McDonald's Corp ($MCD) Q1 2026 Earnings Call

Thank you for standing by. Hello and welcome to McDonald's first quarter 2026 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 one on their touchtone phone. I would now like to turn the conference over to Mr. Dexter Conlay, vice president of investor relations for McDonald's Corporation. Mr. Conlay, 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 Kamchinsky and Chief Financial Officer Ian Bordon. 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 your corresponding gap 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 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, Chris, and good morning, everyone. As Chris just mentioned, overall we delivered another solid quarter with global comparable sales growth of 3.8%. Our results reflect consistent execution across our system even as we continue to navigate a challenging environment. Starting with the US, comparable sales grew 3.9% for the quarter. And importantly, we delivered positive comparable sales and guest count gaps to our near-end competitors and maintained market share. As we discussed on our last earnings call, we exited 2025 with good momentum and the US system continued to build on that momentum in the first quarter. Value continued to contribute meaningfully to our growth throughout the quarter, including our extra value meals, which have performed well since the relaunch last September. Financial support to franchises under the EVM relaunch program is expected to be below our initial estimate of approximately 35 million as the program continued to see positive momentum. Together with the broader McVal platform and full margin promotions, EVMS continued to help drive incrementality. While the EVM financial support concluded at the end of March, EVMS remain a core part of our menu offering and continue to provide customers with a compelling and consistent discount versus alleart pricing on their core McDonald's favorites. On the menu front, the US executed limited time offers across both chicken and beef, which helped maintain share in the highly competitive chicken category and drive market share gains in beef for the quarter. Campaigns like Hot Honey help build further credibility with consumers and excitement within our chicken portfolio through the introduction of a new sauce. While the full margin Big Arch promotion introduced in March generated strong interest and performed in line with our expectations. As Chris noted, we've worked collaboratively with franchises to ensure we continue to provide customers with the most compelling value as we adapt our offerings to meet consumers where they are. With unanimous approval through the franchisee field votes, we launched the revamped McValue platform in midappril. The new under $3 menu features well-known alocart items available throughout the day. Similar to how we relaunched Extra Value Meals, we kickstarted the new program by spotlighting two items available in the under $3 menu with a nationally advertised $2.50 McDouble and a $1.50 sausage McMuffin. Likewise, the new $4 breakfast meal deal now complements the $5 Mc Chicken and $6 McDouble rest of day meal deals that remain on the McVal platform. Together, the under $3 EDAP menu and the meal deals provide clear, compelling price points across all day parts, similar to what we've been offering successfully in nearly all major international markets. As with any new program, we know it may take time to build awareness, but early indicators on McVal's performance since the changes were introduced a couple of weeks ago are in line with our expectations. Turning to the international operated markets, comparable sales grew 3.9% in the first quarter. In many of our top international markets, QSR industry traffic contracted. Yet, we gained share in nearly all of them. Our results were driven primarily by strong performance in the UK, Germany, and Australia. These three markets continue to demonstrate disciplined execution across value, menu, and marketing with each market gaining share again this quarter and delivering comparable sales growth in the mid to high singledigit percent range. Our value offerings are resonating as we continue to evolve them to meet local consumer needs. In the UK, for example, the team strengthened its meal deal strategy with the introduction of Meal Deal Plus in January, which provides customers more flexibility to choose from a range of core and side items for only £559. UK customers responded positively and the revised offer drove higher incrementality than the previous 5B meal deal. And in Germany, the MCSmart platform continues to perform well. While a marketing campaign strengthened our brand's value perceptions by embedding affordability into familiar reallife moments, speaking to the importance of both experience and priced to overall value. With respect to menu innovation, several large burger campaigns across the UK, Germany, and Australia delivered strong results in beef. In chicken, the chicken Big Mac in Germany generated incremental demand. And in beverages, Australia's test of our new range of offerings performed very well, and we're excited about Germany's recent beverage platform launch. From a marketing perspective, the Friends TV show theme promotion, which ran in both the UK and Australia, added to each market solid results and serves as another example where we're sharing ideas and scaling campaigns across markets. We also featured this campaign in Italy in the first quarter. Speaking of Italy, the market celebrated its 40th McDonald's anniversary in the first quarter. To mark the occasion, Italy brought back several iconic menu items, including the 1955 burger, the chicken bacon onion sandwich, and the Royal Deluxe Burger, all which have deep roots in our brand's history and continue to see strong customer demand. These full margin LTO's helped Italy extend its streak of consistent market share gains to more than two years. While the M segment continued to deliver solid growth in aggregate, an example where performance is not meeting our expectations would be France. France's performance highlights the importance of consistent discipline in our execution of value. As a first step, the system aligned on a new value platform that just launched last week, reflecting a shared commitment to improving performance even amid a contracting industry environment. Turning to our international developmental licensed markets, comparable sales grew 3.4% led by continued strength in Japan, reflecting great local execution and brand relevance. In China, we maintain share in the quarter. And while we expect the macroeconomic pressures to persist, we continue to execute against our strategy to capture the long-term growth potential of the market. We remain on track to open approximately 1,000 new restaurants in China this year. Turning to the P&L, our solid topline performance drove adjusted earnings per share of $2.83, which included a 13 c benefit from foreign currency translation on a constant currency basis. This represents a 1% increase versus the prior year. We generated more than 3.6 billion in restaurant margins during the quarter and our adjusted operating margin was 46% highlighting the resiliency of our business model. However, our US company operated margins in the quarter were not acceptable. We're actively addressing opportunities to improve performance and revisiting the optimal franchisee versus company ownership balance to maximize system value based on current exchange rates. We expect foreign currency to be a fullear tailwind to 2026 EPS totaling in the range of 20 to 30. As always, this is directional guidance only as rates will likely continue to change as we move throughout the remainder of the year. In regards to the remainder of the year, we are reaffirming our fullear 2026 financial targets as we outlined in February. With respect to food and paper inflation, our supply chain teams along with our worldclass supplier partnerships and hedging strategies position us well to navigate near-term cost pressures and increased volatility resulting from the war in the Middle East. Longer term, we believe there is an increased risk of higher cost inflation due to ongoing global supply chain disruptions. While we expect the external environment to remain challenging, we're focusing on what we can control, executing consistently across value, menu, and marketing, and leveraging the financial strength and scale of our global system. And with that, let me turn it back over to Chris.

