McDonald's Corporation 2026 Q2 Earnings Call

Good morning, everyone, thank you for joining us. With me on the call today 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 8-K 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 reenter the queue for any additional questions. Today's conference call is being webcast and is also being recorded for replay via our website. Now I'll turn it over to Chris.

Good morning, everyone, thank you for joining us. Before Ian gets into the detailed results for the quarter, I want to do two things: recap our progress under our Accelerating the Arches strategy and highlight how McDonald's remains positioned for long-term value creation, provide a snapshot of the quarter, what worked, what didn't, and what we're doing to address our opportunities. At the end of our prepared remarks, I'll preview McDonald's > NEXT in advance of our Investor Day. We'll also share some additional perspective on our leadership change in the U.S. and why Skye Anderson's past accomplishments give me confidence that she's the right leader for this moment. Almost six years ago, we unveiled our Accelerating the Arches strategy to drive our next chapter of growth and build the foundation for our digital-first future. The strategy worked. We've grown systemwide sales roughly $40 billion and operating income by over $3 billion.

We've done this by focusing on our three growth pillars, our MCDs, as we like to call them. We maximized our marketing by leaning into our fans to create cultural moments that drove consumer engagement and restaurant traffic. As a result, over the last six years, our brand relevance with the critical U.S. Gen Z consumer has increased, we now hold a significant advantage versus our primary competitor. The McDonald's brand remains one of one in our industry and among the most powerful brands in the world. We committed to our iconic core menu by focusing on our $17 billion brands with a particular focus on our critical beef, chicken, and beverage categories.

We created a global category structure to increase our pace of innovation. We're already seeing significant benefits from this focus, most notably in beverages. We've doubled down on the four Ds. In digital, we've built the industry's largest customer platform with nearly $220 million active loyalty users, and we're now among the largest loyalty programs in the world. In delivery, we've grown an efficient business with an industry-leading cost structure that generates more than $20 billion in annual systemwide sales. In drive-thru, we've modernized operations and invested in technologies that have improved accuracy and reduced service times. In development, we're well on our way to 50,000 restaurants, thanks to the most aggressive expansion of new restaurants in our history, all while keeping our existing restaurant estate among the industry's most modernized.

As we've executed against these growth pillars, we've also done the hard work behind the scenes to integrate our systems for a digital-first future. We're now close to having all our major markets on one app, one loyalty program, one pricing engine, one HR system, and one finance system. This will drive cost savings, accelerate innovation, harden security, and enhance stability. Critically, with all our data soon to be pooled in a global data lake, we'll also be well-positioned to capitalize on the new opportunities afforded by artificial intelligence. You'll hear more about all of this at our Investor Day in September. Now that I've recapped the progress under Accelerating the Arches and highlighted our continuing efforts toward long-term value creation, I'm going to provide a snapshot of our second quarter. McDonald's systemwide sales grew 4% in constant currency, reflecting the growing contribution from new unit openings.

Global comparable sales grew 1.3% with positive comparable sales growth across each of our operating segments. Our international markets, which contribute more than half of our systemwide sales and operating profit, continue to demonstrate that our playbook is working. Strong execution and value offerings, menu innovation, and creative marketing across many of our international markets continue to resonate with customers and supported results that were broadly in line with our expectations. Turning to the U.S., after a solid start to the year, the business slowed significantly, posting comparable sales growth of 0.8% in the quarter. This was below our expectations and something we're going to address in greater detail on today's call. We don't have a strategy problem. We simply didn't execute at the level we needed to in the second quarter. Our execution opportunities fall into three buckets.

First, although we've restored our overall value and affordability leadership, our restaurant-level results show that execution was inconsistent across the system. The strongest performing restaurants consistently executed our new everyday affordable price menu and delivered strong restaurant operations. We need that same level of execution in all our restaurants. Second, our restaurant teams were overwhelmed by too many deployments in the quarter, which led to less efficient restaurant operations. This impacted customer service times, and as service times went up, satisfaction scores went down. Third, our marketing programs didn't deliver against expectations. I'm going to turn the call over to Ian now to cover our results and these execution opportunities in greater detail.

