Q1 2021 Mcdonald's Corp Earnings Call
Banded together and continued to feed and foster communities amidst unprecedented change and disruption.
My Pride has only grown since then.
Through the pandemic, we've seen the power of the Mcdonald's system and our franchise model at work.
We were one of the world's most global Corporation, but also one of the most local serving tens of millions of customers each day across almost 40000 local restaurants.
That's our secret sauce, and its hard to imagine how we would have adapted to the constantly changing circumstances over the past year.
If we were not a locally owned locally managed system rooted in the communities where we operate.
That ability to adapt enabled us to build a system playbook that tapped into our operating prowess and synthesize learnings from individual markets.
Put our customers and people first and found ways to ensure their safety and security amidst the global health crisis.
We leaned into our historical strengths like our core menu and drive thru to continue serving our communities, creating feel good moments that were more welcome and needed than ever.
At the same time, we kept innovating in areas like digital and delivery to offer customers new ways to safely connect with our brand and deepen our ability to meet their personalized needs.
And we used our marketing muscle to keep the golden arches shining brightly reminding people of their enduring trust in our brand and our purpose to feed and foster communities.
Importantly, we did it all with a commitment to transparency.
Every step of the way, we gave our stakeholders a clear sense of what we were doing and why we were doing it.
And that communication was made easier by our refresh values that captured the essence of the Mcdonald system and how we operate.
No matter, where you are in the world are Mcdonald's values serve as the glue that unites us and guides our every decision.
We put our people and customers first.
We open our doors to everyone. We do the right thing.
We're good neighbors, and we get better together.
Five simple statements that capture the essence of the company Ray Kroc founded over 65 years ago.
Our renewed focus on these values has kicked off a virtuous cycle energizing, our workforce and attracting new leaders, who embody these qualities and are inspired by our purpose.
That includes Desiree Ralls Morrison, who joined the team earlier this week as our new General counsel.
Turning to our business performance.
Despite resurgence Susan continued operating restrictions in many parts of the world I am pleased to share that in the first quarter global comp sales and revenues have already surpassed Q1 2019 levels.
Not surprisingly, we expect Mcdonald's to deliver strong global comp sales and revenue growth against 2019 levels for the full year, reflecting the strength of our business and the pent up customer demand, we're seeing as markets reopen.
Specifically in Q1 global comp sales for the quarter were up seven 5% with each of our segments achieved positive comp sales.
And we will hear in a moment from our U S segment, President Joe earlier that improvement was largely driven by the U S with comp sales up 13, 6% for the quarter.
In Europe, we continue to face a tough operating environment, which is impacting recovery of costs. Some of our top markets in the IOM segment, Kevin will talk about our international performance in a minute.
We remain laser focused on achieving a sustainable growth plan laid out and accelerating the arches.
<unk>, our three growth pillars M. CND continue to serve as both a guide and an engine for our path forward.
We are maximizing our marketing to stay relevant and find those connection points with customers that will pay off in a big way.
We're also committing to our core menu, making the chicken burgers in coffee, our customers love even more delicious.
In a moment, Joe will talk about the successful launch of the new crispy chicken sandwich.
Finally, we are doubling down on digital delivery and drive thru.
We're creating a faster easier better customer experience.
However, our customers want to interact with us whether at the counter through drive through window or on the App.
Dining in a restaurant or having that meal delivered to them, we will offer experiences they love and that we believe will keep them coming back for.
Over the past four years, we went from just over 3000 restaurants offering delivery to now more than 30000 restaurants were 75% of our global footprint.
We're excited about our success with multiple <unk> partners and we continue to innovate.
That includes testing self delivery models in select markets and identifying ways to improve restaurant operations for delivery, so that customer experience will get better and better.
Drive thru made Mcdonald's what it is today the drive throughs and 25000 of our restaurants worldwide are a huge part of who we are.
And why we have been able to continue safely serving millions of customers. Each day this past year.
And since the pandemic began.
We've leaned into this competitive advantage by continuing to improve drive thru service times by putting more emphasis on operations and reducing menu complexity.
We also see digital as an important channel to improve speed and convenience provide customers with more personalization and offer even better value.
We have 40 million active app users and just our top six markets and millions more around the world.
Our goal is to make sure that no matter how customers interact with us they have a seamless and consistently enjoyable experience.
One key lever and reaching our digital ambition is loyalty.
In addition of France, and a few other markets, which already have loyalty. We are currently piloting our new loyalty program My Mcdonald's rewards in the U S and Germany with plans to deploy later this year.
What inspires me the most about our digital transformation is that we constantly have the opportunity and ability to become even more relevant in our customers' everyday routines.
The power of our growth pillars comes to life not in isolation, but in combination.
The success of our famous orders program is a great example of how the three pillars are <unk> are deeply interconnected reinforcing and bolstering one another.
And last week's announcement that we're partnering with Super group Bts from South Korea.
<unk> band in nearly 50 countries their favorite Mcdonald's order trends are powerful light on a simple truth.
In every country, where we operate from every walk of life and in almost every stage of life you have your go to Mcdonald's order.
This is much more than your traditional promotional partnership for one it will harness the scale of Mcdonald's and the relevance of authentic fans like Bts.
