McDonald's Corporation Q2 FY2025 earnings call

• Global system-wide sales grew over 6% in constant currency and global comparable sales grew nearly 4%, with positive comparable guest counts despite industry challenges.
• Internationally, IOM comps increased 4% with all markets positive; IDL comps grew over 5.5% led by Japan. All big 5 IOM markets have meal bundles and EDAP menus, improving value and affordability scores.
• In the U.S., comp sales up 2.5%, outperformed near competitors, but low-income consumer visits were down. $5 Meal Deal and McValue platform resonating, Snack Wraps launched at $2.99 with positive response.
• Beverage category initiatives: upcoming test in 500 U.S. restaurants with expanded beverage lineup, leveraging CosMc's learnings.
• Technology initiatives: reimagining restaurant, consumer, and company platforms; edge computing in U.S. restaurants, ready on arrival deploying, finance and HR systems rolled out.

In the second quarter, McDonald's had global system-wide sales growth of over 6% in constant currency and global comparable sales growth of nearly 4%. The Internationally Operated Market segment saw comp sales increase by 4%, with all markets driving positive comp sales growth. The International Developmental Licensed Markets delivered comp sales growth of more than 5.5%, led by Japan and with positive comps across all geographies. In the U.S., comp sales were up 2.5%, but overall QSR traffic in the U.S. remained challenging with low-income consumer visits declining by double digits versus the prior year period. The U.S. segment outperformed near competitors on both comp sales and comp guest counts.

• Target full year adjusted operating margin in mid- to high 40% range, but adjusted company-operated margin target around 14.8% (same as 2024).
• Project full year interest expense to increase ~4% compared to 2024. Target full year effective tax rate 20%-22%.
• On track to open ~2,200 restaurants globally this year, with ~1,600 in IDL markets including ~1,000 in China.
• Foreign currency translation expected to be a ~$0.15 tailwind to adjusted earnings per share.

• Continued headwinds from challenging consumer spending, especially among low-income consumers in the U.S.
• High inflation in international markets, particularly Europe, affecting input costs like beef prices, requiring prudent pricing actions.
• Competition in the QSR industry, especially in the U.S. where there are more diverse competitors impacting value perceptions.

Q: Factors impacting store development pipeline?

A: Ian Borden stated they're confident in 2,200 store openings, monitoring first-year performance and longer-term returns. Accelerating development pace with focus on returns, and strong pipeline with good starting points for new restaurants.

Q: Specialty beverage test monitoring and expansion?

A: Chris Kempczinski said monitoring consumer reaction and uptake. Test in 500 restaurants to determine scale and potential expansion, focusing on consumer response and operational soundness.

Q: Breakfast daypart trends and strengthening?

A: Chris Kempczinski noted breakfast is the weakest daypart due to economic stress, but efforts include national breakfast advertising and exploring more value programs to restimulate growth.

Q: Franchisee sentiment and unit growth?

A: Chris Kempczinski said franchisee relationships are critical, with unease due to consumer concerns and cost inflation. Discussions focus on winning on value and affordability to drive cash flow growth, and unit development in areas with low penetration where franchisees are still confident.