MCD - Earnings call transcript Q1 2019

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Operator

Hello, and welcome to McDonald's First Quarter 2019 Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Mike Cieplak, Investor Relations Officer for McDonald's Corporation. Mr. begin. may you Cieplak,

Mike Cieplak

Kevin and for call for President this Steve is Financial Executive everyone being call me live on webcast and us. our on Officer, and Officer, Chief and the m being Easterbrook Today's thank morning, conference joining is recorded you also With Chief Ozan. replay Good morning are website.

to to in our corresponding I'll turn remind now everyone filing forward-looking statements it our Before available release as to also Both on I measures with And that are any comments. want on apply turn documents to are reconciliations their over Steve, I today's call measures. it non-GAAP X-K earnings over mentioned and www.investor.mcdonalds.com GAAP the financial of Steve.

Steve Easterbrook

start strong off to for a XXXX. We're

momentum for further world billion marks Growth quarter. broad-based uncertainties of X.X%. around Velocity our the sales around system we continuing $X macroeconomic our That's consecutive comp Global of world. over on the the some as Plan. across continues positive despite execute comparable the global of quarter sales This XXth growth increased the Our

cash global the grew U.S. year. our market quarter. the we to And history. In execute we franchisee whilst progress to start counts a our us in are plan pleased also We hard with for we performance the we to continues The most start guest ambitious have against the flow the ahead our of improved and of recognize year. work lot are with encouraged

improving the restaurants. McDonald's our of in customer as Future guests enjoy to modernized satisfaction more Our scores are are able Experience

restaurants foundation growth focus Where optimizing focused a the benefits for building customers. and EOTF our S. on our For seeing considerable experience is and execution to are sales we've transformation the U. first begun since operation in XXXX for we time our our our on XXXX overall comp. rollout a

high last how the investments now across is remarkable delivery all comparable on achieved the the resulting We're team UK. market's menu past growth sales at we've innovation The the market successfully example now is market's and McDelivery focus impressed driving running month of with and growing Melbourne and has performance the month be to made the growth of average guest counts and in value strong their excelling and dayparts. growth. visited Australia. and both Sydney sales years including With The for leadership XX great XX check in March. restaurants a leveraging guest quarters. I grown alignment in franchisee record continue seeing consecutive has digital. balanced For the comparable also fundamentals of for strong business in counts consecutive

UK Kevin our about terms. and are that effort our deliver kiosks feel-good over is growth to broad-based Australia increasing trained barista delicious Progress place with are Australia taking The has to on demonstrates McDonald's the to awareness app with of McDonald's to we to are through McDelivery restaurants using moments. notice both food a And than Eats. putting more And an the Uber in crew become we number their strong more our partnership self-order customers our choosing doubled our team share in top in I'll seeing into to The frequently McDelivery how are our global app. item in use has at line also performance. and us high-level it the orders. plan our and customers our executing mobile on Velocity Today turn Australia delicious ordered are drive-thru Growth order delivering their enabling most With of across customers more Our working segments. the US, coffee and

Kevin Ozan

segments operating sales With Thanks quarter our the comp contributed up each our for growth. of global meaningfully X.X% Steve. to

to structure across our organizational our our model business evolved owned we Not best structure markets. January and even to more new of sharing only support in heavily Developmental markets contributions the made visibility wholly operational both scaling practices overall franchised by enabling our provide innovations Licensee our and business our it markets. increases reminder also into does more a As benefits and

First quarter was growth with strong comparable all and for sales the dayparts the growth. of contributing to U.S. X.X%

promotions While mix continues quarter. by the event both bacon comp such strong for time the and the and for relevant first growth the two the U.S. strategic for from our $X pounders quarter experience check Mix driven fresh well beef performed guest pricing. counts product included which Match contributions quarter were negative balanced to Consumer average national the and deal as in

with was at also Donut $X the items we'll Dollar $X XXXX their resonated decide yesterday. breakfast $X deals and daypart the that the These co-ops re-launched national in complement Throughout $X local as best with our will at which menu two this Sticks Breakfast continue value customers. for item Mix on and like We customers. and both introduced pulse Match individual deals resonate to new Menu

impact journey sales As overall completed aggressive we now mentioned now EOTF efforts. means This lifts modernization net from current we an the construction. our continue our under on are projects contribution earlier sales the positive that Steve as the US and from from seeing exceed in to projects downtime comp

EOTF. converted additional XXX we to quarter the During an restaurants

of this expect our now still over We X,XXX completed the approximately complete estate restaurants year. about to US. X,XXX in have XX% We or EOTF projects

leading markets: successfully along products promotional its segment X%. began to with Turning Big our new along were sales France market and optimizing France contributors up the market as five last share. the International all And Germany Tasty Egg the with largest with comp serving sales international way. Operated and is McMuffin ever were day. big month Mac Big and the in UK Canada iconic highest the The France bacon The highest its experienced such Comp Australia segment. France the offerings. our XXXX since also UK increase

new segment were segment Value each Developmental introduced growing China continues also comp late everyday Licensed counts. the market. International a the be to in both in Late which up guest value the sales and the in X% XXXX. our offering region Meal Extra complements sales quarter a quarter competitive launch with in for comp Finally we geographic

