McDonald's Corporation

Hello and welcome to McDonald's second quarter 2024 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 touchtone phone. I would now like to turn the conference over to Mr. Mike Seplak, 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 today are Chairman and Chief Executive Officer Chris Kamchinski, Chief Financial Officer Ian Borden, and President of McDonald's USA, Joe Erlinger. As a reminder, the forward-looking statements in our earnings release and AK 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. along with their corresponding gap measures. Following prepared remarks this morning, we will take your questions. Please limit yourself to one question and then reenter the queue for any additional questions. 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, everyone. Beginning last year, we warned of a more discriminating consumer, particularly among lower-income households. And as this year progressed, those pressures have deepened and broadened. The QSR sector has meaningfully slowed in the majority of our markets, and industry traffic has declined in major markets like the U.S., Australia, Canada, and Germany. In several markets, we also continue to be negatively impacted by the war in the Middle East. These external pressures certainly weighed on our performance for the quarter, with declines in comparable sales globally and across each of our segments. but there were also factors within our control that contributed to our underperformance, most notably our value execution. For 70 years, McDonald's has defined value in our industry, and we are taking meaningful actions across the world to assert our leadership. The hallmark of a great company is its ability to perform in good times and in bad, and we are resolved to reignite share growth in all our major markets, regardless of the prevailing market conditions. This won't happen overnight, but it will happen. The unique competitive advantages of McDonald's afford us many levers to pull, and we have the financial wherewithal to sustain our investments as needed. One area of strength is our restaurant teams, who continue to execute with excellence to serve our customers and local communities. Creating a better customer experience has delivered operational improvements, improved service times, and increased customer satisfaction across most of our major markets. And it's this relentless focus on execution that will give customers more reasons to visit our restaurants more frequently. Leading into the power of our core menu also leads to outstanding execution in our kitchens. Our deployment of Best Burger is a great example of this. Now deployed in over 80% of markets, the training and focus on the basics ensures we deliver the gold standard product our customers expect, which is driving elevated taste and quality perceptions. We remain on track to have Best Burger deployed in nearly all markets by the end of 2026. And as we announced late last year, we continue to innovate across our core menu to address unmet customer needs with a more satiating burger that will provide great value for money. This new burger, which we're piloting across three international markets this year, includes two beef patties perfectly layered with melting cheese, crispy toppings, and a tangy McDonald's sauce. It's a quintessential McDonald's burger with a twist on our iconic familiar flavors. Named the Big Arch, we plan to attest and learn through the end of the year to gather learnings before scaling more broadly internationally. We continue to have a significant opportunity for growth in chicken, a category that's twice the size of beef globally and growing at a faster rate. By featuring our beloved icons like McNuggets and McChicken, while driving growth in emerging favorites like McCrispy and McSpicy, Our chicken sales are now on par with beef sales. The McCrispy chicken sandwich is now offered in more than 55 of our markets around the globe. And through our plans to further expand our McCrispy equity, we will continue to capture chicken market share. As we continue to build on our $17 billion brands across our core menu, our digital penetration also continues to grow. Loyalty Membership has now reached 166 million members, pacing ahead of expectations as we work towards our ambition of 250 million members, and identified users now represent 25% of system-wide sales. We know that engaged loyalty customers spend more and visit more often, and as a result, we're driving digital market share gains and continuing to build on our understanding of customer preference, personalization, and behaviors. But as I said in my opening, we recognize that in several large markets, including the U.S., we have an opportunity to improve our value execution. Consumers still recognize us as the value leader versus our key competitors, but it's clear that our value leadership gap has recently shrunk. We are working to fix that with pace. Over the last several years, our system has sustained significant inflationary cost increases ranging from 20% to 40% depending on the market. As we absorb these cost increases in partnership with our franchisees, we look for ways to protect restaurant profitability via productivity efforts and selective price increases. These price increases disrupted long-running value programs and led consumers to reconsider their buying habits. In some markets like Germany, Spain, and Poland, the flexibility of their value programs like McSpart have allowed them to quickly make adjustments that were embraced by consumers and drove market share gains. In other markets like the U.S. with their $1.123 value program, a more comprehensive rethink has been required. Our U.S. President, Joe Erlinger, is on the call and will share more about our plans in just a minute. The point is, we know how to do this. We wrote the playbook on value, and we are working with our franchisees to make the necessary adjustments. McDonald's competitive strengths are formidable and growing. Our brand is as strong as ever. Yet again, Kantar recognized McDonald's as the world's fifth most valuable brand and the number one most valuable non-tech brand. We're executing with excellence, and our restaurant operations are an area of strength. Our digital footprint within the industry is unmatched and growing as we build one of the world's largest loyalty programs. And we're flexing our investment muscle to accelerate new restaurant openings as we also build consumer, restaurant, and company technology platforms that will drive cost efficiencies and accelerate innovation. We do not take these advantages for granted, however, and we are committed to delivering for our customers and shareholders every day. Where our customers tell us we have value opportunities, we will address them. Listening to customers and staying agile led to the development of our Accelerating the Arches strategy, and I'm confident that it remains the right playbook for our business. Continued focus on gold standard execution and our growth pillars are the right actions to grow market share and return to restaurant traffic growth. To share more on the U.S. segment, I'll now hand it over to Joe.