US Comparable Sales Turn Negative

McDonald’s (NYSE: MCD) reported a larger-than-expected decline in US comparable sales for the quarter ended September 30, reflecting weaker restaurant demand as financially stretched consumers reduced discretionary spending.

Comparable sales in the company’s largest market declined 0.2%, compared with analyst expectations for a 0.1% decrease, according to LSEG data. The result marked McDonald’s first US comparable-sales decline after five consecutive quarters of growth.

The slowdown highlights the challenge facing the company as it attempts to attract budget-conscious customers amid higher living costs and increased competition from lower-priced alternatives, convenience stores, and home-cooked meals.

Value Promotions Have Yet to Restore Customer Traffic

Over the past two years, McDonald’s has introduced several affordability initiatives, including an under-US$3 menu and a US$4 breakfast meal. The strategy aims to bring back lower-income customers who have become more selective about dining out.

However, customer traffic remained weak during the third quarter. Data from Placer.ai showed restaurant visits declined 4.6% over the three-month period compared with the previous year.

Traffic also remained below year-earlier levels in October, despite the return of the Monopoly promotion and Halloween-themed Boo Buckets.

CEO Chris Kempczinski said the company was encouraged by improving performance as the quarter progressed following its value initiatives. CFO Ian Borden had previously indicated that US sales would likely remain negative for the quarter, while September was expected to return to positive territory.

Earnings Beat Expectations as Costs Decline

Despite weaker US sales, McDonald’s delivered stronger-than-expected quarterly profitability.

Adjusted earnings rose to US$3.57 per share from US$3.22 a year earlier, exceeding the analyst consensus estimate of US$3.38. The improvement was supported by an approximately 4% decline in operating costs and expenses.

Globally, comparable sales increased 1.5%, matching market expectations. The international performance provided a more positive contrast to the weakness in the US market.

The company’s share price rose 2.4% in premarket trading following the earnings announcement, suggesting investors responded positively to the profit performance despite the domestic sales shortfall.

Competitive Pressure Across the Fast-Food Sector

McDonald’s results come as major competitors continue using promotions to attract price-sensitive customers.

Restaurant Brands International, the parent of Burger King, exceeded sales expectations in the previous week, supported by discounts and promotional offers. Yum Brands also reported that Taco Bell sales had returned to growth following a food safety-related setback.

These developments highlight the importance of value positioning as restaurant operators compete for consumers facing tighter household budgets.

NEXT Strategy Targets Restaurant Efficiency

McDonald’s introduced its NEXT turnaround strategy in June, focusing on simplifying operations, modernizing restaurant designs, and investing in employee training.

The plan aims to improve restaurant-level efficiency by 250 basis points, generating approximately US$100,000 in additional annual cash flow for the average US restaurant.

The strategy provides a longer-term operational framework as the company works to improve performance and strengthen its competitive position.

What Investors Should Watch Next

Investors will be monitoring whether McDonald’s value initiatives can translate into a sustained recovery in US customer traffic and comparable sales. The company’s ability to maintain earnings growth while managing operating costs will also remain important.

The latest results reveal a divergence between domestic demand and profitability: US sales and traffic weakened, while lower expenses helped the company exceed earnings expectations. The effectiveness of the NEXT strategy and the durability of global sales growth will be key considerations in assessing McDonald’s performance in the coming quarters.