We share XX in China restaurants gain also opened we're sales for in well on XXX systemwide and the market in the and way quarter opening a growth driving new restaurants year. more than about in our to

Steve global enabling Now I'll to on to are growth. back turn it accelerators the which our expand

Steve Easterbrook

our established digital ecosystem Thanks an terms. been Kevin. digital Since mobile technology and focused that easier are pay to foundation. the our We've our on Velocity app we've using more food customers visit the the to From our we've their our and customers order Growth of Plan more global they make increasingly convenient our restaurants. our when using experience receive self-order delicious kiosks to on created McDonald's and more menu of boards to launch

times and with get technology time acquisition begin in we now in offers XXX have taking millions S. on restaurant the rollout and this And U. Now traffic all across of operations the crew. restaurant already to menu weather technology across a items. and data the personalization of current from learning. Dynamic we're recent Yield's on running and easier peak through We've Yield and smarter Long building foundation logic data varies will using suggested Over daily even industry-leading data at just of using science ways. can leverage strong trending to of acquiring and approximately. When technology in scale offer will brick-and-mortar the serve our Dynamic personalized up on will access of we're based and steps linked platforms experience our is growth one talent including to our ordering make drive-thrus with our leader the technology that it experience. suggest stay being mobile decision and technology. take technology advantage easier customers Dynamic our our drive-thru machine Yield our begun our that work the global smarter items of that we term collected the our process. digital more by ahead time day to we'll customers who technology of to have is the self-order and customers technology of it size to our and acquisition our seamless provide the more for customers leverage to customer will This the the first help enjoyable also innovative when demonstration logic a integrate into us kiosks will decision and tangible and connecting one comes companies our ecosystem ordering curve By accelerate engineering

on running focus to also seamless our fundamentals of great to experiences improving maintaining using In the addition technology create we're restaurants.

speed markets the we've of around the customers example running taken for McNuggets why focused way improvements the in some has Many on from remains at That's Italy of we're great market drive-thru many drive-thru. exploring order experience history. fries on performance Big more. helped to the a For best and we've more improving in of focus the its Chicken popular the Macs particular sales In are of In never world. a deliver been having practices of french our restaurants service. strongest scale the their disciplined daily seen

to they With drive-thru by the improve running speed service service of competitions customers to part As an multiple make in were reductions of and able are strengthen their meaningful our overall drive-thru they fully restaurants. operations engaged noticing. times crew effort in identified to opportunity

participated accuracy. drive-thru service in whilst with categories to increased like the our middle incentive an breakfast our drive-thru Falls serving in guests many competition quarter in a times from faster our to to But winning difference program to the they against lower at first customer service for We engaging and critical of restaurants challenge. all the improving Our and more in Twin satisfaction daypart. way. And it competed scores congratulate QX personally a Falls across each co-op times Idaho our made have for best our guest the restaurants. in Boise service deliver I'd speed importantly of other the fun counts U.S. introduced of where friendliness

for more also we to ensuring by one our service new crew. we're across improve drive-thru menu complexity We're As existing service we not of we'll continue ways keep The customers' to way using is our ensures create restaurants. do we doing expectations globe. add best favorite our share and operations only around for excitement our like work restaurant these great ingredients items to core are run customers finding which the times learnings are evolving

we're Bacon add market This the McDonald's. a their innovation campaigns delight our but able in after successful to introducing cheesy smart scale offerings offering by of to The customers also the Australia France quarter time bacon friends fresh Macs consumers S. US love launched Canada and fries. for the their of only is to bacon stole limited with to beef for in how quarter operating not menu connect to Mac Big example with we in even entice the example a UK complexity balancing bacon And Burgers great Big For we Russia. at demands whilst in similar of U. from and speed our customers surprise the of pounders. with of of our shamelessly kind service during

a which Velocity part when speed company a implement we less. remains restaurants to are $X and the to have time Delivery it Plan. all delivery a more out across restaurants the pleased making start experience XX,XXX has a but we is restaurants globally eating also than at than especially in visit for successful the to at customers now know we Growth McDelivery accelerators XX most are more enhancements both delivery. our demands business scaling they has how and continue which of through and our more one it our It McDonald's we're to likely because guests meeting opportunity franchise offer we our McDonald's convenience customers been of We grow. there's We due from began lot restaurants globally. began Delivery of is billion with our when increasing believe for key important over half grown to offering the countries

of delivery to scale our Our seeing gives they are delivery one we're be and to so to remains committed number convenient ability enjoy in McDonald's a it and more locations of exists solid contributor opportunities to in meaningful We're customers continue customers markets. sales of McDelivery our tremendous them the to size close comp demonstrates advantage. to how a continues Awareness us further wherever delivery making opportunity and greatest reach sure are. aware expanding with our and for that a more growth

to Kevin over the I'll turn of it Now highlights our financial for quarter.

