McDonald’s Corporation (NYSE:MCD) Q4 2023 Earnings Call Transcript

McDonald’s Corporation (NYSE:MCD) Q4 2023 Earnings Call Transcript February 5, 2024

McDonald’s Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, and welcome to McDonald’s Fourth Quarter 2023 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. [Operator Instructions] I would now like to turn the conference over to Mr. Mike Cieplak, Investor Relations Officer for McDonald’s Corporation. Mr. Cieplak, you may begin.

Mike Cieplak: Good morning, everyone, and thank you for joining us. With me on the call today are President and Chief Executive Officer, Chris Kempczinski; and Chief Financial Officer, Ian Borden. As a reminder, 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 along with their corresponding GAAP measures. Following prepared remarks this morning, we will take your questions. Please limit yourself to one question and then re-enter the queue for any additional question. Today’s conference all is being webcast and is also being recorded for replay via our website. And now, I turn it over to Chris.

Chris Kempczinski: Thank you, and good morning, everyone. When we gathered at this time last year we shared the despite a challenging operating environment McDonald’s continued to deliver historically high levels of growth. While macroeconomic pressures persisted throughout 2023, the resilience and power of our system was on full display, and we are heading into the new year in a position of strength. In 2023, we achieved global comp sales growth of 9%. Delivered comp guest count performance of nearly 3% globally with positive traffic across each of our segments, and maintained our leading market share across most of our major markets. These results are a credit to the tireless dedication of the entire McDonald’s system. The over 2 million talented people working in our restaurants, the industry’s best franchisees and our world-class network of suppliers around the world, all executing with excellence and with an unwavering commitment to serving our customers and local communities.

And in our restaurant focusing on the fundamentals of creating an exceptional customer experience has delivered operational improvements, improved service times and increased customer satisfaction across almost all of our major markets. Our Accelerating the Arches strategy is working, fueling over 30% comparable sales growth since 2019 and our MCD growth pillars enable us to remain agile in response to changing customer needs. For example, we’ve expanded loyalty to 50 markets around the world and reached over 20 billion in annual loyalty system-wide sales in 2023. Our user base continues to grow with over 150 million users that have been active in the last 90 days, making us one of the largest loyalty programs in the world. Over the last three years, we’ve also delivered tremendous growth in chicken by developing the McCrispy, a globally consistent high quality chicken sandwich.

With the goal of solving this unmet customer need across the system, it was developed and tested in a few markets first and has quickly scaled to $1 billion brand across more than 30 markets worldwide. Our chicken category now represents $25 billion in annual system-wide sales, on par with beef. And about a year ago, we formed a new business ventures team designed to operate as an entrepreneurial startup within McDonald’s. The team quickly identified an opportunity in a $100 billion category across our top six markets that comprised of beverage-led occasions where our core McDonald’s business underindexes. In a little less than a year, the team opened a pilot CosMc’s restaurant, and the buzz has been electric. Now let me say this again, we’re only talking about a 10-store test.

See also 25 Best Colleges with High Acceptance Rates and 10 Best Cheap Car Insurance in New York for 2024.

Q&A Session

But more than that, we’re excited about what this says about our potential to test, learn, and innovate quickly. Each of these examples illustrate our ability to identify opportunities and adopt new ways to surprise and delight our customers. It gives us an incredible amount of resilience as a system, no matter where the customer goes next or what the macroeconomic landscape may bring. In the last year, we also implemented Accelerating the Organization, an effort to modernize the way we work so that we’re faster, more innovative, and more efficient. And over the past year, as I’ve had the opportunity to visit markets around the world, I’ve witnessed how the principles of ATO have empowered our teams to take the right risks, lead in innovation, and reduce complexity in decision making.

Some of the senior leadership team and I recently visited Salt Lake City, and I witnessed firsthand how knowledge sharing across the system is unlocking speed and driving customer lifetime value. The business unit is part of our Denver field office, which, as a whole, has embraced the power of digital, maximizing our platform to drive frequency and engagement with customers. This means, that the restaurants can take full advantage of Ready on Arrival. In addition to a national average 60-second reduction in wait times for customers that pick up curbside in our restaurant, or higher customer satisfaction in these transactions. Ready on Arrival benefits the crew by giving the right information to the right person in the restaurant to deliver food faster and hotter.

As a result, we’ve reduced complexity and stress in restaurants, and Salt Lake franchisees are driving higher levels of guest count growth and franchisee cash flow. By removing layers between our people and the restaurants and implementing a One McDonald’s way approach, collaborating across the organization is much more intuitive and teams bring the full breadth of McDonald’s resources, skills and experiences to the forefront when making decisions. And as critical as this power of global scale is to our competitive advantage, at our core, we are a global business that is run by local small business owners that employ thousands within their communities. Since the beginning of our brand’s history, McDonald’s and our franchisees have been steadfast in the support of our communities in the most challenging times.

