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Operator
Hello and welcome to McDonald’s third quarter 2025 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 star1 on their touchtone phone. I would now like to turn the conference over to Mr. Dexter Combalet, Vice President of Investor Relations for McDonald’s Corporation. Mr. Combalet, you may begin.
Dexter Congbalay (Vice President of Investor Relations)
Good morning everyone and thank you for joining us. With me on the call are Chairman and Chief Executive Officer Chris Kempczinski and Chief Financial Officer Ian Borden. As a reminder, the forward looking statements in our earnings release and 8K filing also apply to our comments on the call today. Both of those documents are available on our website as are reconciliations of any non GAAP financial measures mentioned on today’s call along with their corresponding GAAP measures. Following prepared remarks this morning, we will take your questions. Please limit yourself to one question and then re enter the queue for any additional questions. Today’s conference call is being webcast and it’s also being recorded for replay via our website. And now I’ll turn it over to Chris
Chris Kempczinski (Chief Executive Officer)
Good morning everyone and thank you for joining us. In the third quarter, McDonald’s delivered global comparable sales growth of more than 3.5% over with growth across all segments. In addition, for the second quarter in a row, McDonald’s delivered global system wide sales growth of more than 6% in constant currency reflective of the increasing contribution from new unit openings. Our performance is anchored in our accelerating the Accelerating the Arches business strategy and exceptional execution to provide the value our customers want for the food they love. Our combination of great tasting menu innovation and exciting marketing and reliable value and affordability succeeded in a highly challenged consumer environment and drove traffic share gains in a majority of our top markets. In the US we continue to see a bifurcated consumer base with QSR traffic from lower income consumers declining nearly double digits in the third quarter, a trend that’s persisted for nearly two years. In contrast, QSR traffic growth among higher income consumers remains strong, increasing nearly double digits in the quarter. We continue to remain cautious about the health of the consumer in the US and our top international markets and believe the pressures will continue well into 2026. Delivering industry leading value is part of McDonald’s DNA. It’s a foundational expectation of our brand to bring consumers through our doors and keep them coming back. And especially in today’s difficult macro environment, it’s more important than ever. On our last earnings call I previewed the close collaboration with our US Franchisees to improve consumers value perceptions of our core menu offerings. We heard our customers loud and clear on the need to deliver everyday value and affordability across their favorite items on our menu board. In September, we introduced Extra value meals or EVMs with a nationally advertised $5 sausage McMuffin with egg meal and an $8 Big Mac meal. And for the month of November, we’re back with a $5 sausage, egg and cheese McGriddles meal and an $8. 10 piece Chicken McNuggets meal. As we’ve said before, we will measure success of our EVM program in two ways. First by gaining share of lower income consumer traffic and second by improving value and affordability experience scores. I’m pleased with how our EVM program is performing since relaunch. We’re still in the early stages of the program and expect that the associated comp sales lift and traffic improvements will continue to build as awareness of the program increases over the coming quarters. Outside the US our performance has remained strong with our large markets continuing to execute disciplined value menu and marketing programs. The value platforms we’ve had in place for several quarters in our IOM markets are resonating with our customers and continuing to improve value and affordability scores. While these programs are working, we’re remaining agile and will evolve them along with the needs of our customers. In Australia, for example, we locked in pricing on our McSmartmeal and Loose Change menu value offerings for 12 months beginning in July, giving customers confidence and consistency in a volatile economic environment while helping us maintain relevance, drive traffic and gain share. Time and again, we’ve proven that when we execute well, we outperform and that has also been the case in Japan where we have had market share gains for six quarters amid consistently strong performance. Just a couple weeks ago, I visited our restaurants in Tokyo and my firsthand experience confirmed the momentum supported by strong local marketing and innovation. This included several exciting Happy Meal campaigns that drove significant traffic and social engagement, highlighting the power of local relevance and the strength of our brand in connecting with consumers. Along with both value and marketing execution, our new category structure is laying the groundwork to deliver more menu innovation to support long term growth. We’ve stood up dedicated teams with deep expertise and focused attention on the high potential growth categories of chicken, beverages and beef. At the outset, we promised increased speed of innovation and scale and and we’re already introducing new solutions into the system. Let’s begin with beverages, a global category of more than $100 billion that’s growing much faster than the broader IEO industry in the U.S. we launched a beverage test in more than 500 restaurants across Colorado and Wisconsin at the beginning of September. The product mix includes cold coffees, fruity refreshers, crafted sodas, energy based drinks. Initial results are exceeding expectations with strong satisfaction scores across the board and the new beverage offerings are driving incremental occasions across different day parts as well as higher average check. We’re excited to see progress continue with the test as we deepen our understanding, drive innovation and evaluate how these offerings could enhance our long term beverage strategy and in the US and abroad. Turning to chicken, a global category that is two times the size of beef and faster growing, we’re driving good progress on our chicken offerings and continued to gain share in our top 10 markets in the quarter. In the U.S. we brought back Snack Wraps in early July much to the delight of our most vocal fans at a nationally advertised price point of $2.99. The strong customer reception to this highly anticipated launch highlights the importance of pairing the right product with the right value proposition. In our IOM markets. Innovation standouts like the Chicken Big Mac in the UK and McWings in Australia exceeded expectations in the quarter and we’ll continue to go after the broader chicken opportunity by expanding our portfolio and pulsing in limited time offers to meet evolving consumer tastes. Investing in these high growth categories to align with consumer trends reinforces our broader strategy to drive guest count led growth, win in taste and quality and outperform competitors over the long term. With that, I’ll turn it over to Ian.