I think it's fair to say that few other brands have the cultural relevance and global appeal to pull up this kind of partnership.
It's the power of brand Mcdonald's.
Famous orders takes that universal insight of everyones unique go to Mcdonald's order celebrates our fans love of the core menu and brings it to life through digital Activations.
The Bts Army will soon experienced the M. A C and D of our plan in a way that authentically taps into their love of these two global icons.
And it doesn't stop there whether it's through successful traffic generating promotions like digital calendars in Australia, or Germany building on the strength of core equities with line extensions like Katsu current chicken mcnuggets and Grand Big Mac in the U K, we're piloting the mind Mcdonald's reward loyalty program, we continue to deepen our connection with customer.
<unk> and create a consistent and enjoyable experience.
Let's turn it over to Joe to tell us what that experience is looking like in the U S. Joe.
Thanks, Chris our U S business ended 2020 in a position of strength and that carried into the first quarter delivering a 13, 6% comp Chris.
With double digit positive comps across all day parts.
We exited Q1 with historically high average daily sales volumes and a record high operating cash flow our franchisees experienced in 2020 continued in Q1.
While we have seen some benefit from consumers receiving government stimulus checks during the first quarter.
Our results are truly a testament to the hard work happening each day in our restaurants.
I recently been in our restaurants in Maine, and Massachusetts, and you can feel the energy and excitement are franchisees and importantly, their restaurant teams are focused on keeping our crew and customers safe in.
In addition, they are delivering gold standard execution, especially around chicken and the three DS and this has led to higher customer satisfaction scores.
I wanted to give a special thank you to our owner operators and restaurant teams for all they have done during extremely challenging times.
Our growth plans in the U S are rooted in the accelerating the arcturus strategy and focused on the Mcd framework.
As for our results the quarterly performance as a product of the accumulation of what we've done over the past 12 months and not because of any one action. We took during the quarter a four week marketing window.
The values and brand based decisions, we've made along with simplifying our menu strengthening our digital business and Recommitting to our core are having a multiplier effect I've seen this recipe for success in several markets. During my time overseas and I am confident that the right pieces are in place for our U S business to sustained results.
Let me pull back the lens and give you some examples.
Driving customer visits begins with committing to the core menu early in the pandemic the U S business remove dozens of menu items.
As a result of this focus our drive throughs got faster margins grew and customer satisfaction improved put simply our restaurants became easier to run and more profitable reducing complexity set the stage for the right investments in the core beginning last fall with spicy chicken mcnuggets, which we brought back for a limited time in February they drove.
Customer excitement and comp sales growth during the quarter.
Then in late February we introduced our crispy chicken Sandwich line of three delicious new sandwiches, the beginning of our multi year chicken journey.
While the category is very competitive we are so far exceeding our projections were.
We are selling substantially more chicken sandwiches compared to our previous chicken Sandwich line and seeing strong unit movement, especially after four pm.
Our success is the demonstration of Mcdonald's at its best with all three legs of the stool working together first we developed the platform and built the supply chain. We then aligned the system around the opportunity.
And finally, we created engaging and exciting marketing PR and social media plans nationally and across our 10 field offices today, we're learning from each other and working to transfer the success, we're seeing in our top restaurants to all restaurants.
We expect to refresh and sustain this platform and do so in a very culturally relevant way throughout the rest of 2021.
At the same time, we doubled down on the <unk> digital delivery and drive through.
With COVID-19 is the catalyst for consumer behavior shift, we experienced an absolute surge in off premise dining.
We drove our digital sales mix and App usage.
In the first quarter, we had nearly one 5 billion in digital sales, which includes app kiosk and delivery.
And we now have over 20 million active app users with loyalty yet to come.
We grew delivery to an all time high in dollars and sales mix.
And we continued to reduce overall experience times, especially impressive given the increased volume of business, we experienced through the drive thru.
Chris mentioned, the famous orders platform earlier.
Nothing had a greater impact on our digital business and the introduction of this program last year we.
We've retained many of the digital customers acquired during those famous order promotions in the U S business is very excited about the upcoming Bts meal, which continues to maximize our digital investments without adding any restaurant complexity.
And with that foundation, we are well positioned heading into our loyalty program launch later this summer.
When we built my Mcdonald's rewards our goal was to create a platform that elevated our brand excited our customers and engaged our crew and we did just that.
And our two test and learn markets Phoenix in New England. We are encouraged by the initial results.
User adoption as measured by guests ordering through the App are up significantly since the tests began.
Frequency has increased in fact, our loyalty customers are far more likely to return in the next 30 days compared to non loyalty customers.
And customer satisfaction is up customers love the personalized experience of being greeted by their first name.
We've received overwhelmingly positive feedback from restaurant crew not only on the program itself, but the ways in which we've trained them for example, using digital simulations.
Of course as in any test we've captured many learnings around training operations and deployment that will help us maximize the impact when we launched this nationally.
As I close I want to reiterate that there is not one single reason for our success the accumulation of our decisions grounded in our values returned the U S business to a place of brand relevancy for our customers and meaning for our people and has provided US a strong foundation towards sustained business growth and now.
I will turn it over to Kevin to talk about our international performance and our financial results.
Thanks, Joe as.
