MCDONALDS CORP Q1 FY2025 earnings call

• Acknowledged challenging QSR industry due to macroeconomic uncertainty, geopolitical tensions, and consumer pressures. - Expanded value platforms like EDAP and McValue in various markets, launched new products (e.g., McCrispy Chicken Strips, Minecraft Movie campaign). - Focused on operational excellence and customer satisfaction. - Introduced new leadership structure for Restaurant Experience Team and International segments to enhance innovation and accountability.

U.S.: Comp sales declined 3.6%. Launched McValue platform, customer satisfaction scores reached all-time high. International Operated Markets: Comp sales declined 1%, mixed results across markets. Drove positive comp guest count gap to near end competitors. Customer satisfaction scores at all-time highs in most markets. France saw positive market share gains with value offerings. Germany had McSmart Snacks. Canada had positive sales and guest count. International Developmental Licensed Markets: Comp sales up 3.5%, driven by Middle East and Japan. China stable with delivery share increase.

• Reaffirmed full-year 2025 financial targets. - Expected foreign currency translation to be a tailwind to 2025 earnings per share. - Cautious about consumer sentiment but saw momentum building as the year progresses, with Q1 being the toughest quarter and expecting improvement in subsequent quarters.

• Macro-economic uncertainty impacting consumer spending. - Geopolitical tensions dampening consumer sentiment. - Competitive pressures from other QSR and specialty players. - Potential impact of inflation on margins and pricing strategies.

Q: Thank you. Good morning, guys. I wanted to ask a bit more about the U.S. and what sounds like an encouraging response to the Minecraft marketing campaign and to your value platforms into the second quarter. Recognizing the consumer is pressured, but also that select 1Q headwinds have abated maybe a bit, could you talk a little more about how you're thinking about your recent U.S. sales trajectory, underlying momentum looking ahead over the coming quarters, given some of the exciting marketing and menu news and the overall execution that you touched on?

A: Hi, Dennis. It's Chris. Yeah. I think, the year is evolving as we expect it would. We knew that in Q1, it was about getting our McValue menu embedded, getting consumers aware of that. And then, we were going to be introducing marketing news in Q2 that was going to also soon be followed by menu news. And so, Q1 was for us always going to be sort of the toughest quarter in the year and then we were expecting to see momentum build as the year progressed. As we mentioned in the opening comments, we were really encouraged by our Minecraft promotion globally. In the U.S., this was planned to be a four week promotion, and I think we ended up selling out of the Minecraft collectibles within 10 days to 14 days, so the response exceeded certainly what we were planning for. And then, we've just started doing the soft sell of our chicken strips, our McCrispy Chicken Strips. Advertising hasn't yet started on that, but we're seeing in the restaurants that are selling strips a nice take rate on that as well. So, I think how we sort of expected the year, it's evolving that way. The key for us now for the balance of the year is about execution. And you've got to -- in an environment where there is a pressured consumer, you've got to simply out execute your competitors. And that means you've got to out execute them on your value programs, you've got to out execute them when it comes to marketing and menu innovation. And I think we've seen plenty of evidence that when you do that, there's growth out there to be had. But certainly, if your execution isn't sharp in a challenged environment, you're not going to be able to expect growth. And so that's, I think, where we're focused right now is about making sure we do world class execution.

Q: Thanks. I'm wondering, if you can give us some color about some of your key IOM countries, and in what ways are the consumer economic dynamics and McDonald's value perception different today, and the challenge is different than what we see in the U.S. It sounds like so far in this earnings season, like, the global consumer companies, whether it's the informal eating out market or the instant consumable guys are doing a little bit better overseas than you would have thought. It seems to be fairly firm in terms of the consumer backdrop, but I don't know how you feel about that for your key markets. So, any sort of juxtaposition to the U.S. would be helpful.

A: Yeah. I think, generally, David, that's a fair characterization. If I were to kind of just do a survey of the world, I think, Europe, it's really country by country. As Ian mentioned, there's only two countries that we've actually seen industry growth. But I think, generally, we feel good about the value programs that we have in place in all big -- all of our big five markets. And we're seeing that -- when you pair that with good menu and marketing execution, you can see great performance or very good performance. So, I think Europe, challenged, but, again, if you have the right value and marketing, you can get that. I think the issue in Europe, maybe a little bit different than the U.S., is just it's a very inflationary environment in Europe, particularly because of beef, and so you've got high-single digit inflation running through the P&L because of what's going on in Europe that compares to the U.S., where F&P inflation is low-single digits. So, it's a more inflationary environment in Europe, which means we just have to be really judicious about how and where we take pricing in that environment. I think, as Ian mentioned, in China, we've seen the business stabilize there. We're encouraged by what we're seeing from our China business. Latin America, I think continues to perform okay. And then, if you go to places like Japan, the business is performing solidly there. So, I think relative to the U.S., the U.S. and the pressure on that lower income consumers, probably the most noteworthy thing, seeing traffic declines of nearly 10% with that low income consumer, I think is the defining feature of what we see in the U.S. relative to rest of world.