Kevin Ozan

$X.XX share X% constant for quarter a the Earnings per increase currencies. was in

in operating refranchising Our activity higher results despite gains first benefited due our heavier of to from strong on performance lapping XXXX. quarter sales restaurants

restaurants began of quarter revenue for earnest refranchising quarter have the constant marking major refranchising strategy down. some still in first since our we While grew our winding our XXXX. in We refranchising ongoing of growth efforts currencies are in X%

sales Given grew a million of more currencies all basis. and last to comp constant XX.X% year. margin versus operating our reflecting basis strong in overall segments XX the on of dollars quarter This for growth $XXX increased our performance consolidated contributed than in points margin

ongoing. the was negatively reset to be our the change to and be dollars impacted within franchise as of Our a margin in income expense X% constant percent in result franchise grew clear margin a new of sublease XX To margin but of franchise impact this standard of as basis our no accounting there margin franchise points. currencies. standard will lease dollars a result new is the Due presentation percent margins franchise

points well in U.S. accounting due depreciation this related expense Our basis overall to as to declined margin EOTF XXX as franchise change percent the

margins margins our and points company-operated performance pricing EOTF-related points increased X% first up offset our margins XX.X% In the the costs Consolidated company-operated while depreciation. higher with costs U.S. declined were to and sales approximately IOM was to quarter. increased continuing strong higher for due XX labor segment as commodity about X%. challenged to occupancy quarter pressures basis XX restaurants. costs. commodity US Turning more along labor company-operated for quarter the basis than

to Across anticipate segment We at the year X% expect big the averaged in of will X.X% up While about IOM prices year. full up X% commodity about to Steve were we basket menu about quarter. full and expect purchase systemwide the for for X% in talked for costs constant capabilities. somewhat strategic pressures digital the of X.X% U.S. we commodity markets to Yield our still X% five about up was throughout commodities grocery higher for ease be earlier the the year. now to be the X% our sales. Dynamic G&A down currencies advance the quarter

spend As with a areas along expect investments G&A we R&D technology be flat acquisition relatively currencies to last in now other result some of this constant versus year of in year. full

XX% first reform. the rate quarter we year in rate be Our was as to XX%. in still the for XX.X% expect the quarter regulations of our range issued tax to to tax tax new application effective full We related finalized U.S. of the

impact of first with our we for rates by estimated $X.XX less Foreign to year and per ease At of be share. to of exchange currency back $X.XX. foreign currency in translation then an QX slightly hurt results quarter headwind current half expect $X.XX the the year the full

is As as through the move rates usual this we guidance year. only because directional will change

turn I'll back to it Steve. Now

Steve Easterbrook

could felt for our world's opportunity social sustainable where in to In our and make youth brands operations. world focus include difference of recognizable that use climate families and food we the recycling to year supply by in these other beef areas franchisees progress our packaging addition to the one announced in our we to partners. parts with largest employees performance priorities These biggest customers know on make restaurant we action chain driving intersect we of intense take of and and areas directly of action collaborating today. business environmental other areas millions the we most responsibility challenges and suppliers as on We've with opportunity. to the continued our pressing most good Last and have companies the some and scale commitment

U.S. prior target our by in we source a cage-free to Scale example XXXX for campaign For to set XXX% Good eggs the bold

way transitioning million plan just eggs cage-free of XX-year that in U.S. in global already to is in eggs. will XXXX. served many the the This also And restaurants we're our years our our U.S. XXX into means toward of fulfilling of the Now over are goal. be one-third proud X.X that the to cage-free markets announce other process

We're Whilst Together levels managers. we U. entire by gender addition and the X organization with good will at the Better improve XXXX and million more McDonald's company to achieve In the our restaurants the of International a one champion women the That's world diversity. on strong committed and making up employers all continuing in balance scale our why System. positions improve people we career and the Together world's throughout initiative announced investments of representation of to jobs almost in largest of to of to representation the even this impacts women people We we're in of XX% across for provide in leadership we across as franchisees sweeping women equality progress. for business. using of the make our all set make are broader gender S. launched have recently on Day women. advancements Women's commitment a

of worldwide diversity. for be we'll put part and that franchisees this encouraging in As career to enhance and advancement promote in strategies to equality women. place And our training we'll balance gender systems suppliers and deliver

Just Group, always We who remarks away. built no around made moment I the an on one-time McDonald's passion organization former He had wrap for Jeff's in greater my at is improvement will McDonald's Last to pivotal restaurants running ran played there and center the be McDonald's a to great and contribution global at in truly before people Solutions brand McDonald's. say that passing food our over our I than take us restaurant Innovation was USA was someone time, a world. Jeff ambassador unwavering always also Jeff of him. teams and remembered. acknowledge XX did better. of want and Jeff an up President prepared Stratton passed McDonald's with years role our that for week

leveraging a customers our food the delicious our menu modernize of connect one the world's with of affordable we we to have we offerings enjoy. have dynamic uncertainties any value brands despite most and we're and way customers close improve I technology As iconic

We partner suppliers have deliver to with the great of McDonald's. at us who scale

dedicated have the it have best world's now term. for road who day bring win to are restaurants. we'll We hardest ahead most open we Q&A. to long together about we for we elements these are and working great And the the delight to running we positioned confident customers. And striving the When are all every our up franchisees committed crews and well

Operator

from Our first KeyBanc. question Gonzalez with Eric is

Eric Gonzalez

specifically through trends taking traffic of for question. to wondering trajectory? question thanks is peed the quarter quarter mid fall introduced away? off related the the traffic and competition US. it improve drive-thru Hey, helped I does trended traffic extent Or how what Thanks. the my incentive the was from goes service And My U.S. in benefit to competition the sustainable? when is

