McDonald’s, Diageo, the Olympics, and More!
Editor’s Note: Happy Wednesday!
Let’s get to it!
McDonald’s Reports Q2 Miss Due to Consumer Spending Pullback
This week, McDonald’s (NYSE: MCD) reported second-quarter earnings and revenue that indicated Americans — and folks around the world — are increasingly spending less money on fast food.
The fast-food giant reported net income of $2.02 billion, or $2.80 per share. That was significantly lower than the net income of $2.31 billion, or $3.15 per share, reported for the year-ago quarter.
Adjusted, earnings were $2.97 per share. Wall Street had been expecting $3.07 per share, according to LSEG.
In addition, McDonald’s second-quarter revenue of $6.49 billion missed forecasts of $6.61 billion and was flat compared to the year-ago quarter.
Same-store sales decreased by 1%, versus analyst expectations of 0.4% growth, according to StreetAccount. This marked the first time since the fourth quarter of 2020 that same-store sales dropped.
In addition, same-store sales in the U.S. alone dropped by 0.7%. In the year-ago quarter, they rose by 10.3%.
“Industry traffic has declined in major markets like the U.S., Australia, Canada, and Germany,” McDonald’s CEO Chris Kempczinski said during the fast-food chain’s earnings call. “In several markets, we also continue to be negatively impacted by the war in the Middle East.
“These external pressures certainly weighed on our performance for the quarter, with declines in comparable sales globally and across each of our segments, but there were also factors within our control that contributed to our underperformance: most notably, our value execution.”
On the earnings call, company execs admitted that the chain’s prices are being perceived as too high.
“Consumers still recognize us as the value leader versus our key competitors, but it’s clear that our value leadership gap has recently shrunk,” Kempczinski said. He promised that the company is “working to fix that with pace.”
According to McDonald’s executives, lower-income diners are eating out less frequently due to inflation.
“At the end of the day, we expect customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters in this very competitive landscape,” Joe Erlinger, president of the company’s U.S. business, said.
“So we believe it is critical for us to consider these factors in order to grow market share and return to sustainable guest count-led growth for the brand.”
This includes extending the company’s $5 value meal deal, which according to McDonald’s has been successful.
Diageo Sales Plummet
Shares of beverage giant Diageo (NYSE: DEO) nosedived yesterday morning after reporting its first drop in sales since the start of the COVID pandemic.
According to the London-based company — which makes Johnnie Walker, Captain Morgan, Tanqueray, and Guinness, among other favorites — organic net sales fell 0.6% in the full year to June 30. Net sales dropped by 1.4% to $20.3 billion due largely to weakness in Diageo’s Latin America and Caribbean region.
According to CEO Debra Crew, the fiscal year was a difficult one for the company due to cautious consumer spending and geopolitical tensions.
“The consumer environment continues to be challenging,” she noted in a video posted on Diageo’s website yesterday. “Consumers remain cautious and interest rates are high; therefore, retailers are likely to remain cautious too.”
Just as consumers are tightening their purse strings against items such as McDonald’s (NYSE: MCD) Big Macs, they’re also foregoing an evening tipple of whiskey.
Global sales of Johnnie Walker dropped by 2%. However, here in America, Johnnie Walker sales plunged by 10%.
North American sales of Casamigos tequila plunged by 22%.
Guinness remained a bright spot. Sales of the Irish stout helped net beer sales increase by 18%, according to Diageo.
Consumer Confidence Creeps Upward
According to research group The Conference Board, American consumers felt more confident about the near-term this month.
However, when asked about current financial conditions, the results weren’t so rosy.
According to The Conference Board, its consumer confidence index rose from a downwardly revised 97.8 in June to 100.3 in July.
The index gauges Americans’ sentiment toward current economic conditions, as well as their feelings about the next six months.
According to the report, consumer expectations for income, business, and the job market in the short term rose from 72.8 in June to 78.2 in July. (It’s worth noting that readings below 80 have been known to predict looming recessions.)
But when asked about current conditions, consumer confidence dropped from 135.3 in June to 133.6 this month.
According to The Conference Board, consumers continue to be concerned about high prices on food at restaurants, as well as on groceries. Prices are still far above pre-pandemic levels, despite the progress that the Federal Reserve has made on inflation.
“Even though consumers remain relatively positive about the labor market, they still appear to be concerned about elevated prices and interest rates, and uncertainty about the future; things that may not improve until next year,” The Conference Board Chief Economist Dana Peterson said.
Among the other results gathered by the group, the number of respondents currently planning to purchase a home fell to a 12-year low. That’s not a surprise — sky-high interest rates plus sky-high list prices have made home shopping unattractive.
Consumer confidence is of great importance to the economy because consumer spending accounts for roughly a whopping 70% of the U.S.’s gross domestic product (GDP).
In the second quarter, the country’s GDP rose at a 2.8% annual pace. However, in the previous quarter, the pace was only 1.4%.
The High Cost of the Olympics
Even if you’re not a sports fan, it’s hard to avoid the Olympics. Besides the inevitable controversies, losses, and triumphs, the global games are a spectacle like no other.
But putting on these spectacles costs a lot of dough.
This year, Paris is expected to spend $8.7 billion on hosting the games (including infrastructure improvements). The city overran its budget by 115%.
But that’s nothing compared to 2016’s Rio de Janeiro games, which at $23.6 billion reflected a budget overrun of 352%.
The Sochi Olympics were no slouch, either, running 289% over budget at $28.9 billion.
Take a look:
You will find more infographics at Statista
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