Ian Borden (Chief Financial Officer)
Thanks Chris and good morning everyone. As Chris mentioned, McDonald’s continues to deliver solid results by focusing on what we can control value, menu innovation and outstanding marketing execution while also driving consistent operational improvements across nearly all of our top markets. In the third quarter, global comparable sales increased 3.6% despite a challenging consumer environment and a difficult QSR industry backdrop. In the U.S. comp sales increased 2.4% for the quarter and we delivered another quarter of positive comp sales and guest count gaps to our near end competitors. We started Q3 with the national launch of snack wraps and the initial four week window exceeded our expectations. Snack Wraps were the most popular new chicken product launch in the US in recent history with nearly one in five McDonald’s customers purchasing a snack wrap during that period. Although easing somewhat after the exceptional initial launch period, snack wraps continued to deliver strong unit performance throughout the quarter, helping us gain share in the US Chicken category and drive high levels of customer satisfaction. We’re also continuing to see positive results from the McValue platform as we continue to evolve our value offerings in mid July, we introduced the Daily Double a third meal deal as a companion to the McChicken and the McDouble meal deals. Overall, our McValue platform continues to serve distinct needs with little overlap of customers across the Meal deal and Buy one Add one constructs, both of which continue to drive incrementality to the business in the quarter. And as Chris described in early September, we brought extra value meals back to the menu to ensure fans can find everyday, affordable pricing across our menu boards. Getting the EVM formula right is important because they account for about 30% of our total transactions in the US and so far results have been in line with our expectations as we build consumer awareness and drive behavior changes. While not a benefit to our third quarter results, in October we reintroduced Monopoly in the US for the first time in nearly a decade and we’re pleased with the performance. This year’s campaign includes digital engagement through our App Store, similar to what we’ve done successfully in international markets. Monopoly is one of the biggest digital customer acquisition events we’ve ever had, driving downloads and registrations and reinforcing the role of digital in our broader Strategy. With about 45 million 90 day active users in the US we’re excited about how Monopoly is helping more customers discover our strong value offerings available through our app. Turning to our internationally operated market segment, comp sales were up 4.3%, marking consecutive quarters of growth above 4% despite a challenged industry backdrop. Just like last quarter, each IOM market delivered positive comp sales growth, led by strong performances in Germany and Australia. In Germany, we delivered our strongest comp sales results in two years, extending the trend of market share gains to nearly four years. Despite persistent industry traffic declines, McDonald’s Germany has consistently outperformed, driven by disciplined execution of our value menu and marketing playbook. A standout in the quarter was the Taste of the World campaign, which showcased the global strength of the McDonald’s brand by offering customers a curated selection of international menu favorites at their local German McDonald’s restaurant. Taste of the World exceeded expectations and was complemented by an optimized mailer and strong local marketing, demonstrating our ability to deliver value and innovation simultaneously. In addition, it provided a campaign blueprint which we plan to replicate across more international markets in 2026 and which is currently live in the UK. In Australia, we’re encouraged by the momentum that the new management team and our franchisees are building across the entire system as we’ve gained market share for a second straight quarter by executing a full suite of initiatives across value, menu and marketing. And as Chris noted, we locked in value prices for 12 months starting in July, providing consumers with predictability and confidence. The launch of the Big Arch burger and breakfast McGriddles added excitement to the menu, while the return of Monopoly, now fully digital and available exclusively through the MyMaccas app, drove increased app downloads and registrations and contributed to digital sales growth in our international developmental license markets. Comp sales grew 4.7% led by Japan, which has delivered consistently positive guest count growth for nearly two years. In China, while near term performance continues to reflect macroeconomic pressures, we remain confident in the long term opportunity. We’re investing in the Future, including adding 1,000 new restaurants this year. We’re also updating our Hamburger University in China, which we believe will support talent development and reinforce our commitment to the market. We have the right partner in place and remain confident in our ability to drive sustainable, profitable growth over time. Turning to the P and L adjusted earnings per share was $3.22 for the quarter which includes a 4 cent benefit from foreign currency