As Chris mentioned earlier global comp sales and revenues for the quarter surpassed Q1, 2019 pre pandemic levels largely driven by the U S for.
For the quarter global comp sales increased seven 5% with growth across all segments.
Comps were up significantly in March as we started to lap the impact of COVID-19.
And the IOM segment comp sales were up 60 basis points in Q1.
With widespread resurgence as an ongoing government restrictions across Europe, including dining room closures and reduced operating hours. This segment has not fully recovered to pre COVID-19 levels.
As a result of the restrictions we saw varied performance across the markets.
Strong results continued in Australia as customer mobility is mostly recovered in the country remains nearly COVID-19 free.
The market benefited from sales of their new chicken line, along with successful <unk> line extensions on core burgers.
And average check has continued to hold up with sustained growth in delivery and drive thru sales and a shift into more core and premium menu items.
Comp sales were positive for the U K and Canada for the quarter and surpassed 2019 pre pandemic levels.
Despite UK as national stay at home order for nearly all of Q1 in Canada is a recent surge in COVID-19 infections, both markets have successfully leverage the competitive advantages of our three D to grow sales.
And in France, and Germany comps were negative for the quarter as dining rooms were closed and curfews were in place.
Government restrictions are expected to ease somewhat in Q2, but we don't expect these markets to recover to pre COVID-19 sales levels until later in the year.
Comp sales in the IDL segment were up six 4% for the quarter with growth across nearly all geographies.
Performance was largely driven by positive results in China and Japan.
In China comps were up significantly for the quarter as we comped over COVID-19 impacts from February and March last year.
By leveraging their large digital members base, China ran compelling digital offers contributing the results for the quarter as they continue on the path to recovery.
In addition, China opened 150, new restaurants in Q1, keeping on pace to open nearly 500, new restaurants this year.
Japan maintained momentum in Q1 with comps up 9% and that's on top of over 5% growth last year is a strong balance of core value and family related promotions resonated with customers.
Looking ahead to Q2, we expect the U S to continue to outpace 2019 with two year comp sales growth relatively in line with Q1.
And the IOM segment, we expect the two year growth rate to improve over Q1, but the segment will likely continue to lag 2019 until the second half of the year.
Given our strong start to the year, we now expect full year system wide sales growth in the mid teens in constant currencies.
But we continue to see pandemic related stops and starts in markets around the world.
Impacting customer behavior, and our business. So there is still some uncertainty.
Turning to earnings adjusted earnings per share in Q1 was $1 92 up 27% in constant currencies and.
And adjusted operating margin was 41, 9%, reflecting improved sales performance higher other operating income and lower G&A costs compared to last year.
Total restaurant margin dollars increased 10% in constant currencies with improvement in both franchise and company operated restaurant margins.
Franchise margin dollars grew by over $170 million in constant currencies, mostly from the strong sales performance in the U S.
And company operated margins in the U S were strong as we continue to see topline growth driven from higher average check.
As I mentioned last quarter, we expect U S margins to moderate somewhat as check growth tempers and we reopened dining rooms.
And the IOM segment company operated margins improved in Q1 with.
With the ongoing impact of COVID-19 on the segment, we don't expect to get back to full year pre COVID-19 margin levels. This year.
This is a result of near term sales and cost pressures, but theres nothing structural to prevent us from returning to pre COVID-19 margins longer term.
Turning to G&A Chris.
Chris and Joe both talked about the contributions from digital on our results and we continue to invest in this important area to fuel growth.
For the quarter G&A was down 6% in constant currencies due to some onetime costs, we incurred in the first quarter last year.
As a result of our strong start to the year, we're now expecting higher incentive based compensation.
So for the full year, we expect G&A to be about two 4% of system wide sales.
Because of this increase to incentive based comp just relates to current year performance. It will only impact this year's G&A.
Our effective tax rate was 21, 3% for the quarter and we're still projecting a full year rate in the range of 21% to 23% with some fluctuation across the quarters.
And finally.
Foreign currency translation benefited Q1 results by <unk> <unk> per share.
Based on current exchange rates, we expect FX to benefit EPS by about 10 cents for Q2 with an estimated full year tailwind of 24 to 26.
As usual this is directional guidance only as rates will likely change as we move through the year.
I am pleased with our global recovery to date, even as we face resurgence as unrestricted operations around the world and I am confident that our accelerating the arches strategy will continue to drive growth in the business now.
Now I'll turn it back to Chris Thanks, Kevin I want to close by saying once again, how proud I am of everything our system has accomplished and continues to do amidst such difficult circumstances.
If last year was about defining who we are what we stand for and where we're going this year is about execution and how we're going to get there.
Every year, we check in with our staff to get their feedback on the work that's happening in our latest survey results received last week, almost 90% of employees Express strong confidence in our business and just as importantly, they agreed that we were abiding by each of our core values.
And just a few weeks ago.
We held our annual leadership summit, virtually bringing together, our top 50 field and corporate leaders.
Cross each of our markets and amongst this leadership group there were strong alignment against are accelerating the artist strategy and universal recognition that our continued success depends on great execution.
Back in November at our Investor Day, I said that distinctions between the corporate brand and the consumer brand are blurring. There now two sides of the same coin and you can't build an inclusive family focus global consumer brand like Mcdonald's unless the corporation's actions give evidence to those attributes.