And whether it was the recent earthquake in Japan, the tragedies that struck Morocco and Hawaii last year, or the war in the Middle East, our focus is on creating a positive impact in the communities we serve. Across the more than 75 markets in our IDL segment, McDonald’s is a major employer of local citizens, creating valuable career opportunities for more than 780,000 local employees in both restaurant and office jobs and at more than 1,000 locally owned suppliers. We’re proud to grow that footprint. In 2023, the IDL segment opened an average of four new restaurants every single day, creating new jobs for nearly 50,000 people this year alone. And by removing barriers for children who need healthcare, Ronald McDonald’s House Charities helped to provide essential services for over 870,000 families across this segment.

For the over 130,000 workers in our Europe, Middle East, and Africa business, our number one priority is keeping our people safe. We recognize that families and their communities in the region continue to be tragically impacted by the war and our thoughts are with them at this time. McDonald’s has always been a beacon in our communities around the world, led by local franchisees who work tirelessly to serve and support. The ongoing impact of the war on these franchisees’ local businesses is disheartening and ill-founded. As our values state, McDonald’s will always proudly open our doors to everyone. Thinking back on 2023, I can’t help, but feel tremendous pride in the entire McDonald’s system. And as we think about our ambitions and the potential that lies ahead, there’s never been a better time to be part of brand McDonald’s.

As I will continue to say, we believe there’s still significant runway in our Accelerating the Arches strategy and we’re setting our sights even higher. I’ll speak more on the year ahead in a few minutes, but first I’ll turn it over to Ian to talk through our Q4 results.

Ian Borden: Thanks, and good morning, everyone. As Chris mentioned just a few minutes ago, core to Accelerating the Arches strategy is putting the customer at the center of every decision we make, acting with agility in any environment to deliver delicious, feel-good moments at an affordable price each and every day. Our quarter four comp sales performance of over 4% in both the U.S. and IOM segments and over 3% globally remains a direct result of exceptional execution against this strategy, making it clear once again that our business is resilient despite ongoing macro pressures and challenges. As a system, we’ve navigated countless challenging environments since we first opened our doors in 1955. This past quarter was no exception, and our thoughts remain with the families and communities impacted by the war in the Middle East.

As Chris and I have both mentioned before, the war has meaningfully impacted our IDL segment performance, resulting in fourth quarter comp sales of less than 1%. Despite this, our business model provides stability in our P&L from the negative sales impact in the region. Among the many strategic advantages of McDonald’s are our size, scale, and geographic diversity, translating to incredible resilience as a system. We will continue to stay focused on supporting our people and the local communities in which we operate as we work closely with our [DL] (ph) partners in the region. We are extremely proud of the way our system continues to conistantly show up for customers in every corner of the world, highlighting time and time again the strength of the McDonald’s brand when our system comes together.

Providing our customers with affordable options has always been core to our brand, and it’s even more important as consumers feel pressure on their spending, particularly the lower-income consumer. We continue to listen to our customers by evolving our value offerings, maintaining strong perceptions in value for money and affordability. Canada, for example, maintained their McMuffin and hot coffee pairing this quarter, providing an affordable bundle during a critical day part and helping to drive market share gains in breakfast. The UK followed a similar playbook by expanding their Saver Meal deals to offer smaller bundles during the morning day part for just a few pounds. Only available through our mobile app, this further cemented McDonald’s UK as a destination for great food at great value, while contributing to increased loyalty sales.

The UK also combined the strength of the McDonald’s brand with its proven history of connecting with customers through successful holiday marketing to create Festive Wins, an elevated in-app experience that leaned into the holiday spirit with a fun and interactive calendar promotion. Through our combination of daily deals, compelling prizes, and exclusive merchandise, Festive Wins boosted digital engagement to an all-time high for the market and generated 4 million active monthly customers. And in Australia, the market brought back its 30-days, 30-deals promotion, where customers enjoyed a daily deal available exclusive in the MyMacca’s app. From discounts on our most iconic menu items like the Big Mac cheeseburger or our world famous French Fries to unique meal deals, the promotion drove remarkable engagement and contributed to a record number of active loyalty members in the market.

Beyond maintaining an affordable price point we’re constantly elevating the McDonald’s experience enhancing the overall value of proposition of the brand. This was evident as many markets offered monopoly this quarter, leveraging learnings from across the globe to create highly interactive campaigns and once again igniting our fan’s love for McDonald’s. The Canadian market tapped into global best practices by offering MONOPOLY with a double peel option for the first time this year. By giving customers a second chance to win in the app. The market continued to amplify the digital experience, while maintaining those core qualities of the game that our customers love. The customer excitement was on full display and the market achieved record-setting results generating nearly 700,000 new app customers in just five weeks and driving significant lifts in mobile app sales.