translation. Adjusted earnings per share on a Constant currency basis declined 1% versus the prior year primarily due to the impact of a higher effective tax rate more than offsetting an increase in adjusted operating. Increase in total restaurant margin dollars were over 4 billion, a 4% increase in constant currency and the first quarter in our history that we’ve surpassed the $4 billion mark. This performance is a true reflection of the strength of our business model in a pressured consumer and inflationary environment. GNA increased versus the prior year quarter reflecting 40 million of incremental marketing spend to support the relaunch of extra value meals in the higher incentive based compensation expense and the timing of investments in our strategic transformation efforts and growth opportunities. Our year to date adjusted operating margin is 47.2%, up meaningfully from the 46.7% in the prior year period, reflecting top line growth and strong execution across our system including portfolio management below the operating line. Our effective income tax rate for the quarter was 22.8%. We’re projecting our full year effective tax rate to be between 21% and 22% which is tightening the range from our previous estimate. We currently estimate that the impact of foreign currency translation on adjusted earnings per share for the fourth quarter will be about a 5 cent tailwind based on current exchange rates. As always, our estimate is directional guidance only as rates will likely change as the year progresses. We’re on track to deliver our financial targets for the year which include the expected impacts from tariffs currently in place and remain focused on executing our Accelerating the Arches strategy to create long term value for our stakeholders. With respect to capital allocation, our priorities remain unchanged. First, we invest in opportunities to grow the business and drive strong returns. Second, we return remaining free cash flow to shareholders over time through dividends and share repurchases. In line with investing in the business, we believe our development pipeline is healthy and we’re on track to deliver our current year targets and our 50,000 restaurants globally by the end of 2027. Whether through new restaurant openings, digital innovation or menu enhancements, we’re continuing to build a business that is positioned to win in any operating environment with respect to capital returns. In October, we announced a 5% increase in our dividend, which is our 49th consecutive year of dividend increases. That’s a testament to the strength, resilience and long term value that McDonald’s delivers and expects to continue to deliver to our shareholders. Our ability to consistently return capital while investing in the business reflects the durability of our model and the confidence we have in our future. With that, let me turn it back over to Chris.
Chris Kempczinski (Chief Executive Officer)
Thanks, ian each fall, McDonald’s celebrates our founders Day with reflections on the pride and passion that fuel our system. It’s a privilege to recognize the everyday actions of our crew members, franchisees and teams around the world. This year is particularly special given it’s our 70th anniversary. The resilience we’ve built across generations and geographies reminds us that our strength lies not just in our global scale, but in the local actions we take day in and day out to feed and foster communities everywhere McDonald’s operates. Founders Day is also a time to look ahead to the next chapter of innovation, growth and impact. From our digital transformation to our commitment to value and affordability, we’re building on our legacy in ways that matter most to today’s consumer, and we’re doing it together as one McDonald’s system. As we look to close out the year, our focus remains on executing what we can control. We’re committed to delivering for our customers, especially in the challenging environment we navigate today. As is often the case, Ray had great advice for the moment we face today when he said, adversity can strengthen you if you have the will to grind it out. That’s exactly what we’re doing. With that, we’ll take your questions.
Operator
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 re queue for any additional questions. Thank you, everybody. Our first question today is from David Palmer from Evercore.
Evercore (Equity Analyst)
Great. Good morning. Thank you. I wanted to ask you about the US business and perhaps the twin goals of improving company restaurant profitability and your system restaurant profitability, but also improving the value perception gap versus your competitors in the US how can you achieve both? I see some big AUVs for you guys, bigger than your competitors, over 4.5 million for your company restaurants and trailing restaurant margin is 11.5%. I could imagine higher margins than that or perhaps even more of a value perception gap versus competitors. And I have a feeling you have some ideas about how you’re going to grow that value perception gap and probably have your cake and eat it too, and improve the restaurant margins over time as well. Love to hear about that. Thank you. Sure.
Chris Kempczinski (Chief Executive Officer)
Thanks, David. Well, you know, I think that the formula for us is pretty well established over time, which is ...
