Hello and Welcome to McDonald's second quarter 2024 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. Mike C. Plaque Investor Relations Officer for McDonald's Corporation. Mr. C plaque You may begin.
morning everyone and thank you for joining us with me on the call today our chairman and chief executive officer Chris Kaczynski, Chief Financial Officer Ian Borden and president of McDonald's USA Joe Earle injure. As a reminder, the forward looking statements in our earnings release and AK filing also applied our comments on the call today. Both of those documents are available on our website, as our reconciliations of any non GAAP financial measures mentioned on today's call, along with their corresponding GAAP measures. Following prepared remarks this morning, we will take your questions, please limit yourself to one question and reenter 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, Mike. And good morning, everyone. Beginning last year, we warned of a more discriminating consumer, particularly among lower income households. And as this year progressed, those pressures have deepened and broadened the QSR sector has meaningfully slowed in the majority of our markets. And industry traffic has declined in major markets like the US, Australia, Canada and Germany, and several markets, we also continue to be negatively impacted by the war in the Middle East. These external pressures certainly weighed on our performance for the quarter, with declines in comparable sales globally and across each of our segments. But there were also factors within our control that contributed to our underperformance, most notably our value execution. For 70 years McDonald's has defined value in our industry, and we are taking meaningful actions across the world to assert our leadership. The hallmark of a great company is its ability to perform in good times and bad and we are resolved to reignite share growth in all our major markets, regardless of the prevailing market conditions. This won't happen overnight, but it will happen. The unique competitive advantages of McDonald's afforded us many levers to pull and we have the financial wherewithal to sustain our investments as needed. One area of strength is our restaurant teams who continue to execute with excellence to serve our customers and local communities. Creating a better customer experience has delivered operational improvements, improved service times, and increased customer satisfaction across most of our major market. And it's this relentless focus on execution that will give customers more reasons to visit our restaurant more frequently. Meaning into the power of our core menu also leads to outstanding execution our kitchens. Our deployment of best burger is a great example of this, now deployed in over 80% of markets. The training and focus on the basics ensures we deliver the gold standard product our customers expect, which is driving elevated tastes and quality perceptions. We remain on track to have best Berger deployed in nearly all markets by the end of 2026. And as we announced late last year, we continue to innovate across our core menu to address unmet customer needs with a more satiating burger that will provide great value for money. This new burger, which we're piloting across three international markets this year, includes two beef patties perfectly layered with melting cheese, crispy toppings, and a tangy McDonald sauce. It's a quintessential McDonald's burger with a twist on our iconic familiar flavors, named the big arch. We plan to test and learn through the end of the year to gather learnings before scaling more broadly internationally. We continue to have a significant opportunity for growth in chicken, a category that's twice the size of beef globally and growing at a faster rate by featuring our beloved icons like McNuggets and MC chicken while driving growth and emerging favorites like crispy and MC spicy. Our chicken sales are now on par with beef sales. The MC crispy chicken sandwich is now offered in more than 55 of our markets around In the globe, and through our plans to further expand our MC crispy equity, we will continue to capture chicken market share. As we continue to build on our $17 billion brands across our core menu, our digital penetration also continues to grow. Loyalty membership has now reached 166 million members pacing ahead of expectations. As we work towards our ambition of 250 million members and identified users now represent 25% of system wide sales. We know that engaged loyalty customers spend more and visit more often. And as a result, we're driving digital market share gains, and continuing to build on our understanding of customer preference, personalization, and behaviors. But as I said in my opening, we recognize that in several large markets, including the US, we have an opportunity to improve our value execution. Consumers still recognize us as the value leader versus our key competitors. But it's clear that our value leadership gap has recently shrunk. We are working to fix that with pace. re the last several years our system has sustained significant.