Thank you. And as a reminder, if you are an investor and would like to ask a question, please press star followed by the number one on your telephone keypad. We ask that you limit yourself to one question and reue for any additional questions.

Our first question today is from Dennis Kiger of UBS. Thanks. Good morning, guys. Following another solid US sales performance in the quarter. Can you talk a bit more about how you're thinking about the US sales trajectory over the balance of 26 given some of those key sales drivers that you identified across value and marketing and menu innovation but also against the currently challenging macro backdrop in the US? Thank you.

Hey morning Dennis, I might just tag on to Chris and just, knowing I'm sure it'll be a focus for lots of the Q&A today, just talk a little bit about kind of Q2 and beyond. I think as you heard us say up front, we've had a solid start to the year. And I think what we're most pleased with is just the consistency of our performance across all of the three operating segments. The fact that we took share in the majority of our largest markets in the quarter, I think is proof that we've positioned the business well to do well in any kind of environment, even if that environment becomes a little more challenging than it has been. Just speaking a little bit to kind of Q2 and beyond, I think we expected April to be a difficult comp month driven by the really successful global Minecraft program that you've all heard us talk a lot about. And as we had planned, sales in both comp sales in both the M and the US segment were slightly negative in April. So I think as a result of that and as we had planned for in both the US and M segments, we expect in Q2 that we're going to see a meaningful deceleration from the 3.9% that we put up in both segments in Q1 from a comp perspective which reflects the soft performance in April. But we also expect for each segment comp sales to accelerate on a two-year stack basis. For IDL, comp sales growth in Q2 we expect to decelerate from the 3.4% in Q1 primarily reflecting a little bit what Chris was talking about earlier, just the volatility of conditions in the Middle East and some markets in Asia. But also to accelerate slightly on a two-year basis. I think just to be clear, obviously with the difficult April comp now behind us, we're confident in our underlying momentum driven by what Chris was just talking about, the strength of value and affordability which we think we've really got right. You've heard recently about some of the adjustments we put in place in April as part of McValue 2.0 and then the lineup of activities through the rest of Q2 and into the rest of the year like the recent beverage launches that we've talked about in Germany, Canada, and the US and then of course our FIFA partnership in June. So, we certainly feel like we've got the business set up well irregardless of the conditions and as Chris said, we're really focused just on making sure we continue to strongly execute.