Kevin Ozan

traffic. Yeah. Eric with I'll start

to said the guess far line I'd kind significant traffic negative where quarters. I Steve change So the as talk about been was we the few U.S. it's No the in you overall And of want number. drive-thru? in the trend it's in I'll say in competitions traffic do as with last

Steve Easterbrook

Absolutely. Yeah.

we're further think, on context why around I just this. focusing

you the a get through just our right Future. back basics pounders We're were the the we've Experience we experience better probably quarter time focusing restaurants. And has of As can given the of thought can disruptive that of focus to way majority for lot activity example. we We now. running on on last beef XX on to that out was XX procedures in-restaurant focusing rolling this been the of fresh months roll imagine as we the the rapidly out dining kitchen worked

focus service co-op competitions encouraging. the drive-thru enthusiasm of in peak for the a in great. an is reduce us. the a start managed we was yeah, on certainly to And But during the to later kind It off breakfast which kick hours co-op was was decided really of quarter. to times clearly which we So opportunity with

of having to in of of at this leadership they're Rouge a is crew the certainly was Baton these the focus the and we're owner/operators of continue just and the running just XXXX been going quarter towards the on our Atlanta in of Indiana attention series year. So we throughout fundamentals the can field having the the I Myers at end run was and Miami I the in because our with start amongst And great restaurants. conversation quarter all and a field clean excited certainly managers really Fort about

the meeting time Germany we directors did our the time some service the by want global year of times to anywhere off within see This that focus quarter. managing the see not a encouraged of We just way. So Spain results is seeing will U.S. a service decreases in all in U.S. and Italy the drive-thru And we're start literally that major decreases. in Poland And by had remarkable service between just taken drive-thru quarter. start, XX it's some XX like of seconds markets. countries the in the

express with are at So get I and sorts it's get this into just guess what around is there these that enthusiasm what because to I want enjoy just good each organizational we we really of other but and to we at. is is great this this better want conversations we

Operator

next Andrew with Charles Our is Cowen. from question

Andrew Charles

XXXX contribution leadership Kevin XXXX have relations? deadline from since US you. the XX% a sacrosanct between Thank I EOTF After February Great. elevated the the CapEx better that's election Council evidenced in very year in improvement that for Steve by of separate separate clear you. definitely sales. extended the operators and you the is by then, how November franchisee momentum the CapEx keeping to contribution for in question system of in been And build XQ's on and XXXX was two part alignment one questions. it's there's to improved help clear

XQ. you if the You contribution EOTF also half previously likely remodels benefit fact be helpful the benefit as EOTF for XQ Thank in conservatism could to Kudos in XXXX that comps would quantify well? the talk in about And the first you. be net did the quarter could from beyond you that second benefit. guidance? for guided But obviously was to more benefit why a the

Steve Easterbrook

and of mean a a quarter. I'll those first couple fourth again was sentiment because just really Andrew, a I been to one. Owner/Operator the I Okay, take constructive questions third it's think But sector. which it I that has our spread four McDonald's resilient. else incredibly say advantages those think there of context the anyone already over I in often differentiating is are makes one Geographic provide there

for The us. iconic is differentiator brands a Just

both level a financial constructive stronger owner/operators Owner/operators. Our always relations organizational is puts fourth just the as leadership our at well. And market position. strength level with a And in the restaurant our having us and

the the elected National about of constructive is to leadership been Leadership want what can get with barriers after we newly more there's how Franchisee remove Alliance So do, serving really any to dialogue so customers we growth more which all do we often.

So it's been a good quarter.

I constructive this to think of more as our dialogue. Certainly a was majority on can from unlocking bit national. our rather we now marketing $X, Dollar the to And We've put little to certainly as invest that on swung a and equal basis after last there's $X, support local McDelivery value Everything quarter than again we've really opportunities Menu. in as get actually spend local more context. marketing into local are the that two been well we $X behind quarter breakfast the of launched vast the in an little year of a so, local bit one now well. first one more national as spend or co-ops opportunity got the beginning as balance

EOTF. operators scale concerns and the did We just how balance of of leverage rollout. go had to all you we ease around just things of want these recognize get our the are I any as the So rapid right also in regards differences the to burden local think the financial financial around some the the country. but With helping

each lower an opportunity XXXX level. level Owner/Operator extra heightened an pretty support choosing been offered on too we would to have EOTF just supported more So they what's of through gave years to US But at that of the projects too call in level if a projects appreciated still XXXX the XXXX. typical the much couple every pinch their by majority be sheets felt support pressure complete through we slightly just XXXX. and going what interesting is our much and but really their operators I option are balance a that the the much to was guess load

still those support But the with opportunity So I and But it that have going who say ways that felt well. complete substantially better need XXXX to to we level. them will be for would the they the longer of that business. investment have and would support by by as that a bit XXXX. allocate we'll little we're be expect appreciated other we be Partly our reduced think because to time at the XXXX will we long-term get to end