That's why in February we said five and 10 year goals for increasing diversity in leadership across our corporation.
Research has shown that businesses that prioritize dei recruit and retain stronger talent.
Greater innovative potential and bolster financial performance and we're committed to making measurable progress in disclosing representation data to hold ourselves accountable for results by tying a portion of executive compensation to making progress in this area.
Earlier. This month, we also shared global brand standards designed to reinforce our culture of safety and inclusion.
We want employees and customers to feel safe and protected and it's critically important to be clear that violence harassment and discrimination of any kind is not tolerated.
All 39000, Mcdonald's restaurants across the globe, including company owned and franchise locations will be required to uphold these standards.
We're continuing to put resources and tools in place to help restaurants implement these changes and ensure these standards are met.
Beginning in January 2022, restaurants will be assessed in accordance with the applicable Mcdonald's market business evaluation processes.
We understand that the way we show up in our communities and for stakeholders impacts the way customers see us and their trust in us.
We have to make sure our values of the lived experience of everyone, who interacts with our brand.
We've seen powerful examples of service and dedication on display across the Mcdonald's system during the most difficult year, we've ever experienced.
Round the world our people have embodied the belief that we must all pitch in and help one another they.
They take pride in that and they should.
While we all remain hopeful that this will be a year when life begins to return to some version of normal we know the operating environment remains volatile.
We expect that there will be stops and starts that impact results, but.
But as we see even during the most difficult moments last year delicious feel good moments from Mcdonald's remain high in demand.
We will continue to lean forward and make bold bets in our future.
I believe more strongly than ever as I said in November that this is the start of something new for Mcdonald's.
As we continue to accelerate the arches lead with our values and serve our customers and communities I look forward to seeing what the Mcfann Molly can accomplish in the months ahead.
And I look forward to seeing our global system come together in person next April in Orlando, where our global 2022 worldwide Convention.
And with that we'll begin Q&A.
Thank you as a reminder, if youre an investor I would like to ask a question. Please press star followed by the number one on your telephone Keith earned we ask that you limit yourself to one question and re queue for any additional questions.
Okay. Our first question is from John Glass with Morgan Stanley.
Thanks, and good morning to you Mike.
Question is on the health of the European consumer and how is your how you think about the recovery. So we have a lot of data obviously in the U S and we see it in the numbers.
I'm actually I guess, if you can tease out between the closures and restrictions how do you think the consumer is there, particularly in the continental European markets.
Do you think you need to do differently on reopening as value is going to be a more important how do you think is it as simple as reopening or do you think theres a lag because from a consumer response perspective in those markets as well thanks.
Hi, John It's Chris Good morning, and I think on the European.
Market.
To start with it it's difficult to talk about it as sort of one single market I think you have to break it into kind of the.
Each of the big markets there.
And it varies in the case of the U K, we're seeing that UK consumer is.
Quite strong that business is performing well.
Markets that are heavily tourist dependent however, like Spain, Italy, France are.
Those markets are struggling and so I think for us.
Part of what we believe is that this summer we do think that many of the European markets are going to start opening up theres been some commentary about perhaps a vaccine passport that allows for travel within the European market.
That I think will have a big impact.
Impact and help on stimulating those markets that maybe have had a little bit more of a headwind.
And then I think for US. The key is about also getting the dining rooms open our dining rooms are closed in about 50% of our restaurants.
In Europe, as you know dining rooms, or dine in is a big part of our European business.
So getting those out but I think it will be another important step for us in getting momentum back into the European business, but from a consumer standpoint.
In terms of just the outlook I think.
It's probably.
Best described as being concerned about an anxious about many of the things that are coming with COVID-19, but I think also there is there is pent up demand that we've seen when we do when we are able to get a market opening or even last year. When we had some reopening that then resulted in closures.
Not too long thereafter, as the second and third wave came about that Theres nothing that gives us any concern that as we reopen that we're going to see the same pent up demand come back and get the European business moving forward.
Next question is from David Tarantino with Baird.
Hi, Good morning. My question is on the U S business and and really.
Wanted to get your thoughts on how much you think the stimulus might be helping the trends in the U S.
And then secondly.
What are you assuming in your guidance.
For the remainder of Q2 or the remainder of the year as it relates to.
To the health of the consumer and whether the current momentum in the business can can carry through for the rest of the year.
So I'm wondering if Joe talk about.
Kind of what we're seeing right now and then Kevin can touch a little bit on what's in the guidance.
Thanks, David and thanks for the question relative to the stimulus checks. There is no question that it did benefit our business.
But I think as I shared in my prepared comments.
The.
The positivity that we saw in the.
In the first quarter was way beyond just the stimulus checks.
What that accumulation of all the things that we've done over the last 12 months, that's put us in a very strong position. I think you can also argue that the stimulus checks are now wearing off generally, but we're seeing continued momentum in our business and as Kevin said, we expect our second quarter two year stack to be roughly the same as our first quarter Sac.
I wasn't going to say much more other than.
I think going forward to Joe's point.
Consumers in the U S still are fairly healthy.
It's certainly helpful for us obviously, when they've got money in their pockets and stimulus definitely helped in the first quarter, but.