Our next question is from Brian Harour of Morgan Stanley. Yeah, thanks. Good morning, guys. I guess just on the value point, it seems like you're kind of continuing to revisit it here. I guess could you just elaborate on sort of the need for another iteration, how often do you think you will change that? And then outside the US, I think you alluded to France, for example, where you also need to revisit that. What has made certain markets more or less successful on value given that many of them have had things in place recently?

Hey, I'm just going to hook on that one Brian just to add to what or emphasize maybe a couple things that Chris talked to. I mean I think in this environment agility is going to be continue to be key and I think that's what our business is demonstrating. I think as you've heard Chris and I both talk about repeatedly, we're not going to get beat on value. And I just would echo Chris's comment on credit to the US business that they have listened to consumers and really leaned into the areas of opportunity. And I think that's one of our key advantages is our strength and scale and our ability to lean in proactively to what consumers are expecting and needing from us. And I think we're really confident in the setup in the US now because as Chris talked about we've had that model in place in most of our international markets for some time and we know it works and France is an example where if you don't stay disciplined and keep being sharp on value and have a winning formula, that can get away from you and then you've got to come back and get after it again. So, we feel really confident, as I talked about earlier, that we're positioned well, no matter how the environment around us continues to evolve.

Our next question is from John Ivankco from JP Morgan. Hi, thank you very much. The question really is around system optimization and you did mention that in the context of US company store margins but I'll even pivot that forward and look at company store margins for the M business as well. So it seems like both of those markets might have opportunity to refranchise. I mean the stores would actually potentially create more from a P&L perspective as a franchisee than a company store. So just you kind of comment on that how big of an opportunity we may have to refranchise company operated stores and in that context especially if refranchising does occur should we be rethinking previously set development targets in the US and M as margins have been under relative pressure in both of those segments since the initial guidance was given in late 2023. Thank you.

Hey, morning John. Thanks for the question. I think as I kind of said in the upfront remarks, our US macop performance is not acceptable. I think we were very clear on that. I think we have opportunities. Although I would highlight just because you referenced it, we saw Makopco margin growth in our M segment in the quarter. And I would say that's a set of conditions where the M markets are generally facing more inflation. So I think it goes back to what we've talked about pretty consistently. When we are able to generate solid topline growth, we feel confident about our ability to grow margins over time. I think at the end of the day it's pretty straightforward and you've alluded to

Yeah. And I would just maybe underline a couple points that Ian made. One is on MacOPCO or frankly it's any restaurant in our system. We're always looking to put the restaurants in the hands of the best operator. And so I think certainly the performance in the US right now relative to franchises would indicate it's not being run as well as it could be and so it's either on us to fix that or we're going to find franchises who can run the restaurant better. And if you look at the margins that our franchises, the restaurant level margins that they're earning on their own restaurants, clearly there's a lot of upside versus what the copa performance was in the quarter. And you think about development. I would just say to build on Ian's point, we are relooking at the pipeline in light of what we think are going to be the new construction costs as a result of some of the supply chain challenges. And if that means that some of those restaurant locations that are in our pipeline no longer make sense, they'll drop out and we will adjust accordingly. But as Ian said, everything that we're doing around development is about getting good returns. And if we don't feel like we can get good returns, we're going to drop those out. We're not chasing an absolute growth number. But we do see significant opportunity for us on development still.

Next question is from David Tarantino from Baird.

Hi, good morning. My question is about franchisee profitability and I was hoping you could give us an update on what those trends look like in the US in light of the mopco margin performance. Sounds like maybe there's a unique issue there that's not affecting the franchises, but just wanted to confirm sort of what the profitability there looks like. And then secondly, I was hoping you could comment specifically on franchisee profitability in light of the spike in energy prices. I think maybe back in 2022 you had to provide some support there. So just wondering what the outlook for that dynamic is. Thanks.

