McDonald's posts biggest U.S. sales drop since pandemic
04:44 Share

Welcome to Seeking Alpha's Wall Street Lunch, our afternoon update on today's market action, news, and analysis. Good afternoon. Today is Thursday, May 1st, and I'm your host, Kim Kahn. Our top story so far, President Donald Trump is a big fan of tariffs and a big fan of McDonald's, but is one hurting the other?

Amidst souring consumer sentiment, diners cut back on quarter-pounders as McDonald's saw its biggest decline in U.S. sales since the pandemic. U.S. comparable sales fell 3.6% in Q1, the largest drop since comps fell 8.7% in Q2 of 2020. The latest earnings reports also showed a 3% year-over-year decline in consolidated revenue and a 2% drop in diluted EPS to 260. It's

CEO Chris Kempchinsky said, "...consumers today are grappling with uncertainty, and the sales decline was primarily driven by negative comparable guess counts." Barry Ritholtz of Ritholtz Wealth Management says the numbers are "...soft data, sentiment, turning into hard data, sales." During the earnings call, McDonald's management said economic pressures are hitting mid-income consumers and highlighted that it is cautious in general about the health of U.S. consumers.

But it's not all doom and gloom. The company expects guest count and market share to improve in Q2 due largely to some of its marketing initiatives and a trading down impact in the restaurant sector.

TD Cohen analyst Andrew Charles acknowledged the tough quarter, but highlighted that the company expects to open 2,200 restaurants in 2025 globally, which are expected to contribute slightly over 2% to system-wide sales growth. Charles also reminded investors that the firm's channel checks suggest improved April performance, driven by Minecraft ahead of the May 5th launch of McCrispy's Strips. Evercore ISI also noted that the U.S. trends largely stabilized in March and rapidly accelerated in early April, with help from the Minecraft movie deal.

Among other active stocks, two days after it suspended its outlook and delayed its earnings call, General Motors slashed its 2025 outlook. The automaker now expects adjusted EPS to come in at $8.25 to $10, down from its previous outlook of $11 to $12. The current forecast comes well below Wall Street consensus of $10.99. The updated guidance includes an estimated tariff-related impact of $4 to $5 billion.

Eli Lilly lowered its full-year non-gap earnings outlook to a level below consensus, despite surging sales for its weight loss drugs. Lilly reaffirmed its previous revenue guidance of $58 billion to $61 billion for 2025, in line with consensus. But it lowered adjusted EPS outlook to $2078 to $2228, compared to $2240 consensus, to reflect acquired in-process research and development charges.

And Coles fired CEO Ashley Buchanan for cause, naming chairman Michael Bender as interim CEO. An investigation conducted by outside counsel and overseen by the audit committee determined that Buchanan violated company policies by directing the company to engage in vendor transactions that involved undisclosed conflicts of interest.

In other news of note, Palantir Technologies' new mobile battlefield intelligence gathering vehicle and trailer for the U.S. Army has been ranked by its leaders as among their top-performing programs. That's according to Bloomberg, citing a new review by the service. An April report to Congress of the Army's highest and lowest-performing programs lists Palantir's Tactical Intelligence Targeting Access Node, or Titan Truck, and four other weapons systems among the best performers. No major systems were among the lowest-ranked.

The company says Titan uses AI and machine learning, along with space sensors, to provide actionable targeting information for enhanced mission command and long-range precision fire.

And in the Wall Street Research Corner, Freya Beamish, chief economist at TS Lombard, says the persistent concerns about U.S. stock valuations stem not from an imminent recession, but from long-term impacts of populist policymaking. This could result in death by a thousand cuts as deglobalization creates headwinds to profit growth, she said. COVID bubble sectors like transportation, warehousing, and technology have already adjusted below pre-pandemic levels.

But if negotiations with China fail and Doge is a bigger problem for demand than we anticipate, then a technical recession probably follows. Both the U.S. and China view ongoing trade negotiations as essential to prevent worsening economic conditions, but China may have less bargaining power than its tough stance suggests. China is struggling with significant economic challenges, including maintaining high wage growth while attempting domestic deleveraging, she said.

That's all for today's Wall Street Lunch. Look for links for stories in the show notes section. Don't forget, these episodes will be up with transcriptions at SeekingAlpha.com slash WSP. And for a wealth of coverage on stocks and ETFs, go to SeekingAlpha.com slash subscriptions.