Mike Cieplak: Our next question is from Brian Harbour with Morgan Stanley.
Brian Harbour: Good morning, thank you. Chris, you spent quite a bit of time talking about just some of the organizational changes and ways of working. How is that — how will that be visible? Or how should we assess the success of that for those of us that are kind of looking at it externally? And then I guess just more specifically, as we think about SG&A expense, it seems like some of the costs that have come off with the employment changes will be reallocated to other things. Could you comment on just where that will be going as we think about 2023?
Chris Kempczinski: Sure. Well, from an overall how do you assess whether the work changes that we announced as part of Accelerating the Organization have an impact, it doesn’t show up in the numbers. And it needs to show up in the top line, and it needs to flow through to the bottom line. So I wouldn’t get too nuanced in any particular metric other than top line growth, how that flows through to EPS and ultimately, what that’s also doing for the system economic health. But as I said in my comments, I do think that we have an opportunity to get faster, more innovative, more efficient. The only way that, that was going to happen is we needed to change some of our ways of working where there was just too much internal, what I just call it, obstacles that were impeding our ability to move with that sort of speed.
So as we get all of this in place, I think it should give you confidence that we’re going to be able to continue to drive the performance. And then what that ultimately means is there’s going to be — there needs to be an efficiency component to that, but it also allows for us to reinvest in the business. I don’t think for 2023, everything that we’ve said around our G&A guidance, that’s already embedded in. We’ll talk about it at Analyst Day at the end of the year what our outlook is longer-term for G&A. But ultimately, the metric that you should hold us to is the one you always hold us to, which is, are we growing the top line? Are we growing EPS, and what’s the health of our franchisee base?
Mike Cieplak: Our next question is from Chris Carril with RBC.
Christopher Carril: Hi, good morning. So in the context of maintaining your operating margin outlook of about 45% for the full-year because even with the strong start to the year, could you provide us with any additional detail on your latest thinking around the cost inflation outlook, maybe particularly food and packaging costs and then just the pacing of those inflationary pressures over the balance of the year as you see them today? Thanks.
Ian Borden: Yes, good morning, Chris. Let me take that one. Let me just start with the back half of your question then I’ll kind of work back to what you asked upfront. I mean, I think if you look at — I’ll kind of center in on a data point, which is kind of our quarter one company-operated margin percent, which actually, if you look at it on a percentage basis, we were slightly below where we were expecting to be for the quarter, even though we had obviously that really strong top line result. And so I think that’s the impact of us heading into higher levels of inflation than we were even anticipating in the first quarter. And so I think our outlook for inflation for the year, I’ll kind of break that into a couple of pieces.
I think if you look at the U.S., we certainly believe we’re on a downward trend, although inflation remains elevated. So if you look at commodity inflation on the food and paper front in 2022, we were in the mid-teens level in the U.S. This year, we think it will be mid- to high-single-digit. I think labor inflation will still remain elevated just on the back of a really continued strong labor market. And then I think if you move to Europe, from a food and paper commodity standpoint in 2022, we were in the mid-teen levels in Europe, and we expect to be in the mid-teens again in 2023. So I would say Europe, we still feel is kind of working through what I’ll call the eye of the storm, so to speak, from a headwind perspective. Certainly believe inflation is front half versus back half-loaded and certainly believe as we get into the back half of the year, we’ll start to see inflation moderate down but still really elevated in Europe.
So I think if you go back to operating margin for the first quarter, we finished at 46% on the back of that really strong top line. And I think as we’ve said pretty consistently in the past, we certainly continue to expect that if we can drive strong top line growth, we should get leverage on operating margin from a percentage perspective as we go forward. Certainly, don’t necessarily believe that will be necessarily linear. And I think there’s a lot of headwinds for us to continue to work through both from an inflationary standpoint, but just as Chris talked about earlier, just from that macro uncertainty that we know we need to navigate. So I think certainly, you can kind of see a path forward where operating margin could come up a little bit from where our guidance is today if we continue to see that strong top line result over the course of the rest of the year, but there are several ifs there.
And I think there’s just a lot of headwinds for us to navigate that we remain cautious on.
Mike Cieplak: Our next question is from David Tarantino with Baird.
David Tarantino: Hi, good morning. Ian, just a clarification on your margin guidance. I just want to make sure I’m clear. The 45% you call out for the EBIT margin guidance, is that a GAAP or a non-GAAP number? And the reason I ask is Q1 typically is your seasonal low quarter for operating margins. So I just want to make sure we all understand that. And then secondly, Chris, I guess your comments about some of the consumer behavior you’re seeing change with respect to items for order and otherwise, I wanted to understand that a little bit better. Are you starting to see that emerge as you exit the first quarter and enter the second quarter? Or was that something you saw in the quarter overall? And perhaps, could you just comment on how you’re feeling about the business as you enter the second quarter specifically? Thanks.
Ian Borden: So I’ll take the first bit on the clarification, David. That’s a non-GAAP, the 46% I talked about is a non-GAAP number.
Chris Kempczinski: And then to your question about consumer behavior, the transaction, I believe we talked about this on the last call. Mike can correct me if I’m wrong. But we were seeing pressure on units per transaction even last quarter. That continued into this quarter. So I wouldn’t say that, that is in any way a new development. That’s been something that we’ve seen, which does just give us the perspective that certainly the customer is being mindful about how they’re spending their dollar or their euro or whatever the relevant currency is. But as far as outlook for the business, we remain very confident about how we’re positioned. We remain confident, as I said in our press release, the demand, the consumer demand for our brand remains strong.
So there’s no change from our perspective in terms of how we’re feeling about rest of the year. Certainly, we have in quarter 1 the benefit of lapping Omicron, and the whole industry does. We also, as I mentioned in our last call, had more favorable weather in January. So we had some things going on in January that from an industry standpoint, made this an easier compare. But our outlook for the rest of the year, we expect to continue taking share. We’ve been taking share pretty consistently now for several years. Our outlook is that we’re going to continue to take share through the balance of 2023.
Mike Cieplak: Our next question is from Eric Gonzalez with KeyBanc.
Eric Gonzalez: Hi, thanks. Good morning. You called out delivery as one of the key drivers of comps during the quarter. And clearly, that’s one of the more expensive ways to access your brand, but it does seem like consumers thus far have been willing to pay for convenience. So I just — given the base case for a mild recession, I’m wondering what level of confidence that you might have that this channel could continue to be a driver of comp growth?
Chris Kempczinski: Thanks for the question. We are — we have seen, as you know, historically very strong performance from delivery. I think it is fair to say that the growth of delivery whether that’s a function of it just being at a large number now or if it might, in fact, be some of the consumer pressures, but the growth of delivery has certainly slowed. There is still growth, but it’s not nearly the growth that we saw previously. So I think as we look at it, delivery is going to remain an important part of the business, but it’s certainly not going to be the degree of growth driver that it has been historically, which goes back to why having a very balanced playbook, where you’re getting growth from multiple levers is so important.
Mike Cieplak: Our next question is from Jon Tower with Citi.