Yes.
We are seeing when we do reopen dining rooms, even in the U S that consumers.
Consumers are ready to come back to us.
The visit in the dining room and have some money to spend and so I don't think we have a big concern right now about consumer ability to be able to spend.
Okay. Our next question is from Dennis Geiger with UBS.
Great. Thanks for the question, Chris and Joe just another one on the U S where you've got very strong momentum clearly based on the plans that you outlined it seems like that momentum continues for the year and beyond but I'm wondering just if you could help frame your expectations for the coming quarters as as the U S continues to reopen then you think about other restaurant.
<unk> reopening how you think about tailwind headwinds youre getting your own benefits as it relates to that reopening I assume how youre thinking about that and just kind of building on that just Joe you've kind of talked to think about the U S relative maybe to some other really strong countries internationally I'm just wondering if you could draw some parallels there for the potential for <unk>.
The multi year period of outperformance in this U S business, maybe the way you have with some of the other really strong countries outside of the U S. Historically.
Yeah, David Thanks, Thanks for the question I mean, there's no question that as you.
Think back to the initial onset of the pandemic there was the surge in off premise and off premise dining.
And we were set up incredibly well given the investments that we've made historically and digital delivery and drive through within the U S business to succeed in that environment and Thats exactly obviously, what we've done.
Beyond that though obviously, we've made some great investments in chicken great investments in our core that have begun to really set us up well for the future and we continue to have our prowess around value.
As you begin to look forward. We think there is no question that the consumers going to want to come back in the dining rooms.
Chris has already mentioned it in Europe, but we think it's the case in the U S as well.
So we will continue to open our dining rooms, but we want to do it in a way.
That really that really drive sales and make it an event almost as we reopened our dining rooms, because it was 90% plus of our business.
Going through the drive through if we can if we can sustain that and return our dining rooms and takeaway.
To the levels that they were pre pandemic, we've set ourselves up for a very good run here.
In terms of.
In terms of parallels between the U S business and other successful markets overseas.
Never one lever Denis.
It's always a combination of things that are put together in concert.
Such that Youre not dependent upon the next promotion or the next deal that you do.
And this is this idea of underlying baseline momentum and so we're feeling the benefits of that underlying baseline momentum in the U S.
Then I saw in many international markets as they set themselves up for multi year runs and I think thats, where we are.
Okay. Our next question is from Eric Gonzalez with Keybanc.
Hey, good morning, Thanks for the question.
Clearly the stimulus provided a nice boost to industry sales in recent weeks, but on the flip side. The labor pool seems to have shrunk or your franchisees handling of labor shortages and what is your expectation for labor inflation. This year and also do you see this as a temporary step up that might recede. After the supplemental unemployment benefits go away or are you looking at this as more of a permanent environment speaking about the specific staffing issues.
Issues restaurant operators are facing today.
Hey, Eric well I think you have.
Accurately characterize what we're seeing in the U S. Right now is definitely a very tight.
The labor market, that's putting pressure on both us and our franchisees I think one of the things that we are thinking about and I'll have Jim talked about it is in our company owned restaurants, how do we think about what is the pay and benefits package needs to look like.
For us to make sure that we're able to get the people that we need and then Joe can also talk about how franchisees are addressing that yeah. Thanks, Thanks, Chris and Eric Thanks for the question yes.
About two weeks ago, we actually came together on a system webcast, because obviously across 14000 restaurants in nearly 2000 franchisees, while there might be some general struggles. There are also some specific best practices in specific areas, but we are succeeding and so there are opportunities for our franchisees to talk to their fellow France.
About about the things that they're doing that are yielding success and that's always been one of the hallmarks of our system and we can take a best practice from one restaurant in trying to get into all restaurants.
It yields real benefits.
Interestingly, we are faring a bit better than our company owned restaurants as Chris mentioned we.
Higher crew sizes overall than the average franchisee.
We recognize that.
We need to continue to stay a little bit ahead of things on this on this topic and so we're working through what some changes in our company owned restaurants might look like from a wages and compensation perspective.
We think the external environment is right to do this we think the internal environment is also right to do this and we think it's actually a great business decision for us.
Peter next question is from Andrew Charles with Cowen.
Great. Thank you.
Maybe looking back a little bit the international operating margin markets. You saw four consecutive years of 3% comp growth and positive traffic in 2015 through 18. After the tier four models hit a tipping point and you just kind of feels like the U S is kind of at the start of this that the remodel program is substantially complete and you've got all this traction over the last year with digital.
And the early success of loyalty program, that's coming this summer so thinking about thinking forward 2022, and beyond my wrong to think that business seems poised to go through this tipping point and is there something unique about the IOM that would prohibit us from delivering similar 3% plus comps in 2022 and beyond thanks.
Yeah. Thanks, Andrew Bell certainly what we are.
Embarked on in the U S. Several years ago drew a lot on the learnings that we had seen in our European or IOM markets and a key feature of that was the <unk> program.
I think the fact that we've been able to get almost all of our restaurants to be remodeled.
And have that sort of be big reinvestment cycle behind us that's a huge positive I think the fact that we're seeing now 2019 was a record cash flow year for franchisees 2000, Twenty's a record cash flow year for franchisees in 2021 will be a record cash flow year for franchisees I think that Ah.
