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Thank you for standing by. Hello, and welcome to McDonald's First Quarter 2026 Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Dexter Congbalay, Vice President of Investor Relations for McDonald's Corporation. Mr. Congbalay, you may begin.

Good morning, everyone, and 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. And now I'll turn it over to Chris.

Good morning, everyone, and thank you for joining us. This past quarter, we once again demonstrated that when we execute our strategy with discipline, we win. In Q1, we grew global system-wide sales 6% in constant currency and global comparable sales grew 3.8% with solid growth across each of our operating segments. Just as importantly, we gained market share in the quarter in nearly all of our top 10 markets. In a challenging environment, our system stayed focused on what we can control, delivering on the things that matter most to our customers, compelling value that brings customers in the door, breakthrough marketing that gives people a reason to choose McDonald's and great tasting menu innovation that keeps us relevant and gives customers more of what they want.

That's what going 3 for 3 looks like at McDonald's, and we believe that outstanding execution will continue to set us apart in any environment. While each pillar is powerful on its own and even more so together, it all starts with value. At McDonald's, value has always been part of our DNA. As I've said before, and I'll say it again, McDonald's is not going to get beat on value and affordability. We've listened closely to our customers and adjusted along the way with a relentless focus on strengthening our value leadership.

In the U.S., with unanimous alignment through the franchisee field votes, we recently evolved McValue to include an everyday affordable price menu with individual items under $3, along with a $4 breakfast meal deal. Those additions build on our meal deal offers throughout the day and give customers clear, consistent options across dayparts. We've been applying that same discipline internationally for quite some time, where the vast majority of our large markets offer both everyday affordable price items and meal bundles, giving customers flexibility and options that work for a range of budgets.

This approach isn't new to us, and we know it works. We've listened closely to our customers and adjusted along the way with a relentless focus on strengthening our value leadership and leaning into our role as a bright spot for customers in what continues to be a challenging environment. That's exactly why the U.S. relaunched Extra Value Meals last September. As we said at the outset, we're measuring success in 2 ways: our ability to grow share with low-income consumers and our ability to improve value and affordability scores.

I am proud to say, as we look back from when we launched the program to the first quarter, that we've delivered on both, reinforcing something we know well at McDonald's. When value is clear, consistent and supported by strong marketing and menu execution, it moves the business. That takes us to marketing. Paired with a strong value foundation, marketing remains a powerful growth lever. We saw that this past quarter as teams around the world created moments of joy for fans and delivered campaigns that resonated with customers across different interests and occasions.

Our Friends campaign connected with long-time fans across several international markets by tapping into nostalgia and collectibles. We partnered with The Super Mario Galaxy Movie on a Happy Meal tied to the films release, creating a big family occasion around the brand. And most recently, we launched the KPop Demon Hunters partnership with Netflix, a campaign built for a more digitally native customer, combining a dual-daypart offerings with digital activation in the McDonald's app.

In the U.S., even in light of comparing against the highly successful Minecraft Movie promotion last year, the KPop Demon Hunters partnership did what we expected. And as with past culturally relevant IP, like last year's Minecraft and Grinch campaigns, we're scaling the event globally. That's one of McDonald's real advantages. We can take insights that resonate locally, turn them into brand moments customers want to be a part of and scale them in a way that we believe very few companies can.

And when we do that well, marketing does more than create buzz. It drives traffic and strengthens the underlying momentum of the business. Lastly, menu innovation. With our category focus, the system is successfully delivering the great-tasting food our customers expect quickly and efficiently. There's no better example than the beverage category. In Q1, Australia successfully executed the beverage test, building on learnings from last year's U.S. pilot. We're continuing to build real momentum in the category with both Germany and Canada launching new beverage platforms a few days ago.

And yesterday, all U.S. restaurants nationwide began offering 3 different refreshers and 3 crafted sodas as part of our new U.S. beverage platform under the McCafe brand. The soft launch results over the last week are encouraging, and we're looking forward to introducing different flavors and Red Bull-infused energy drinks throughout the year. As I said earlier, the strategic combination of a strong value foundation with culturally relevant marketing and focused menu innovation delivers outsized impact. Across key markets, we're seeing consistent 3 for 3 execution translate into sustained performance. Australia is a clear example of this playbook in action.

Value offerings such as McSmart Meals and a Loose Change menu provided compelling flexibility and choice and drove traffic into our restaurants. This quarter's Friends activation created excitement for our fans. Beef and chicken full-margin LTOs drove comp sales performance in the quarter, and the recent beverage test was met with great customer reception. By going 3 for 3, Australia delivered mid- to high single-digit comp growth and extended a third consecutive quarter of market share gains. Before I conclude, I want to provide an update on the impact of the war in the Middle East.

While the direct impact on our operations in that region did not have a material impact on our total company results in the first quarter, the operating environment remains volatile. Our teams are focused on supporting our franchisees, mitigating costs within our control and protecting the long-term health of the business in the region. We're extremely proud of the way our system continues to consistently show up for customers in every corner of the world, supporting both the communities in which we do business in and our teams, highlighting time and time again the strength of the McDonald's brand when our system comes together. With that, I'll turn it over to Ian.

Thanks, Chris, and good morning, everyone. As Chris just mentioned, overall, we delivered another solid quarter with global comparable sales growth of 3.8%. Our results reflect consistent execution across our system even as we continue to navigate a challenging environment. Starting with the U.S., comparable sales grew 3.9% for the quarter. And importantly, we delivered positive comparable sales and guest count gaps to our near-end competitors and maintained market share. As we discussed on our last earnings call, we exited 2025 with good momentum, and the U.S. system continued to build on that momentum in the first quarter.