Kevin Ozan

we've benefit say then I XXXX. And was were as downtime have little EOTF to on been the it guess we mentioned Andrew. able turn expected reduce mid-year saying around you We also But of there I'll that. that in we into projects a gotten to bit XXXX. our conservatism

downtime of reopening better restaurants to have to a looking sales that be able to reduce to And bit two think they be little a I little when last were at. year recover each bit. kind the job we things I talked And quicker. about to so up there were done came a One we've able few those. plans that able back of grander were on

into positive And that projects We the quarter the the But ongoing made were the in had now. our we for year. quarter ongoing built by to into effectively the business. it's the to of now quantify quarter's don't want to first in about XXX net now we completed each got a do quarter. to because it all those U.S. the quarter first that having want rest benefit so would continue a rest year don't now in expect that we net we that get benefit XXXX into continue We projects certainly of expect positive fact as and the for

Steve Easterbrook

is to means on we And incredibly remarkable into year XX-XX heading opposed just completed just with as more direction that looking to represents emphasize it you've reflecting hard But the into XXXX this work. the of the what projects to on than in now add turn was clearly past. modern got we speed again as which we're McDonald's a chance visiting

mark customer great-looking just I which as other Once going that. markets smoother as in helping we of more through restaurant to from halfway more that the you So McDonald's where we're the an you're be noticed the kind technology everyday you there's a all XX% cross to around world. is going say supportive over is experience chance service from have the experience

we we're So still we this XXX projects about good feel at. completed And quarter. where

we're like So still a feel good year. start this off to

Operator

Glass Our Stanley. question John with from next is Morgan

John Glass

question there And as it news stepped Kevin to One EOTF they the is my is year in back progress. the down Jeff how on that Last a thanks and is as margins due He way is about of for margins to think some sharing is. a the half U.S. sad of impacts. things. the couple

the don't is think I new understand eases back of question base know billion I level about up two run do is it think the you why about it this for as from G&A in this this whatever right run grows up is if then your new ends margins? we pressure year, number should did it where level to That's half? $X.X and U.S. this take kind So at that's XXXX? new rate you Or then the and G&A. that in one. it And

Kevin Ozan

U.S. you take I'll say side. when talking both sure John about I'll maybe wasn't assume since both we're I actually. the Okay the on about company-operated of margins margins I Well those. talk

in things up will the X% Commodity to costs as the X% first quarter. operated year. on know. X% we going be We've about a have that side the for about said you On few were company

year get a goes but So bit little a ton. that not as on be easing should I'll the say better

$XX being we we as the operated the other million year. about that went year about for from as The we things EOTF do depreciation projects have this talked company into

or So of that some wage a obviously productivity. had. labor And to things negatively EOTF we've of then productivity quarter. that to opportunity on right where are quarter piece is the kind I'd to impacting impact each impacting are is that continue being One side. certainly going hit been us. the two forward about is going there have pressures There labor going are negatively projects now one say

move We'll finish all from other guest guest are some down company-operated be a the this help labor And negative. of negative productivity challenge that And does that as that just those side. of With so a EOTF productivity. will the help that still counts we company-operated is fact projects winding projects as the year forward. should the counts create so our start

And the once positive so if will also. side able counts to I we're help that guest turn think productivity labor

sales sales. The a other thing is little company-operated I our comp guess would are comp note just overall lower I bit than the

flow The X.X And the a The the for the at U.S. company pressure restaurants plus challenging margins where the reported a for on cash Franchisees doing. achieve know we as our is March. that the we operated every if also. we will That are didn't looked proxy you the you that company-operated more five for margins of has put last side. on up so I bit guys and been that based the there little often how months geographies on X.X company-operated franchisees company-operated month run through

And side. us about franchisees our business. from XX% that's positive big for important running the a in as know that's you really So our franchised U.S. with

a so positive. big And that's

this two about year talked percentage as EOTF impacted of million side $XXX our things margin is depreciation from pressure depreciation. margins. entered the it franchise On Again franchise franchise that One the we on quarter. the the there's we EOTF margin there's about

a that about again of each So quarter. hits quarter

subleasing expenses result of the way Second is standard. income and as new this we a lease change present in the

So that dollars franchise about by the It to basis XXX the is that impacted doesn't U.S. margins offset points. because impact revenue.

gross or now that if the million but percentage so math. about up through reduce $XX franchise just margin up that work effectively does costs franchise gross you So we and it there's revenue

So the those margins. are

my others basis of G&A caused $XXX year. On the the And in two this a obviously few those and one are with over a The technology. talked things the in investing obviously R&D I is impacting we combination The script about though over some biggest is acquisition what gross have Dynamic started mentioned million. our revision of we guidance. few we've is side years G&A in also and saved the plus Along of has Yield. on areas that last

amount G&A we've the investing maintenance growth of the and in And of business based so percentage now a reduced bigger kind G&A. G&A of we're run day-to-day our

G&A we around it the is be so. way X% roughly should about forward sales Moving systemwide or of think

on of go-forward think it a way So that's the we basis.