The ability to have just franchisees with the firepower is something that we've seen in our European markets and then Youre starting were starting to see the brand in the U S really improve and move and.
That has been through a lot of the hard work that Joe and the team have done along with how our franchisees.
Bring the brand to life every day in our restaurants and I think.
When you see a stronger improving brand.
Performance that was the hallmark of our success in Europe, and we're seeing that now.
Starting to gain some traction in the U S. So certainly we're optimistic and hopeful that what we saw that playbook in Europe will translate over in the U S and we've got a few years of momentum under our belt that gives us confidence in that Joe I don't know if you have anything else to add I think you've captured it incredibly well that's certainly with my experience overseas.
When you when you make those right investments and then you you'll continually tap into them whether it be the strength of.
Of your modern day course, or whether it be the digital experience.
Variance or whether it be your improvements in menu. These things all work in combination together, a consensual for that multi year run.
Our next question is from David Palmer with Evercore.
Thanks, a question on loyalty could you give us a sense of the how much you think loyalty will impact.
Mcdonald's globally in the U S.
This France and the U S piloting show incrementally to sales and not just the visit intent like you mentioned I think Joe mentioned that.
And what changes to technology or otherwise can help ensure that loyalty can work with the drive thru and you've made some strides there.
One customers fumbling for scan codes and it sounds like from Joe's comments that you are closer than we thought on customer identification.
<unk>.
And there is no question that the results out of our test in new England in Phoenix have been incredibly positive.
Operators in those markets.
Loved what loyalty is doing our customers love what loyalty is doing.
And I think our restaurant teams have really taken to it as well.
Very confident in the business case, and when you think about the impact that this can have on the U S business, where 85% plus of the U S population actually comes to Mcdonald's at least one time a year.
So if loyalty can build frequency given the base that we have customers in the U S. This is just a tremendous unlock for us.
Relative to the operation.
<unk>.
Operational impact.
There it is having a modest impact in our drive throughs.
We've trained our people really well the training, it's actually happening, it's really around the customer side and it's the order taking time, it's slightly up but we will be seeing benefits and the cash taking time as a result.
This has become a more digitally penetrated system.
I think that the momentum and the system is going to build in the coming months as we set up for our launch later this summer.
David I would just add you know we wouldn't be doing this globally.
If we didn't think there was going to be an incremental benefit to loyalty. We're not at this point quantifying that but certainly our thesis is that there is going to be an incremental benefit that we get out of loyalty.
About the identification at the drive thru.
Order point.
We're not there yet, but I think it's safe to say that we've got a number of ideas on how we're going to be able to make that happen and that's part of our rollout plan over the next couple of years. So I think you can safely expect that we're going to get.
Our solution it may not be the same solution everywhere, but we will have solutions in place that allow us to get faster at identifying the customer at the order point, Kevin we're going to say the only thing I'd add is we have been working on our kind of underlying tech stack around the world over the last couple of years. So one of the things that that facilitates is at.
The same time, we're piloting this loyalty program in the U S. Here. We're also piloting it in Germany also and we intend to roll out the.
The loyalty program in Germany, and Canada by the end of this year also that's in addition to some countries that already have a loyalty program like France and China for example.
Our next question is from Sara Senatore with Bernstein.
Yeah.
Thank you.
I can talk about the technology investments you think you are working on the underlying textron.
<unk> kind of two parts. One is can you give maybe some color on your market share gains in the year.
Just to validate the view that it's not just the environment, that's helping you or it's at 70 initiatives you're undertaking so anything you can say about it.
You versus competitors in different day parts and then.
That obviously disclosing anything competitive maybe you could talk.
Michael tap out the evidence youre seeing.
The investments are paying off and maybe tie the gentleman I suppose back Keith G&A spend not the incentive comp of course this year, but just the sort of elevated G&A spend as a percentage of sales and certainly the dollars you're spending on.
Bigger than what anybody else in the industry could could span. So just any color you can give that that kind of.
Our first credibility today I'll get David.
This is the right amount of investment and.
Allowing it to lead competitors. Thanks.
Joe why don't you cover the market share gains and what we're seeing in the U S. And then Kevin you can talk about just our investment level, there and how we think about that.
Relative to market share, especially on traffic.
It's proven very challenging to read exactly what's going on within the industry because youre seeing shifts of all kind there was early in the pandemic the shift away from the breakfast day part and toward the dinner day part you've also seen obviously.
Financial increase in average check as you have.
More more people per transaction were actually eating off of that off of that transaction.
We feel very good about our competitive position and where we are relative to our our key competitors and when we look at our own to year two year comp stack and the fact that we're putting up the kind of growth numbers. We are versus 2019, we feel good about our position and I'll, let Kevin talk specifically about.
Some of the tech investments, but when you think about Mcdonald's USA having.
Digital sales are up one five.
Just $1 5 billion in the first quarter.
And in fact, we've got 20 million active app users I think we feel really good about.
The way, we've set up in the U S ourself to really benefit from these investments and to make these multi year gains as I've talked about.
Yes, I guess, the only thing I'd add we certainly benchmark our tech spend against peers looking at how much we spend as a percent of revenue et cetera, and generally are favorable and a lot of those types of metrics, but as Joe talked about and the way we think about it is.
