Gaza boycott continues to weigh on McDonald's sales

Although profits edged higher, McDonald's executives pointed to a continued drag in sales due to a boycott in the Middle East (PASCAL GUYOT)
Although profits edged higher, McDonald's executives pointed to a continued drag in sales due to a boycott in the Middle East (PASCAL GUYOT)

McDonald's reported a modest increase in quarterly profits Tuesday despite a boycott stemming from the Middle East conflict expected to drag on sales for the foreseeable future.

While the boycott is not "getting worse," Chief Executive Chris Kempczinski does not have a timeframe for a return to normal conditions.

"We're not expecting to see any meaningful improvement in the impact... until the war is over," he told analysts on a conference call.

Sales of McDonald's were dented after its Israel franchise in October announced it had given thousands of free meals to the Israeli army.

That move was followed by relief pledges to Gaza from McDonald's Kuwait and McDonald's Qatar, both of which are managed separately from the Israeli business.

Most McDonald's restaurants in the Middle East are operated under a franchise agreement in which the corporate parent does not invest capital, McDonald's said in a securities filing.

Earlier this month, McDonald's agreed to acquire Alonyal, which has over 30 years built the McDonald’s brand to 225 restaurants in Israel, employing more than 5,000 people.

McDonald's has described the boycott's greatest impact as in the Middle East, while also pointing to effects in markets like Malaysia and Indonesia and in parts of France where the Muslim population is higher.

The big fast-food chain experienced a dip in comparable sales in "International Developmental Licensed Markets," which comprises emerging markets.

"The continued impact of the war in the Middle East more than offset positive comparable sales in Japan, Latin America and Europe," McDonald's said of the division.

Overall, profits in the first quarter rose seven percent to $1.9 billion on a five percent increase in revenues to $6.2 billion.

The chain scored higher comparable sales in the United States -- where results were boosted by "strategic" price increases -- and in the "International Operated Markets" division, where gains in Britain and Germany compensated for negative sales in France.

Chief Financial officer Ian Borden said sales in the United States and in many other large markets will probably be "below" the historical range in 2024 due to the cumulative effects of inflation on customers.

"Affordability is clearly an area where consumer expectations are heightened," Borden said. "Obviously (consumers) are getting hit across their full basket of goods and services by all the inflationary impacts."

Shares of McDonald's declined 0.1 percent in midday trading.