inflationary cost increases ranging from 20 to 40%, depending on the market, as we absorb the we recognize that in several large markets, including the US, we have an opportunity to improve our value execution. Consumers still recognize us as the value leader versus our key competitors. But it's clear that our value leadership gap has recently shrunk. We are working to fix that with pace. Over the last several years, our system has sustained significant inflationary cost increases ranging from 20 to 40%, depending on the market as we absorb these costs increases. In partnership with our franchisees, we look for ways to protect restaurant profitability via productivity efforts and selective price increases. These price increases, disrupted long running value programs and led consumers to reconsider their buying habits. In some markets like Germany, Spain and Poland, the flexibility of their value programs like MC Spark, have allowed them to quickly make adjustments that were embraced by consumers and drove market share gains. In other markets like the US with their dollar 123 value program, a more comprehensive rethink has been required, or US president Joe arranger is on the call and we'll share more about our plans in just a minute. The point is, we know how to do this, we wrote the playbook on value, and we are working with our franchisees to make the necessary adjustments. McDonald's competitive strengths are formidable and growing, our brand is as strong as ever. Yet again. cantar recognized McDonald's as the world's fifth most valuable brand, and the number one most valuable non tech brand. we're executing with excellence and our restaurant operations are an area of strength. Our digital footprint within the industry is unmatched and growing as we build one of the world's largest loyalty programs. And we're flexing our investment muscle to accelerate new restaurant openings, as we also build consumer restaurant and company technology platforms that will drive cost efficiencies and accelerate innovation. We do not take these advantages for granted however, and we are committed to delivering for our customers and shareholders every day. Where our customers tell us we have value opportunities, we will address them. Listening to customers and staying agile led to the development of our accelerating the orchard strategy. And I'm confident that it remains the right playbook for our business. continued focus on gold standard execution and our growth pillars are the right actions to grow market share, and return to restaurant traffic growth. To share more in the US segment, I'll now hand it over to Joe. Thanks,
Chris. And good morning. It's been a few years since I've participated in a McDonald's earnings call. And I want to start by reflecting a bit about the progress McDonald's USA has achieved since that call back in 2021. Over the past three years, we've significantly moved the needle in several areas like loyalty, which has grown to over 20% of our US system wide sales and over 37,000,090 day active users. We've also improved our chicken market share with the launch of MC crispy as I said then it was the accumulation of our decisions grounded in our values that continue to keep the McDonald's brand relevant for our customers and meaningful for our people. While providing a strong foundation for future growth that continues to be our approach as we're now focused on raising the bar on our customer experience, considering our customers current reality, since the very beginning, and Chris touched on this earlier, we've earned our success through excellent to FCMB quality, service, cleanliness and value. And as we've evolved our approach time and again over the years to match the changing expectations of our customers, we continue to deliver an exceptional customer experience today. In this last quarter, McDonald's USA delivered its highest ever year to date customer satisfaction score. While I'll share more about the $5 meal deal in a moment, both a bacon Cajun ranch Mac crispy and grandma McFlurry promotions drove sales, along with cultural buzz, and brand relevance. All said our business performance reflects industry wide challenges and the current context. One where customers are making thoughtful choices about when and where they eat. And while we always work hard to provide value to our customers, they're telling us that they want to see and experience even more value from McDonald's. And we're listening as we remain laser focused on providing great value to our fans this summer and beyond. So we tapped into ideas that already exist within our system. Our restaurants in upstate New York had been running a local $5 meal deal that was highly successful, performing well with lower income customers and driving overall incremental sales. By leveraging learnings from within our own system, we brought this to life for customers across the US. We've seen a lot of enthusiasm and the number of five Dormeo deals sold or above expectations. Trial rates of a deal are highest amongst lower income consumers and sentiment towards the brand around value and affordability has begun to shift positively. To date, 93% of our restaurants in the US have committed to extending the offer even further into the summer. And there are other ways customers can experience great value at McDonald's. We continue to provide a steady stream of offers on the mobile app, including nationwide free fry Fridays, where you can get a free medium fry every Friday with any $1 purchase on the app. And as we work through the important details of a future us value platform, we will continue to make decisions grounded in insights with the customer at the center. At the end of the day, we expect customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters in this very competitive landscape. So we believe it's critical for us to consider these factors in order to grow market share, and return to sustainable guest count led growth for the brand. McDonald's is uniquely positioned to succeed in this environment. Given our size, scale, and competitive advantages. We have a fully modernized restaurant estate, we have a simplified menu that focuses on our core. While never shying away from bringing back fan favorites at the right times, or pursuing the right new product innovations. We have built one of the largest loyalty programs in the industry. And we're continuing to lead with a long term mindset, making decisions that meet our customers where they are and where they need us right now, while also plotting a path for sustained success. And now I'll turn it over to you.