Youre not going to directly relate every year's of tech spend to that year's specific sales. So some of the investments. We've made over the last couple of years are facilitating us being able to go put in loyalty in the U S right now and being able to do it in Germany at the same time and being able to roll it out in several markets.
Kind of simultaneously or in a similar timeframe. So part of the kind of catch up that we needed to do over the last couple of years was to get a common tech stack across our globe. So that now we're able to move at a quicker pace as we have new things like loyalty and can deploy them in <unk>.
Markets in a relatively shorter timeframe.
Our next question is from Nicole Miller Regan with Piper Sandler.
Thank you and good morning, I appreciate the color around the franchise partners, especially domestically and what they're doing to put the brand to work could you give us an update on the profile you know the 10 year in the system number of stores I haven't asked for a while Ron first second third generation and I'm just curious how anything in the past year has shaped.
The natural passing of these legacy systems.
The second part is on the survey results I wasn't clear if that was in our headquarter kind of survey our field survey if you could clarify that and what was most validating and most surprising thank you.
Thanks, Thanks, Nicole for the question relative to the franchise profile Hasnt dramatically changed in the last year or two.
Several years back, though we did begin to make a move.
Move towards having fewer and larger franchisees and.
And that trend roughly continues but not nearly at the pace that it was what's happening three to five years ago.
There is a substantial number of second and now third generation franchisees.
As I've returned to the U S business 18 months ago, I really have been struck by the number of second and third generation franchisees.
They do know exists within within the Mcdonald's system, obviously, it is a hallmark of our brand and.
And what we've been in the past.
I'll, let Chris and Scott on the survey result, so that was a global survey of all company employees. So we had I forget how many people actually refi, but we had we were really pleased with the.
With the take up rate on that and that again was global I think things that we were most pleased about that.
The overall optimism that exists around the world for our business outlook was certainly something that was a positive for us.
As we were we went in and we had individual questions about our performance against each of the five values that I outlined we saw very strong performance both in absolute but also a year over year growth in those as well. So I was positive on that I think the opportunity for us at that I've talked about.
And we're working on is doing more to create a culture, where people feel comfortable challenging debating speaking up we have opportunities there and thats from a culture standpoint, something that my senior leadership team and I are working on.
Our next question is from Brian Bittner with Oppenheimer.
Thank you good morning, I wanted to go back to the IOM segment, I realize that you're still not to pre COVID-19 sales levels, yet, but but as markets do successfully Russell COVID-19 I think we have enough evidence at this point to believe it's just a matter of when not if as it relates to more than a full <unk>.
Sales recovery in Ireland segment, and you have 1700 company owned units there. So what I would like to understand is how is the company owned margins in that segment positioned to perform.
As you inevitably do get to above the 2019 sales levels. I know you just said not to expect it this year.
As far as the recapture but perhaps you can share some insights from what youre seeing at the U K or Canada, where the trend is already above 19.
Yes, Brian I'll take that question, yes, one of the things I think I talked about in my script was that.
While we are below historic levels. As you said that is really a result of certain markets not being not having the sales levels back to pre COVID-19 to your point the markets that are at pre COVID-19 levels and have been able to continue growing sales.
We are able to continue growing margins similar to how they were pre COVID-19 so to us it is a.
Matter of time to a certain extent, we expect as restrictions ease as curfews go away and we're able to reopen dining rooms. So those are the biggest things that need to happen specifically in a few of our large markets like France, and Germany. For example, but there isn't anything structural that is preventing us.
From getting back to.
Our historic levels of company operated margins in those and.
And we are experiencing those types of margins in the markets that have already gotten back to those sales levels.
Next question is from Chris Carroll with RBC.
Hi, good morning, Thanks for taking the question. So Joe you mentioned that U S comps were double digit positive across all day parts, but I was curious specifically about the morning day part and how that trended through the quarter and specifically what breakfast trends look like acquired to the lap of last year's declines, perhaps what you saw.
Seeing more recently and then looking ahead how are you thinking about how you can build on breakfast share gains that you've noted.
Sure. Thanks, Chris for the question yes.
We turned to positive at the breakfast day part back in the third quarter I believe since then.
Been positive so it wasn't a lap of the pandemic.
Pandemic negatives.
This day part and obviously.
Part of that is because of our historical strength in this day part part of that is because the importance of drive thru speed, especially at breakfast is important.
And part of that is some of the menu item moves we make made around.
Offering the cafe bakery I think I've also set us up well for the breakfast day part.
We're we're acutely focused on this day part.
Because we believe that.
Certainly as such.
Some consumer habits return to pre pandemic.
Jim.
Pre pandemic ways of life.
At the breakfast day part, we will continue to come back and similar to the way that it was a real market share gain market share battle pre pandemic, we think that market share battle will absolutely continue.
We're we're ready and prepared for that.
Our next question is from John <unk> with J P. Morgan.
Alright, thank you.
It was made on Australia in terms of maintaining average ticket even I it sounds like with traffic coming back in.
I was wondering if that could be applied to the U S as well in other words.
Traffic recovery I guess at this point is an inevitability can you maintain that average ticket, which I think has been the primary driver of comps over the past 12 months is the first question and then secondly, I think related to that is related to that.
