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

In fact, more than 43 million MONOPOLY codes were digitally redeemed during the promotion. That’s more than the entire population of Canada. Germany also experienced record-breaking registrations with their MONOPOLY program by combining iconic peel-off game pieces with the ability to scan to win prizes in the mobile app. And for the first time, Germany offered loyalty points as prizes, rewarding our customers and driving additional digital customer frequency. And in France, MONOPOLY drove additional loyalty sales with an interactive redemption experience for our customers. We continue to navigate a difficult operating environment in the market, where results were softened and comp sales were negative for the quarter. Moving forward, we’re confident that we have the right leadership team in place with the right experience to reset with our franchisees who I know are committed to restoring our strong foundation.

We’re acting with a sense of urgency to address our opportunities and maintaining a growth mindset in critical areas like value, core menu and delivery. Our One McDonald’s Way approach to marketing extends beyond MONOPOLY as we continue to drive brand strength, building cultural relevance, and connecting with our customers and crew in new and exciting ways. This quarter, we once again tapped into the nostalgic McDonald’s experience of enjoying a happy meal as a kid and recreated it for our adult fans, featuring our core menu favorites at the center. Originally launched in the U.S. in 2022, we brought back the campaign to the market in December partnering with artist and creator, Kerwin Frost, and scaling it to 15 additional markets including Canada.

The excitement for the return of this event was evident, driving a significant social media engagement across many of our channels. And by encouraging our customers to trade up with a full margin promotion, we feel top line growth with a strong average checklist. In an environment where our customers are looking to familiar favorites those core menu items have never been more relevant or beloved. At the center of our core menu are an iconic portfolio of brands. $17 billion brands in their right, including four different chicken equities that are each $1 billion brands. We continue to stay aggressive on chicken this quarter making further progress towards our ambition of developing a reputation for great chicken. Germany re-hit the McCrispy chicken sandwich with strong results driving a lift in chicken sandwich sales and building additional customer affinity for the product.

And the UK built on its market leadership in chicken by extending the McCrispy brand with a limited time offering, the McCrispy Smokehouse, combining new and exciting flavors and ingredients with our core chicken offerings. In China, with slowing macro-economic conditions and consumer confidence near record lows, the market continued to build brand equity by combining our delicious food with culture and community through a collaboration with local streetwear designer Verdict. The campaign not only featured access to exclusive merchandise, but put our delicious chicken at the center and drove incremental traffic into our restaurants by offering customers a discount on a second order. Turning to our P&L, our top line growth drove adjusted earnings per share of $2.95 for the quarter.

This is an increase over the prior year of 11% in constant currencies, excluding current year charges of almost $140 million for write-offs of impaired software no longer in use and charges related to our Accelerating the Arches growth strategy. Foreign currency translation positively impacted fourth quarter results by $0.07 per share. For the full year, adjusted operating margin was just over 47%, reflecting higher restaurant margin dollars across all segments. Despite the significant P&L pressures that we’ve discussed throughout the year, top line results generated $14 billion of restaurant margin for the year, an increase of about 10% in constant currency. Lastly, before I hand it back over to Chris, I want to touch briefly on our capital expenditures and free cash flow profile.

Our CapEx spend for the year was approximately $2.4 billion, with more than half invested in new unit development across our US and IOM segments. After reinvesting in the business our free cash flow conversion was in the 90% range for the year. Now with that, let me turn it back over to Chris.

Chris Kempczinski: Thanks, Ian. As we look to 2024 with elevated absolute prices and muted consumer confidence, we believe that consumers will continue to be more discriminating with their dollars, but we expect our focus on our MCD’s will continue to drive growth across our business. And from a historical perspective we know our resilience is rooted in our ability to adopt in any environment. McDonald’s is one of the world’s most recognized and most bellowed brands, providing delicious meals at an affordable price and showing up when and where customers need us. By building a One McDonald’s way of approach marketing and creative excellence, we will continue to scale the best ideas globally through common tools and processes that help us maximize return on investment and that shine a light on what people love about McDonald’s.

We’re creating an environment that embraces bold creative and we’re remaining connected to culture by tapping into the moments, memories, rituals, and behaviors that people have with our brand. And McDonald’s position on value is a competitive advantage with a strategy rooted in customer behaviors and insights. We are optimizing price while limiting customer resistance. As we continue to attract millions of new loyalty members, we can get even smarter with our pricing methodology and tailor our digital offers to our fans, making them even more personalized. Looking ahead, we’ll also continue to make our core menu even more enticing. With initiatives like Best Burger, we’ve made small changes that are adding up to a big difference that our customers are really noticing.

Best Burger is now deployed across more than 70 markets, including the U.S. And we’re excited about the potential for growth as it deploys to nearly all markets by 2026. And as we look to build on our leadership in beef, we’re addressing an unmet customer need across markets for larger high quality burgers. We’re working horizontally across the system to innovate. As we test and learn, we’ll be working to understand how the new offering will complement our already established burgers, like the Double QPC or the Big Tasty. We’re also excited to further build on our success in chicken by continuing to in invest in bellowed icons like McNuggets and McChicken, while further scaling the emerging favourites like McCrispy and McSpicy. These four equities are the building blocks of our growing chicken business and we see the potential to add another point of chicken share by 2026, in part through an expansion of our McCrispy platform into wraps and tenders.

We’ve made incredible progress across our 4Ds by taking the things our customers love about McDonald’s from convenience to personal connections with our brand and making them even better. For example, Ready on Arrival will expand across our top six markets by the end of 2025. And while we’ve built one of the largest loyalty programs in the world in just a few years, over 150 million active users today represents only a fraction of our total customers. We aim to reach 250 million active users and $45 billion in annual loyalty system-wide sales by the end of 2027. And as you heard during our investor update, the world’s largest restaurant company is planning to grow even faster over the next four years. We know our ambition to reach 50,000 restaurants by the end of 2027 is a compelling opportunity and we’ve done our homework.

We’ve identified key areas with high population growth and lower store density across both our IOM and U.S. segments, and that’s where we’re starting. These opportunities before us in the near term are compelling, but as we plan for long-term growth and solidifying McDonald’s leadership position we’ve introduced three new platforms that will become part of Accelerating the Arches to build on our competitive advantages, cement our place and culture, and stay one step ahead of the next generation of digital customers. This includes building one of the largest consumer platforms in the world to attract and retain highly valuable digital and loyalty customers. The easiest and most efficient restaurant operating platform that puts intuitive technology in the hands of our restaurant teams and drives a better experience for both our customers and our crew, and the company platform that unlocks speed and innovation.

We believe our biggest opportunity to advance and acquire new customers and build more meaningful customer relationships that result in greater frequency and spending is continuing to aggressively invest in digital and technology as a three-legged stool. For our customers, we will better leverage the data we have across our loyalty programs to provide targeted offers and personalized experiences, building relationships with the customers that we serve every single day and ensuring that they enjoy a more familiar, consistent experience no matter where they go or how they [were] (ph). For restaurants, it’s investing to put the most intuitive technology in the hands of our restaurant teams that makes their jobs easier and empowers them to provide amazing hospitality, while serving hot and accurate orders to customers even faster.

And for the company, it is building the systems, processes, and tools that will enable our people to be more efficient and innovate with speed and agility. As I’ve said before, these are bold plans, but our success tomorrow has always depended on our ability to stay ahead of our customers changing needs, while reimagining what a restaurant can be. We’re building the engine that will power McDonald’s ability to unleash the full strength of our global scale where it counts. I’ll now turn it back over to Ian to talk through our 2024 financial outlook.