Steve Easterbrook

the of this the contributed to of just celebration I the have attend many a and you was family past your Mass And was had. the and would uniqueness John And just enormous was on suppliers time honored way I just yesterday, testament lives. Jeff. all and And I believe speaks of memory of just want funeral the we on and call the on reflection occasion present thank comments in general yesterday had Jeff you to as stool with turnout know all to for Jeff the that Jeff. our the the in three-legged Jeff and for an absolute that colleagues to impact the of absolutely and life McDonald's owner/operators again to

So thank Appreciate it. comment you that. for on your

Operator

DiFrisco next Matt Guggenheim. question Our from is with

Matt DiFrisco

speak little how to U.S. a to was last from incremental. from in was Thank bit of from doing now. side. you XX% has coming still perhaps Can bit know bit down though in majority was XX% you. much wondering or think guys billion is that time I'm the the I'm out trying perhaps the delivery incremental I'm spoke you're at incrementality it's I'm delivery because that figure on little comp just stemming $X that it and I your strong. obviously the you slowing I may looking almost comp percentage around be rate that that if if the very or come a system the sales level that curious a that of billion XX% just is level? so $X around the little

Kevin Ozan

of It's our Canada got Belgium first numbers mature these Thanks, That We of by is strong people and that have a UK, getting many Spain as really that strong. first whether incrementality stays consumer likes is that's Australia, we Matt. some delivery. even of commentary leap then markets Again and initial we awareness Netherlands broader familiar place. France, international and driven international finding once well with quicker doing growth and midsized the fact certainly growth got offer just couple raising incremental the been the that majority that more years established of in and business it year-on-year on McDelivery our the in delivery of and on the and markets number probably a pretty Italy. we fair to in say and that the

comp also not So delivery comp year-on-year to restaurants get as as expand we're we actually the networks And their on they're now to only but themselves. the adding new well. beginning third-party are operators beginning

and really, getting we year. get as encouraging that second some really track can we So we're numbers that into

which new had So the even really well strong. slower though adding in fair a out restaurants It's start delivery the came We're comp those of as we say is as traps getting great. incremental really, slightly to growth U.S.

begun not way more some verge that a significant Eats it the Eats of the on on the competitive been unit we're worked particular for deal to in the as a fashion. as helps that But Uber potential owner/ but unlocking partnership working supports within our delivery believe that of contribute as we both with particularly U.S. economics So also trying we comp operators the get XXXX to and we've our through but coverage to with in Uber

S. good for I more to to because quarter per critical number more to elsewhere business way counts it in up system we feel awareness. expect the once guest rapidly a see their restaurant behind them no think made have a we we're certainly but great So that business. series up confident support the in get of we our the per noticeable restaurants as can pick is pace. some raise on it, traditional delivery mass well as U. a that had grow as more the world the behind And actual we be of delivery still the And through conversation can on we you Owner/Operator so day they consumer going support know marketing I will and this economically exciting we're

So is think business substantial one we we well from good feel place. still you as chosen to we're the growth a From can have maximizing this KPIs through is service to another assure I date a delivery ahead. as times global opportunity And billion being $X I lead that in a opportunity one well. perspective drive-thru of as this year really there personally

got on figured a certainly has we've got system behind the excited that I'm a as So level U.S. great well. it. renewed it focus

Matt DiFrisco

the confirm of majority comp So the was delivery in just to not the US?

Kevin Ozan

Right.

Operator

with Bittner from question Oppenheimer. Our is next Brian

Brian Bittner

from your Can us breakfast So food costs would And Kevin contribute on question U.S. into the you. has went about the that be first to the comp. in what in drag color change it overall the S.? Steve previous some breakfast U. quarters oneX to X meaningful drove is a basket the to you this on X more quarter? been about as show meaningfully expectations? your S. in in talked Thank on a you've any we improvement talked give daypart the X. did how the on in to the trends you U.S. the Did And business great. just U. improving going color

Steve Easterbrook

are breakfast So reversal an positive like-for-like was it quarter the contribution and trends market which overall the fight that meaningful was play. offering in a we'd more but is a that encouraging But people it competitive a sales encouraging. a contributor. previous contributor acknowledged. as I of share trajectory meaningful say majority clearly to because a We're to still growth back to more was is get certainly wouldn't in breakfast there

of four. it from was effect The a other would end marketing made piece end local the say of because shift that was decision that really until quarter the wasn't begun is towards dollars that quarter national the I to to really back the take

marketing couple media well. certainly as a plans plans it So months of to takes adjust buying

McCaf news Donut focus that. They the Sticks encouraged. and in a on investments feel made. So I we've particular the menu that positive the operation the played new restaurant to the know role contribute item we started supporting just like all I think introducing drive-thru further that to in

media items and So marketing. operations menu drive

to strong So do important a start taking to I we've it at really share back got year more still we that but daypart want think the to for be us. was if work

Kevin Ozan

biggest increase prices. bit originally it X X but in prices change on related what for is from to we due anticipated being X commodity change Brian beef of a than expected bit the higher to in is little to to to X to an pork the then And little pork most year related guidance a the

Operator

is Tarantino question with Baird. from David next Our

David Tarantino

morning and S. on the Hi. U.S. growth U. on My comp question the average and start check the congrats to in the Good a great is year.

heard correctly to think from Kevin trend I suggests growth the much accelerate. if I change which check QX QX didn't did the traffic

that? Thanks. what two of that of have U.S.? one think drove the parts then check the do what the in secondly And question guess is that I growth high right? you are And my sustainability So I do