Thanks, Chris, and good morning, everyone. In the second quarter, McDonald's systemwide sales grew 4% in constant currency. Global comparable sales grew 1.3%, reflecting a challenging consumer environment that saw QSR industry traffic in several of our largest markets continue to be flat to negative. Global comparable sales were also impacted by execution that was below our expectations in the U.S. business, as Chris just highlighted. For the first half of the year, systemwide sales grew 5% in constant currency, and global comparable sales increased 2.5%. Starting with the U.S., comparable sales grew 0.8% for the quarter and 2.3% for the first half. As Chris noted, we're not satisfied with our second quarter comparable sales growth. As we discussed on our Q1 call, we had a slow start to the quarter with comparable sales slightly negative in April as we lapped last year's highly successful Minecraft campaign.

In late April, we augmented our McValue program with a new under $3 everyday affordable price, or EDAP menu. Similar offerings have been consistently successful across our top international markets. We also added a $4 breakfast meal deal. Inconsistent restaurant-level execution of the EDAP menu and consumer awareness levels below target resulted in lower incrementality than we expected. At the same time, the business pulled back on digital offers and removed our Buy One, Add One for $1 feature to offset the investment behind McValue. In combination, all of these factors negatively impacted visits from some of our most loyal customers. We estimate that these value execution factors accounted for about two-thirds of the customer traffic underperformance relative to our expectations for the quarter. The remainder of our underperformance can largely be attributed to our FIFA campaign in June.

While the campaign provided a lift to the business and generated excellent system excitement, the campaign underperformed versus our expectations. Importantly, we're taking actions in the near term to address these opportunities. For instance, starting next week, we're launching more national digital flash offers to re-energize our high-frequency customers. In addition, we're going to target our most loyal users with more personalized digital offerings. We'll also be reallocating marketing dollars throughout the second half of the year to increase support behind our proven value offerings, such as Extra Value Meals. While we've been pleased to see our value and affordability scores improve significantly since last year, we remain ready to adjust as needed. We have been consistent. We will not get beaten on value. As Chris noted, operations metrics worsened in the quarter as restaurant teams were overwhelmed with too many complicated deployments.

We've already taken steps to simplify restaurant operations by eliminating several non-customer facing activities over the remainder of the year so that our restaurant teams can focus on delivering a great experience for our customers. In short, we're acting with urgency to improve our baseline guest traffic and put the U.S. business in a stronger position as we exit 2026. Turning to the International Operated Markets, comparable sales increased 1.5%, driven by Germany, Australia, and the U.K. again this quarter. These markets continue to demonstrate that our playbook across value menu and marketing delivers solid results when well executed despite a challenging industry environment. After recording slightly negative comparable sales in April, as we mentioned in our Q1 call, IOM's performance improved as expected over the balance of the quarter, with comparable sales returning towards more normalized levels in May and June, and this has largely continued into July.

On value, the majority of our top IOM markets benefited from strong EDAP menu offerings and meal deals as they have continued to respond to evolving consumer needs. Menu innovation behind chicken continued to drive growth across these markets, with Australia and Germany both gaining chicken share in the quarter. Australia generated momentum with its Korean Barbecue McCrispy LTO, one of the market's strongest chicken LTOs in recent years. Germany continued its successful Chicken for Every Moment campaign, featuring a mix of core products and LTOs. Germany also successfully launched our new specialty beverage platform in early May with an assortment of crafted sodas, refreshers, cold coffee, and Red Bull Energizers. We're excited about the performance to date and our strong position in a category in its early stages of development.

In regard to great marketing, two specific campaigns in the quarter are strong examples of how our market teams are bringing global ideas to life while executing them in locally relevant ways. The Menu Heist campaign, which we now have had success with in multiple markets, ran in Australia and showcased a curated selection of international McDonald's menu favorites, exceeding expectations. In Germany, Grimace returned to the market with a full menu of purple-themed offerings, driving significant social interaction, including 57 million views across social platforms. Reinforcing the emotional connection to our brand while benefiting top-line performance. Of our top five IOM markets, France's performance again fell short of our expectations. While it will take some time to improve alignment and execution across the system in France, we are clear on what's needed to drive performance. One element that is foundational is consistent everyday value.