Thanks, Joe. And good morning everyone. As Chris mentioned at the top of the call. Despite the very real near term challenges facing the sector, we remain confident that our long term strategy rooted in customer insights and built on our inherent competitive advantages is right for our business. When we combine deep insights with the power of our brand, we tap into what our customers love most about McDonald's, connecting with them on an emotional level through celebrating the rituals and memories that make our brands so special. At the heart of our brand are our local communities and the customers we serve each and every day. Strong restaurant level execution against our MCD growth drivers, coupled with compelling value will be critical to giving customers more reasons to visit McDonald's more often. And as you heard from Kristin Joe, we're delivering higher customer satisfaction and improve service times across most of our major markets. Our MC and Ds are deeply interconnected. And it's at the intersection of our growth drivers that we continue to deepen our relationships with customers and create a consistent and enjoyable restaurant experience while offering the delicious and affordable food they love. As Chris mentioned, we still have an opportunity to strengthen our holistic value proposition across markets. And we recently met with each of our largest markets, we're ensuring that we have a winning value offering was front and center in every discussion. We're taking a forensic approach to evaluating our offerings and acting with urgency and agility to implement solutions to deliver against customer expectations. Germany has continued their holistic approach to value with a 360 degree affordability strategy, including mix smart at the center, and are consistently driving elevated levels of customer awareness. This is a best in class example of listening to the customer, designing a program that meets them where they are, and ultimately delivering incremental sales, customer satisfaction and market share gains. As we scale best practices across the system, markets like France and Australia have adopted their own version of the mixed smart platform, and early results have been encouraging. And in May, the UK offered smaller, more affordable bundles of their own, with their three for three pound mix and match menu that resonated with customers looking for more affordable options. And to address an opportunity to offer more compelling value at breakfast, which remains the fastest growing day part in the market. The Canadian market recently launched a new price point at beverage value, offering our customers the coffee they love every day starting at just $1. McDonald's has long been an affordable destination for communities to come together and share a meal. But it's always been about more than just price. This quarter, we continue to elevate the experience combining our delicious food with unique mobile app and in restaurant experiences, ultimately delivering value, however, and whenever customers decided to order and enjoy their McDonald's favorites, Germany leaned into the Easter holiday with a fun and interactive calendar promotion, where customers enjoyed a daily deal available exclusively in the mobile app. From discounts on our most iconic menu items like the Big Mac or chicken mcnuggets to unique meal deals. The promotion drove remarkable engagement and significant growth and loyalty sales. And Italy drove traffic to our restaurants with summer days, a similar seasonal calendar campaign, featuring a variety of exciting meal bundles. And a local favorite the frequent flyer program returned to the Canadian market this quarter. To engage loyalty members with a new approach to gamification. The market launched a nationwide scavenger hunt for Friday icons, which could then be entered on the mobile app for free loyalty points or free fries. Nearly three and a half million codes were entered throughout the promotion, driving meaningful lifts to the fry category. Even with strong execution against are accelerating the arches growth drivers performance this quarter reflects a pressured industry landscape in the US as well as across many of our largest international markets. Our international operated market comps were negative reflective of this broad based pressure, where customers continue to be more intentional with the dollars they spent, and performance in France. And in our IDL segment, positive comp sales in Latin America and Japan are offset by the impact from the ongoing war in the Middle East and a less confident consumer in China. Despite the pressure top line growth we've discussed this morning, we drove adjusted earnings per share of $2.97 for the quarter, a decrease compared to the prior year of about 5% in constant currencies. This was primarily due to a higher effective tax rate of nearly 21% for the quarter. Elevated interest expense as expected, unless other non operating income, do partial