Steve Easterbrook

I'll have one that first at David. stab the

recognize helps growth continuing check think we counts. that average still cover up the I in yes guest decline So

impact. was strong. And Clearly So from that we what choosing to is I in into to a bundle and it's us pricing. the what outweighs think are encouraging that combination that people the items buy and drill check shifts is average a mix growth mix product what shifts and where growth see which how between do coming for is is the also pricing many is product

check. if the think example Kevin mix the about want pricing talk grow average the pricing the for about product in-restaurant may X we that as want levels. far average too to delivery check business a X.X shifts you is our and don't to But away of to You times get traditional

naturally will that the average higher. check skew skew So to business help

continue dwell higher the kiosks because average self-order at we little a check we get customers a self-order to to people the using longer As build tend kiosks.

done So, bacon. our helped average terms bacon of work check simple And item we've us like and adding some got on The things grow you've pounders. Mac of as promotion well. little through Big then That quarter menu maybe the in a just

in we've mix have built that grow that shift overall. invested the product we've all helped activities So these or

bit. actually in the many this confident a of we pricing more been I the a believe I But check feel want that it's element actions is still we've the taken healthy So growth of I'm when to dominant can combination because are that little year have what think average produce you be sustainable. particularly overly in to don't started and encouraged pinch feeling a customers

Kevin Ozan

say. to I That covered was going everything

else don't I add. have anything So to

Operator

Our next question is from Jeff Bernstein Barclays. with

Jeff Bernstein

on very Maybe two-part Great, a much, question thank US you profitability.

you've give can pressure you similar first the Wondering are what that the and how the The of you in the question months. is whether on I'm labor is five rising think believe is suggesting you and to against mentioned if initiatives feeds inflation consecutive franchisees much and there's absorb how give of franchisee to outlook profitability up offered on you'd I better that on XXXX the kind opine into Thank of market wondering terms is versus just it now you for what any other and of which COGS you. the color if you inflation. any terms kind which protect in of basket commodities statutory mentioned. labor how you just

Kevin Ozan

year. Yeah. of I'll think start. the There increased that I at wages were XX states beginning the XX or

rates year. So those wage on impact have the certainly an throughout

franchisees there. they we the as It the country you with it Obviously what competitive is far are competitors as operated. rates where to in wages rates. depends their the for company other own As wage decisions make sat and the how know around related key

is say challenge. going I it to to So to but fair continue think inflation labor be a that is

continuing as efficient industry. be us and to help ways as any to for can think we that's But I to our restaurant a try inflation. look be challenge to for the continue in will operations mitigate We that going of and

I'd leave that. I So guess it at

Steve Easterbrook

mean add hour. $XX our would more company-owned I average restaurants that in now starting thing is an The wage now other than I clearly

from that owner/operators. don't So data whilst our collect we

of I minimum. that the reasonable it to those federal ish above number. both it's clearly are well a similar And would think believe be

as cost certainly labor any of is higher than the typical inflation. rate up Kevin going far said, So

So customers the a That's we want thing yeah, just so we best to any can. and that offer through expect with line. business the staff We way can pass experience help work and of increases still of costs we the of is effectively do something possibly the to just and to appropriately in just we mindful negative way best make customers. the that each sure us. it's to we're these resolving we owner/operators that of fully efficiently impact the don't any from as And restaurants as very the grow run of. the can other The top

Operator

Nicole Our next with question from Miller Regan is Piper Jaffray.

Nicole Miller Regan

Thank it about to you. in delivery I are what about that morning. Good and learning? is And and curious of how app to McDonald's orders ask you it. the at process? And was economics want going you are driving I where

superior similar? or the value the Thank less So are pay is that you fees the versus more are customer in marketplace? because economics and to the the value don't that there's customer to owning the marketplace. have you. of economics data just in Or customer getting still a clearly But more

Steve Easterbrook

Hi, Nicole.

the ultimately how ordering able meal So ways which customers do. is would third-party really a through of yes be we to offer currently to McDelivery. through operator One be two directly they want

into clearly And to as other segued will trying with position behaviors. up quarter understanding we privacy we to three global of data a deal where kind The customers is is it. go begin bit protecting of in what's we're to app. integrate part sort you a opportunity We here to there's concerns part of has believe customer we're mobile build necessary our to the do to a of making integrate in we're gather Obviously customers access through that all foundation back that our this technology And year. whilst able of believe we what more important into that overall. U.S. of progress. it of in end better We've be with to say it good be going fair on to able technology be will work

If regardless the ecosystem. stages it menu experience the it's beginning the understand to why we technology or app start now to for to know in of to drive-thru you that's drive-thru customers experience share of choose choose be you this self-order us build actually we their at We on made a of and building lot the we whether be developing digital of will how to whether favorites even important years platform investment form where opportunity better provide and the they who And in-store connecting some McDonald's. is more identity are in us. smooth the of last certainly two about with that's for loyalty have and and it. to introducing customers can to customers think But our owner/Operators maybe will our earlier three not. us a Dynamic with both as boards example Yield reward we're their up that allow useful And kiosk great pulling

an of constructive is something that number experience move privacy And Uber important a further we certainly that that sure healthy And how different we that do still with ecosystem our that making own is certainly for we not there's forward. see modernize done So and things that of can we McDelivery with personalize and really we're because know the that having discussions protect about for customers important how we get can people. technology grow will into being just can but integrating ever the only customers. the experience