What's different about the chicken sandwich. This time, obviously, we've seen over the last 20 years, a number of different core and premium chicken sandwiches chips. What have you that have kind of come and gone from the Mcdonald's menu. What gives you the confidence this time that it's it becomes not only something that you can sustain that you can grow upon it.
Sure.
Yeah.
Thanks, Shaun I think on the ticket we have seen it in a number of markets that have been able to kind of weather the pandemic, Australia being one that has done, particularly well through that but Japan. Another one.
That Tim.
I get levels do stay elevated I think a big function of this becomes.
To what degree does the channel mix revert back to what we saw pre pandemic or stay elevated so to the degree that you see delivery.
Pain and elevated part of the ticket to the degree that you see drive through continue to outperform those are going to have a positive impact on ticket and it somewhat negative impact.
On on traffic just because of the bundled nature of those channels. So I think it's difficult to say.
You know broadly how that's going to play out, but we are seeing overall that.
Some of the changes that happened with consumers through this pandemic like doing more delivery like going through drive through that those we expect are going to be enduring. So I think it's probably fair to say that ticket is going to be a driver for us coming out of the pandemic, Joe why don't you talk about.
The chicken sandwich in the U S. Yeah, I I feel very confident about this chicken sandwich, I know and I, absolutely knowledge, John that we've had many ins and outs of chicken sandwiches over the years, but I.
I think we did our research we've really grounded ourselves in and the consumer on this one and a very significant way I also think that we've done a good job.
More significantly into trends with our spicy offering as part of the chicken line.
And I think our increasing focus on multicultural youth also is contributing to our success here.
You launch a product that Mcdonald's you launch and then you have a decay curve and I feel very confident about this to get the decay curve on our chicken sandwich.
<unk> is dramatically different than what we've seen in past years, where two months past. The initial launch of late February.
And we still feel really good about the volume and unit movement that we're seeing the only thing I would just add on that that Joe has talked about in the past and I completely agree is when we think about chicken. It's a holistic strategy. So its not just going to be predicated on one sandwich, we've got a very strong nuggets platform we.
<unk> chicken and so one of the things that Joe and the team did I think were really well in the U S is leveraging the other aspects of our chicken portfolio. We had nuggets that ran in front of them the chicken sandwich launch and using sort of everything in our Arsenal there to drive chicken is going to be one of the things that I think is different.
At this time I think the other is a very good alignment that Joe and the team have been able to drive with our franchisees on sustained support for this this is not sort of one of those put a bunch of immediate weighed against it for a quarter and then move onto the next thing I think theirs.
Broad understanding and alignment that this has to be supported over a longer period of time and so certainly from my vantage point. Those are two things that give me confidence about what we're seeing in the U S.
Our next question is from Lauren Silberman with credit Suisse.
Thanks, So just on the global partnership with E. T. ASUR third famous artist collaborations can you share if and how these partnerships are helping you reach and engage with new audience and then just broadly speaking how are your social media strategy has evolved over the last eight.
18 months or so.
Sure well.
So I think one of the things that we were delighted to see with our first famous order and Travis Scott was just the huge.
Digital uptake that that drove on the business Joe might know the exact number of downloads that we saw in the U S. But I mean it was it was a phenomenal.
The driver of digital engagement for us in the platform and going forward I think for US that's continuing to use famous orders as a way to drive digital engagement the consumer that it.
It was drawn to these sorts of <unk>.
Celebrities is inherently a digital first consumer and so it's natural that theyre.
They're going to want to interface and interact with our brand and a digital first manner. So that going forward is gonna be a key part of our strategy and on social media I think you've seen.
We have gotten I think a little bit more nimble and consumer centric in our social media approach. It doesn't read any more like a corporate website, that's being populated maybe by the CEO.
It's actually being written by people with a sense of humor and that are fun too.
Listen to which is what our brand is about I mean, our brand is meant to be an engaging fun youthful brand and so having voices that are.
Running our social media campaign on a day to day basis, I think youre seeing the benefit of that and I think for us it's about making sure though that we also.
Do it in a way that feels authentic to Mcdonald's I think some of the others out there maybe.
Maybe like to veer, a little bit more into the snarky territory, we try to be a brand that leads with a really positive message and as one focused on Mcdonald's and we're seeing great engagement from that so I. Appreciate you mentioning that and I promise I will stay off social media with the corporate website.
If I could just add one thing on the digital the digital consumer the U S business has never had a significant challenge of attracting a digital consumer our challenge has been around retaining them.
And I think that we have been much more purposeful and all of our retention and lifecycle management efforts.
Actually leading up to the Travis Scott meal initially because we knew that there would be a big surge in interest.
Digitally around Mcdonald's because of that.
And those retention efforts have really four significant fruit.
Utilize those same retention efforts for our holiday promotions as well as for J Bell, then and we'll be doing the same as Bts comes here.
And then naturally as we as we flow into loyalty.
Naturally have a greater opportunity for retention via mind Mcdonald's rewards.
Hey, we're at the bottom of the hour. Thank you, Chris Kevin and Joe and Thank you to everyone that joined our call today have a great day.
Mcdonald's Corporation Investor call.
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