McDonald's Corporation (MCD) Earnings

Management highlights

### Strategic Progress (Accelerating the Arches) - Over the past six years, the strategy grew system-wide sales by roughly $40 billion and operating income by over $3 billion, built on three core growth pillars: - Marketing: Leveraged cultural moments to drive engagement, growing brand relevance with U.S. Gen Z consumers to hold a significant advantage over primary competitors. - Core Menu: Focused on the $17 billion iconic core business (beef, chicken, beverages), created a global category structure that has accelerated innovation, particularly in beverages. - Four Ds: Built the industry's largest customer platform with nearly 220 million active loyalty users; grew annual delivery system-wide sales to more than $20 billion; modernized drive-through operations to improve accuracy and reduce service times; is on track for 50,000 global restaurants, the most aggressive expansion in company history. - The company is nearing completion of integrating global systems (one app, one loyalty program, one pricing engine, one HR/finance system) to enable cost savings, faster innovation, better security, and pooled data for AI opportunities, to be detailed at the September 2026 Investor Day. ### Q2 2026 Overall Performance - System-wide sales grew 4% constant currency; global comparable sales grew 1.3% (positive across all segments); adjusted earnings per share was $3.38, a 5% increase year-over-year on a constant currency basis, with a 3 cent benefit from foreign currency translation. - Year-to-date adjusted operating margin was 46.9%; general and administrative expenses were 2.2% of system-wide sales, in line with full-year expectations. ### New Growth Strategy: McDonald's Next - Introduced at the June 2026 worldwide franchisee convention, with the goal of becoming more customers' first choice by improving food taste/quality, engaging/co-creating with fans, and simplifying restaurant operations for better customer hospitality. - The strategy is expected to be meaningfully self-funded via productivity improvements across company and franchise P&Ls and driven top-line growth; over 90% of owner-operators support the plan. - Immediate execution ("Next is Now") includes: successful early launch of the new global beverage platform, which exceeded expectations in lead markets (U.S., Canada, Germany) with higher average checks, strong food attachment, and growth in off-peak daypart occasions; a company-wide retraining program for over 2 million employees, crew, and supplier partners on gold standard taste, quality, and hospitality launching October 5 (Founders Day, Ray Kroc's birthday). ### U.S. Execution Challenges and Corrective Actions - Q2 2026 U.S. underperformance was entirely execution-related, not strategic, stemming from three core issues: inconsistent restaurant-level execution of the new $3 and under Everyday Affordable Price (EDAP) menu, restaurant teams overwhelmed by too many simultaneous deployments that hurt service times and customer satisfaction, and underperforming marketing campaigns. - Two-thirds of the Q2 traffic miss relative to expectations came from pulling back on digital offers and discontinuing the popular buy-one-add-one-for-$1 program to offset EDAP menu investment, resulting in lower engagement from high-frequency loyal customers. The remaining third came from the underperforming June FIFA marketing campaign. - Corrective actions already underway: launching new national digital flash offers the following week to re-engage high-frequency customers; adding personalized offers for loyal users; reallocating marketing spend in H2 2026 to prioritize proven value offerings like Extra Value Meals; eliminating non-customer-facing activities to simplify restaurant operations and reduce team overload. ### Leadership Transition - Skye Anderson appointed new U.S. President (effective immediately), completing a planned transition. Anderson has 26 years of cross-functional experience at McDonald's, most recently as U.S. COO, and has a track record of driving strong comparable sales growth and unit cash flow increases. Outgoing U.S. President Joe Erlinger, who led the business for nearly seven years through the Accelerating the Arches strategy, is leaving after over two decades with the company. ### Capital Allocation and Refranchising - The company continues to evaluate the optimal franchisee vs. company ownership balance to maximize system value; incremental company-owned restaurant divestitures will continue in 2026 and beyond, with details to be shared at Investor Day. - G&A spend is expected to hit 2.2% of system-wide sales for full-year 2026, with cost savings from recent global system upgrades expected to lower G&A percentage starting in 2027.

Guidance

- Full-year 2026 adjusted EPS is expected to get a 15 cent tailwind from foreign currency translation, down from the prior guidance of a 20 to 30 cent tailwind. - The target to reach 50,000 total global restaurants is pushed to 2028 from the original target of end of 2027, due to cumulative inflationary impacts on development costs and the current pressured consumer environment. The company remains on track to open approximately 2,600 gross new restaurants in 2026, which continues to be the fastest period of restaurant growth in company history. - Management expects IOM and IDL comparable sales growth to accelerate sequentially in Q3 2026 from Q2 levels of 1.5% and 1.9% respectively, and also expects two-year stacked comp growth to accelerate in both segments. - G&A is expected to be 2.2% of system-wide sales for full-year 2026, with cost savings from global system consolidation expected to lower G&A percentage starting in 2027.