Operator

with Bartlett is Jake SunTrust. question from next Our

Jake Bartlett

Great. inform had his check. Thanks and successful Steve first the was or something did I'm how or in you premium talked avoiding. question. avoid they more in the also driving event taking traffic quarter like promotions going wanted driving approach you Looks wondering But bacon some that's how for U.S. negative your in you've the about forward? to the some the traffic

$X of the give bacon you event refocus is for you the the forward to for going much So more success innovation on does the in traffic? the indication confidence How year? that that an is want switch premium the to of remainder X back

Kevin Ozan

or Jake. to balancing any the just is be you in we new of McDonald's market I act act for continual create at how mean mind to always to continue and different no question Good U.S. Yeah. that other top mean the world. this how do the I is had news juggling customers.

restaurants our the However not complex for as customers. it inadvertently a be to it impact in so and starts make challenge therefore teams

we enjoyed our success menu. upon what about of it So the activity was core building U.S. the in the was

bit manager Because and like. items menu just will read or preparing. And doesn't state to customers It So and in and months. use is what but and I be on of menu can activity two probably in the news things that. one about that it our now for really news start we U.S. excitement. maybe occasional ingredients a crew planned in the menu we're of seamless got have they with restaurants different familiar think and and coming very now always then have already every new bit the offers mean create they our are back new leak then trying you when of the every a to then know limited-time the regular a to something a There revert typically we and buzz in like a what you

more And most the restaurants. get overly were complex. overnight somewhat running things So taking restaurant get we're help Again menu of right between whether that then limited the look the kind teams it further our at a and couple doing already our to that of overnight. for in operation. you make we're trying was right to things easy of good balance to probably read We're menu a simplifying restaurants

of day, a in preparing experience up putting can for look that core think our really premium customers the complexity that worthy it SKUs more will benefit or formalizing some traditional by Crafted we signature our us we we some For see like Is better and have have additional offer and also would of around the of the at whether that of smart complexity items time customers menu. that kitchens. I the plussing guardrails but it the the is and and unique

some single certainly juggling we the with to disappear of their at around in teams I And we it the that does lived actually XX Don't speak our McDonald's. for facilities have also It's the act. will thing. world would here just every ever markets. We've where at a look helps which years. same like market the always think it's to So odd

widely role-play in to know we customer any can in hours effectively world the the see plans and do are being each and the very We've complexity I fully marketing that test as can market the and facility markets built. whether And through used year probably a tell would kitchens a is as particular kitchen got validate has that every it will have peak is now. never exciting operation. almost that to through innovation run with our can cope programs actually go starts promotional and sophisticated which where given the and the a marketing you We what those of XX, as that to as XX there operationally rate arrival derail At here actually we been center you type happen.

continue the and U.S and about more And on is we'll day conversation just I it. will lot the to feel good stay that to So And out I customers get close consistent. of think focus notice day better the just to restaurants running in trying the in A the difference

Operator

we Lynch. hour, the have for time more with of top the one near Bank America question we Francfort from As Greg of Merrill

Greg Francfort

Hey, guys. Thanks for the question.

question. during a that maybe gap U.S. bigger to The first quarter. your one, I what then curious the competitors in And think I'm you give And guys usually picture was the

whether what curious a well. and thoughts implementing just it it's fitting hear that of be about competitors would and sort you sleeve product. much how that? what gone curious is think plant-based are into not your complexity too on McDonald's One McDonald's? we do products to overall or from plant-based how biggest I'm into I'm that pretty of offerings of your And products And fits

Kevin Ozan

let talk gap Steve plant-based then Yeah. protein. and I'll I the the cover will comp about

the good think our gap know, quarter. start our feel really the in to quarter. not talking to year made I decision We we've first about comp keep You a obviously about every

let our Others others competition's several talk to their days. do next the and we'll will overall the so reported already. But over the performance obviously industry. comps talk of to Some

will sharing So positive core. was tell you this quarter. certainly I won't that be it we

not we're any there or that this every it So we stopping positive number negative. or going issue to decided was just because it not clearly quarter was It but quarter ceasing because was forward. give

Steve Easterbrook

on paying attention question. it. clearly menu to close And plant-based the teams are Yeah our

sustaining us for key the to you is identify trends. consumer when the So

teams look opportunities and up it there protein have just is do mentioned at there certainly and some are out the is what paying are veganism, at if complexity stay weigh demand. close to close this is and that additional complexity? worth look you whether discussing our the that So it? with consumer attention whether other plant-based of there. So I if we an you the know we'll options you there amongst each And the

So maybe about more to to the moment. at come but it say nothing much

Mike Cieplak

day. and and Okay. a call everyone for Have joining Thank you today. thank our Kevin good Steve you

Operator

Conference This McDonald's Corporation Investor concludes the Call.

McDonald's (MCD) 30 Apr 192019 Q1 Earnings call transcript