-Pop Demon Hunters" tie-in, new value meal offerings and FIFA-related promotions, overwhelmed restaurant crews and led to dissatisfied customers who waited too long. The company had spent the past year leaning heavily on affordability to defend market share, rolling out a revamped McValue platform, an under-$3 menu, discounted breakfast offers and specialty beverages such as refreshers and crafted sodas. Those initiatives were offset by muted demand and difficult comparisons against the successful Minecraft-themed meal and Snack Wrap promotions that boosted visits a year earlier.

Global and financial picture

Globally, comparable sales rose 1.3%, slowing from a 3.8% jump a year ago. Sales in the international operated markets segment, which includes major European countries, rose 1.5%, down from 4% a year earlier; the company said most markets grew, led by Germany, Australia and the United Kingdom, partly offset by France. The segment where restaurants are operated by local partners slowed to 1.9% from 5.6%. Net income rose 5% to $2.36 billion, and adjusted earnings reached $3.38 per share, up from $3.19 a year earlier and ahead of analyst forecasts. Global revenue increased 4% to $7.1 billion, and systemwide sales rose 5% to $37 billion. In the developmental licensed segment the company flagged negative comparable sales in China, offset by growth led by Japan. Shares, which had lost nearly 13% of their value this year, were up about 2.5% in premarket trading.

The "McDonald's Next" turnaround

In June the company unveiled a new global strategy called "McDonald's Next," which encompasses menu upgrades, improved customer service and new restaurant prototypes. The plan would likely require significant investment by franchisees, who own more than 90% of McDonald's outlets worldwide, to remodel buildings and install new technology and equipment. Anderson will steer the US rollout of that strategy. The company is also pushing into hand-breaded chicken and brightly coloured, TikTok-friendly beverages to attract a broader customer base.