Segment performance

1. U.S. Segment: Comparable sales grew 0.8% in Q2 2026 (below management expectations) and 2.3% for the first half of 2026. Comps were slightly negative in July 2026 at the start of Q3. This segment contributed less than half of total system-wide sales and operating profit. 2. International Operated Markets (IOM): Comparable sales increased 1.5% in Q2 2026, with strong performance from Germany, Australia, and the UK offsetting underperformance in France. Germany gained chicken share and successfully launched the new specialty beverage platform in early May 2026; Australia saw strong results from its Korean BBQ McCrispy limited-time offering and Menu Heist campaign. France's results continued to miss expectations, but recent value menu adjustments have started resonating with consumers. 3. International Developmental License Markets (IDL): Comparable sales increased 1.9% in Q2 2026. Japan delivered its 10th consecutive quarter of positive comparable sales growth, with its loyalty program (launched less than a year prior) reaching nearly 20 million 90-day active users. China's results tempered segment growth, with a challenging near-term macro and consumer backdrop.

Risks & headwinds

- Challenging consumer macro environment, with QSR industry traffic flat to negative in multiple of the company's largest markets, and continued pressure on franchisee margins from persistent inflation for food, paper, and labor costs. - Execution missteps in the U.S. segment in Q2 2026, including inconsistent franchisee EDAP menu pricing compliance, overloaded restaurant teams from too many simultaneous deployments, and a misaligned tradeoff between EDAP rollout and existing high-impact digital value offers that hurt loyal customer traffic. - Persistently challenging macro and consumer backdrop in China that is expected to continue pressuring near-term performance in the developmental license segment. - Continued underperformance in France (top 5 IOM market) that requires alignment and execution improvements across the market's system.

Analyst Q&A

• Q: The speaker asked to clarify near-term vs. medium-term U.S. value opportunities, noting that value menu quality and marketing are often cited as top improvement areas, despite management stating value leadership had already been restored. /

  A: Management explained that substantial progress has already been made on U.S. value: base menu pricing is now below key competitors across all core categories, $5 meal deals are the best in the industry, and reintroduced Extra Value Meals (EVMs) are performing at or above expectations, with 15%+ discounts vs. a la carte pricing maintained by franchisees. Value and affordability consumer perception scores have improved 7-8 points over the past year. The only unaddressed piece was the April 2026 EDAP $3 and under menu, which missed incremental growth expectations due to low customer awareness from overcrowded messaging and the unintended pullback of popular digital offers, which accounted for two-thirds of the Q2 U.S. traffic miss. Management and franchisees are aligned on fixing this execution misstep, which will be the new U.S. President's top near-term priority.

• Q: The analyst asked how quickly U.S. execution, operations, and marketing issues can be fixed, and what that means for U.S. sales trajectory over coming quarters. /

  A: Operations improvements will be visible fastest, as the company is already clearing the deployment calendar for the rest of the year to reduce franchisee overload and refocus on service quality. Marketing calendar changes cannot be implemented in Q3 2026, but adjustments are being planned for Q4 2026, with full alignment and improvement expected by 2027. On value, franchisee leadership is already aligned on the miss, and additional corrective actions will be finalized at early September franchisee meetings, with more details to share at Investor Day. U.S. comps were slightly negative in early Q3, so it will take time for corrective actions to deliver impact, with the goal of having U.S. baseline momentum on a stronger footing by the end of 2026.

• Q: The analyst asked why EDAP program franchisee participation was lower than expected, if franchisees disagree on the priority of traffic growth right now, and how management will improve alignment for future programs. /

  A: Management noted that most franchisees did follow EDAP execution guidance, with only roughly a third of the system under-executing the recommended pricing. The program's structure (10 items under $3, rather than fixed price points like $5 meal deals) allowed more flexibility for some franchisees to take higher pricing than intended, which was compounded by the system-wide pullback of popular digital offers. Non-compliant franchisees have seen meaningfully softer performance than compliant locations, so the company is first using educational sharing of performance results to drive alignment, and now includes pricing execution compliance as a core topic in franchisee business reviews that impact growth eligibility. Management emphasized that U.S. franchisees are strongly aligned on the need for value leadership in the current environment, so they are confident the issues will be resolved.

• Q: The analyst asked if pushing back the 50,000 restaurant target means rapid expansion has cannibalized same-store sales or pulled operational resources away from existing locations, and if slower growth will improve comp performance. /

  A: The target was only pushed back one year to 2028 to account for cumulative inflation on development costs and the current constrained consumer environment, to ensure new openings continue to deliver required return thresholds. There is no change to the company's view of the long-term new restaurant growth opportunity, just a minor adjustment to pace. Management noted that any minor positive impact on comps from slower growth will not be meaningful, and the company believes it can continue to deliver both strong new restaurant contribution and strong comparable sales growth, with the core metric remaining ongoing share gain vs. competitors.

• Q: The analyst asked what early results the company is seeing from the new beverage platform, specifically if beverage attachment is increasing, and what the contribution of energy drinks is to the new lineup. /

  A: The new platform launched in Q2 in the U.S., Canada, and Germany (and July 2026 in Australia) and has delivered results in line or above initial expectations across all markets. More than half of beverage platform traffic comes after lunch, which is attractive because it captures incremental off-peak occasions when restaurants have excess capacity. Average checks for beverage platform orders are 50% higher than the full-day average, driven by strong food attachment. In Germany (the first market with the full lineup: cold coffee, crafted sodas, refreshers, energy drinks), the platform is already delivering meaningful incrementality to comp guest counts, comp sales, and restaurant-level cash flow. The platform is expected to be a multi-year growth driver, with more details to share at Investor Day.