Well, no surprise with the inflation that we're seeing in the market. There's certainly a lot of pressure that we're trying to navigate with franchises around their own profitability. US cash flow last year we've talked about that previously, but it was stable. But as we head into this year, there's certainly concern around franchisee profitability, not just in the US, but in M as well. And what we've talked about with franchises, our system, everybody needs to be successful in our system. And so we're keenly focused along with our franchises on how do we make sure that we can navigate some of these cost pressures and the other investments in the business and also make sure that we're able to grow franchisee cash flow. But beef inflation is just one example, particularly pronounced in Europe but also a factor in the US for a portfolio like ours that absolutely puts pressure on this. And so, I think if you were to talk to our US franchises right now, they're feeling under pressure from a cash flow standpoint. I think you'd find the same thing if you talk to our M franchises. And we're working as we always do with our franchises to make sure that all three legs of the stool are successful.

Next question is from Greg Frankford over at Google. Hi.

Hey. Thanks for the question. I just wanted to ask maybe what you guys were seeing in performance of higher income and lower income customers. I think we're getting maybe mixed reads from companies in other sectors and you were one of the first ones to call out maybe some pressure in 2024 and I want to see how that might be evolving. Thanks.

Next question is from Sarah Senator with Bank of America.

Thank you. I wanted to go back to FIFA the World Cup. I think you sponsored it before obviously so you have a good read on what it does. I think in my recollection it was an important driver of digital adoption but maybe not in aggregate as much a demand accelerant. So I guess two parts. One is that the right recollection and two, given that you have loyalty now, is this an opportunity to still see the kinds of increased frequency that you have previously? I think you've talked about doubling frequency when people join loyalty. So just your historical experience with FIFA and what you're expecting going forward. Thank you.

Next question is from Dave Palmer over at Evercore.

Hey guys, this is Elliot on for Dave. This is the second quarter in a row where you've called out UK business strength. The turnaround has been remarkable both in the speed it has been achieved and the fact it was done in what seems to be a very challenging backdrop in the region. Are there any lessons you can take from the wins you have been able to generate in the UK and apply those to the US and France? Thanks.

Yeah, morning Elliot. Look, I think it's a few things. I don't think it's necessarily anything new but it's just a reminder of discipline and focus. Obviously it starts with having the right leadership in the market. We've made a fair bit of change there and we feel really confident that we have strong leadership in the market now. Which I think has been instrumental to building confidence both internally with our franchises and externally with consumers. I think the UK has really done a nice job of adopting that formula of having a really strong value and affordability foundation, evolving that to meet the needs of consumers in the market as the context has continued to shift, and then doing a great job of brand activation combined with exciting menu news. The UK has done a number of campaigns, whether that's what we call our menu heist campaigns or favorites from around the world to other exciting activations, and they've done that in a way I would say consistently to get that holistic formula to come together very well and they're taking share which is the ultimate proof point of how the actions are resonating with the consumer. And I think it's just strong leadership and then it's consistency of execution and us having impatience to make sure that if that's not the case, we act quickly to get it in place.

Next question is from Jeff Bernstein over at Barclays.

Great. Thank you very much. Just wanted to follow up on that US ownership structure conversation. I know you mentioned not being happy with the company operated margin. Seemingly that's despite the solid top line that you delivered in the quarter, for example, which I think was what you noted was needed to drive that margin. And so I'm wondering if you can offer some color on the primary issue in terms of not being well-run enough or perhaps the value menu is not profitable enough. Anything you can share in terms of the pricing you're taking? Otherwise it does seem to imply...

Next question is from Andy Barish over at Jeff.

Yeah. Hey guys. I wonder if you could talk a little bit more to the beverage launch and maybe what caused you not to use Red Bull and Energy as part of the initial launch right now.

Next question is from John Tower at City.

