McDonald's Corporation

Hello and welcome to McDonald's first quarter 2020 investor conference call. At the request of McDonald's Corporation, this conference is being recorded. Following today's presentation, there will be a question and answer session for investors. At that time, investors only may ask a question by pressing star 1 on their touchstone phone. I would now like to turn the conference over to Mr. Mike Cplak, Investor Relations Officer for McDonald's Corporation. Mr. Seplak, you may begin.

Good morning, everyone, and thank you for joining us. With me on the call this morning are President and Chief Executive Officer Chris Kamchinsky and Chief Financial Officer Kevin Ozan. I want to remind everyone that the forward-looking statements in our earnings release and 8-K filing also apply to our comments on the call today. Both of those documents are available on our website, as are reconciliations of any non-GAAP financial measures mentioned on today's call. with their corresponding gap measures. Following prepared remarks this morning, we will open a queue for your questions. I ask that you please limit yourself to one question, and if you have more than one, please ask your most pressing first and then reenter the queue. Today's conference call is being webcast and is also being recorded for replay via our website. And now, I'll turn it over to Chris.

Thanks, Mike, and good morning. I would imagine we'll be spending a good portion of today's call discussing how COVID-19 has impacted our business. But I want to start by acknowledging the human toll of this pandemic. Let me express our deepest sympathies to those inside and outside of McDonald's who have been affected by this virus. In particular, I want to extend heartfelt thanks and gratitude to healthcare professionals, first responders, and other essential workers around the world who have put their own lives at risk to help others. The global crisis has impacted people and communities everywhere. In the face of such enormous challenges, I'm immensely proud of the entire McDonald's system and the tireless efforts of our franchisees, crew members, suppliers, and company employees. Where we've been able to stay open, safely, and responsible, they've made it possible for McDonald's to continue offering great tasting, affordable, and convenient food amidst widespread change and disruption. Turning now to our performance for the quarter. Our velocity growth plan drove strong results in 2019. That momentum carried into January and February. Since then, the outbreak of coronavirus around the world has created a major business disruption that adversely impacted our performance. Beginning in mid-March, we experienced a significant decline in our business due to the pandemic, dragging down our Q1 global comparable sales by 3.4%. We're now operating in a completely different world, and we expect these changes to persist long after the crisis is over. In times like these, we take strength from the resilience and experiences we've developed over our 65-year history. When we're not immune to the immediate pressures threatening our global community, we came into the situation better positioned than most, and we believe that we will strengthen our competitive advantages following the crisis. Entering the crisis, our system was in great shape. In addition to McDonald's strong balance sheet, franchisee cash flows in most of our major markets were at or near record highs in 2019. Our global restaurant estate had been largely modernized, and we'd made significant investments to build new capabilities in delivery and digital that have proven to be critical to our business during the pandemic. We now navigate through the crisis, McDonald's unmatched global footprint, scale, and deep operational expertise are also proving to be significant strengths for us. Specifically, with a presence in over 100 markets, we've been able to develop insights and best practices as countries move through different phases of the outbreak. In China, where the outbreak began, we quickly learned how to adjust our operations to enhance crew and customer safety. We developed new positioning guides and piloted contactless delivery. These solutions, along with many others, were then shared around the globe, As each country develops their own innovations, these are quickly shared by our global restaurant solutions group across all markets. Our system's ability to quickly adapt operations across 40,000 restaurants has been incredible to see. The size and scale of our supply chain has also proven to be a significant advantage during this crisis. To date, despite the disruption of our business, we have had no break in supply for any food, packaging materials, toys, equipment, logistics, or other solutions globally. I want to give particular recognition to our supply chain team for sourcing vital PPE materials such as masks. To give you just some sense of the scale with which we operate, Our global supply chain team has sourced over 120 million masks to meet the needs of the McDonald's system. And of course, McDonald's strong drive-thru development has continued to allow us to safely serve millions of customers each day while adhering to social distancing mandates or guidelines. In the U.S., nearly 95% of our locations have drive-thru, and virtually all are open to serve health care professionals, first responders, other essential workers, and customers looking for their McDonald's moment. Similarly, Australia and Canada have been able to safely remain open. Finally, I should note that our global delivery sales are up significantly versus pre-COVID. Our restaurant footprint and customers' love for our brand make us an essential partner for any third-party operator. Once we emerge from this crisis, our expectation is that McDonald's can further extend its leadership in every market where we operate. To do this, it's essential that our franchisees have the financial wherewithal to capitalize on the opportunities we think will be available to our system. For that reason, we've taken several steps to help our franchisees and developmental licensees maintain their liquidity and financial strength. While there will continue to be difficult decisions along the way, we are providing timely, targeted, and temporary financial support, which Kevin will walk through in a few minutes. From a customer perspective, We're encouraged by some of our early learnings that lead us to believe customers will be seeking known brands and familiar routines. We're also seeing a heightened focus on value and convenience. In China, this was reflected in the response to our recent Big Mac promotion. Show that after a prolonged disruption of their daily lives, customers are craving comfort in our iconic core menu items. We've also seen this where we've been able to safely remain open in cities like Tokyo, Berlin and Chicago, and in northern France, where we slowly began reopening restaurants last week. As I mentioned earlier, our reopening efforts in our European markets will be phased and grounded in what's best for the safety of our customers and crew. Similar to what we did in the U.S. and Canada, we'll be serving a limited menu in many markets focused primarily on our core items when we reopen in countries around the world. Through this, we will focus on what McDonald's has done so well for decades, serving great tasting food fast. This is a challenging and unpredictable time. Looking at comparable sales, we expect the second quarter as a whole to be significantly worse than what we experienced for the full month of March. Kevin will talk about what we've seen in the month of April. As things stand, we believe we reached the trough in terms of number of restaurants closed in late March. We are planning for limited reopenings in markets in the near future. The exact trajectory of our recovery, however, is highly uncertain and dependent on many factors outside our control, such as government mandates, the risk of a second wave of infections, the availability of testing, and the overall economic backdrop. We're developing contingency plans for a wide variety of scenarios. From our experience in China, as well as from our experience closing and opening 10,000 restaurants as part of our EOTF remodel program in the U.S., we do know that customers will not immediately revert back to their pre-shutdown routines. For example, we know that breakfast will be the most challenged day part. We know that a focus on core menu will be critical due to both customer interest in familiar favorites and operational ease. We know that value will be a necessary element to re-engage our customers. Each market is rebuilding their marketing calendar to reflect these learnings and many others so we can reignite our business momentum. But our first priority has been and will continue to be safeguarding the health and safety of our people and customers. The trust the McDonald's brand has developed over the last 65 years is our most precious asset, and we will never put that at risk. We remain closely aligned with the expert judgment of scientific and government leaders in our various markets, and we support the focus on widespread testing as a central element to broader recovery efforts. Whatever the cadence of reopening markets, we know we can adapt. McDonald's is a remarkable system, and I'm confident that the strengths we've exhibited both before and during the crisis will be even more apparent as we emerge into a new post-coronavirus world. I'll now turn it over to Kevin to talk about our first quarter results.