Great. Thanks for taking the question. I want to go back to the comments regarding development and the idea of examining the cost to build given the supply chain challenges and obviously it sounds like on the horizon there's a new potential remodel cycle coming for the US business. So I'm just curious how we should think about that dynamic playing into a potential remodel cycle. Are you looking at things a little bit differently given the cost? Would you have to maybe commit more capital on the company side for franchises to buy into some larger remodels that might be coming?

Yeah, I think Chris has covered all the bases. I think the key is anytime we get into these more significant reinvestment cycles, we're very thoughtful to look holistically at how we can get the most out of the investment. And that obviously, to your point John, in this case is just making sure in this environment we're really confident that there are enough and the right levers to drive growth so that the franchisee obviously firstly gets a strong return on their investment and if we are going to support elements of that investment as Chris alluded to, sales driving elements, that we're also getting a strong return on any support that we may put behind that. So I think that's pretty normal course. But it's certainly a good time for us to be looking at that, particularly in the US where we've got a big investment cycle ahead.

Next question is from Lauren Silverman at Deutsche Bank.

Thank you very much. I wanted to just follow up on the comp expectation with 2Q. I understand the April lap, but I guess do you expect the balance of the quarter to rebound back to where you were running? And then just more broadly, do you think you're seeing any discernable impact from the rising gas prices on the underlying business? I know you mentioned low income will remain pressured, but have you seen a step down since gas prices have accelerated globally?

Well, hi Lauren. Let me start and I'm sure Chris may want to weigh in here. I think as I said earlier, April was isolated and discreet because of the lapping of Minecraft. We just wanted to be very clear to call that out because it is quite a unique month. And I, as I said earlier, I think we feel very confident about the lineup of activity and the underlying momentum of the business with all of the things we're doing, including obviously the moves we've made on value and affordability. I mean, the environment around us as Chris talked about earlier continues to be challenging but it's not new and obviously our focus is on what we can control and as I said earlier, we think we've positioned the business well to win regardless of the environment. Obviously, higher gas prices, as he talked about earlier, are not going to be helpful, particularly for lower income consumers who are already under pressure. But we think we're offering the right choice and affordability on the menu that's going to appeal to consumers across all income cohorts and obviously that's always our goal.

Next question is from Andrew Charles over at TD Cowan.

Great. Thank you. Ian, you talked about the commitment to get to 50,000 restaurants by 2027, but I'm curious given the state of cash flows in the US and M that you've talked about. Is it right to think that ILM is going to really be driving a lot more and pulling a lot more of its weight than you originally expected at the investor day a few years ago?

Yeah, morning Andrew. Well, I don't think we're expecting a shift in the mix. I mean, as you know, IDL already makes up the majority of our openings just because of the size of the opportunity in a lot of those developing markets like China or elements of Asia and Latin America etc. And I think our partners continue to be optimistic about the opportunity for growth and in those markets a lot of them already have conditions where you've got to be very sharp to get good returns. So I don't think there'll be a significant shift. I think for all of us though, a bit to what Chris and I talked to earlier, we just have to stay sharp on making sure we feel confident in our ability to deliver returns and that's ultimately what will be any shorter term adjustment. I think the long-term opportunities in all of our markets we still remain very optimistic about and we're going to stay focused on that.

Our next question is from Denila Kulo at Bernstein.

Good. Thank you. I was wondering if you can share your thoughts on what you're seeing on the chicken category both nationally and internationally and perhaps what has been the evolution of your market share and the competitiveness of the category and more specifically whether the beef prices being more elevated is driving consumers to be eating more chicken mix for you and in general for the rest of the industry and any thoughts that you have on the evolution of this would be great. Thank you.

Our next question is from Chris Carrill over at Key Bank.

Hi, thanks for taking the question here. So I wanted to ask about your advertising focus and marketing message for the balance of the year. Maybe with a specific focus on the US. Can you expand a bit more on how you're thinking about balancing the messaging around McValue in light of the current backdrop alongside messaging on new and perhaps more premium menu innovations such as beverages?

That's it for today folks. If you need any follow-ups, please send me an email or send it to the McDonald's IR inbox and we'll talk to you later. Thank you.

This concludes McDonald's Corporation investor call.