Value continued to contribute meaningfully to our growth throughout the quarter, including our Extra Value Meals, which have performed well since the relaunch last September. Financial support to franchisees under the EVM relaunch program is expected to be below our initial estimate of approximately $35 million, as the program continued to see positive momentum. Together with the broader McValue platform and full margin promotions, EVMs continue to help drive incrementality. While the EVM financial support concluded at the end of March, EVMs remain a core part of our menu offering and continue to provide customers with a compelling and consistent discount versus a la carte pricing on their core McDonald's favorites.

On the menu front, the U.S. executed limited time offers across both chicken and beef, which helped maintain share in the highly competitive chicken category and drive market share gains in beef for the quarter. Campaigns like Hot Honey helped build further credibility with consumers and excitement within our chicken portfolio through the introduction of a new sauce, while the full margin Big Arch promotion introduced in March generated strong interest and performed in line with our expectations.

As Chris noted, we've worked collaboratively with franchisees to ensure we continue to provide customers with the most compelling value, as we adapt our offerings to meet consumers where they are. With unanimous approval through the franchisee field votes, we launched the revamped McValue platform in mid-April. The new under $3 menu features well-known a la carte items available throughout the day. Similar to how we relaunched Extra Value Meals, we kickstarted the new program by spotlighting 2 items available in the under $3 menu with a nationally advertised $2.50 McDouble and a $1.50 Sausage McMuffin.

Likewise, the new $4 Breakfast meal deal now complements the $5 McChicken and $6 McDouble rest-of-day meal deals that remain on the McValue platform. Together, the under $3 EDAP menu and the meal deals provide clear compelling price points across all dayparts, similar to what we've been offering successfully in nearly all major international markets. As with any new program, we know it may take time to build awareness, but early indicators on McValue's performance since the changes were introduced a couple of weeks ago are in line with our expectations.

Turning to the international operated markets. Comparable sales grew 3.9% in the first quarter. In many of our top international markets, QSR industry traffic contracted, yet we gained share in nearly all of them. Our results were driven primarily by strong performance in the U.K., Germany and Australia. These 3 markets continue to demonstrate disciplined execution across value, menu and marketing with each market gaining share again this quarter and delivering comparable sales growth in the mid- to high single-digit percent range.

Our value offerings are resonating as we continue to evolve them to meet local consumer needs. In the U.K., for example, the team strengthened its meal deal strategy with the introduction of Meal Deal Plus in January, which provides customers more flexibility to choose from a range of core and side items for only GBP 5.59. U.K. customers responded positively and the revised offer drove higher incrementality than the previous GBP 5 meal deal.

And in Germany, the McSmart platform continues to perform well, while a marketing campaign strengthened our brand's value perceptions by embedding affordability into familiar real-life moments, speaking to the importance of both experience and price to overall value. With respect to menu innovation, several large burger campaigns across the U.K., Germany and Australia delivered strong results in beef. In Chicken, the Chicken Big Mac in Germany generated incremental demand.

And in beverages, Australia's test of our new range of offerings performed very well, and we're excited about Germany's recent beverage platform launch. From a marketing perspective, the Friends TV show theme promotion, which ran in both the U.K. and Australia added to each market's solid results and serves as another example where we're sharing ideas and scaling campaigns across markets. We also featured this campaign in Italy in the first quarter. Speaking of Italy, the market celebrated its 40th McDonald's anniversary in the first quarter.

To mark the occasion, Italy brought back several iconic menu items, including the 1955 Burger, the Chicken Bacon Onion Sandwich and the Royal Deluxe Burger, all which have deep roots in our brand's history and continue to see strong customer demand. These full margin LTOs helped Italy extend its streak of consistent market share gains to more than 2 years. While the IOM segment continued to deliver solid growth in aggregate, an example where performance is not meeting our expectations would be France.

France's performance highlights the importance of consistent discipline in our execution of value. As a first step, the system aligned on a new value platform that just launched last week, reflecting a shared commitment to improving performance even amid a contracting industry environment. Turning to our international developmental licensed markets. Comparable sales grew 3.4%, led by continued strength in Japan, reflecting great local execution and brand relevance. In China, we maintained share in the quarter. And while we expect the macroeconomic pressures to persist, we continue to execute against our strategy to capture the long-term growth potential of the market. We remain on track to open approximately 1,000 new restaurants in China this year.

Turning to the P&L. Our solid top line performance drove adjusted earnings per share of $2.83, which included a $0.13 benefit from foreign currency translation. On a constant currency basis, this represents a 1% increase versus the prior year. We generated more than $3.6 billion in restaurant margins during the quarter, and our adjusted operating margin was 46%, highlighting the resiliency of our business model. However, our U.S. company-operated margins in the quarter were not acceptable. We're actively addressing opportunities to improve performance and revisiting the optimal franchisee versus company ownership balance to maximize system value.

Based on current exchange rates, we expect foreign currency to be a full year tailwind to 2026 EPS, totaling in the range of $0.20 to $0.30. As always, this is directional guidance only, as rates will likely continue to change as we move throughout the remainder of the year. In regards to the remainder of the year, we are reaffirming our full year 2026 financial targets as we outlined in February. With respect to food and paper inflation, our supply chain teams, along with our world-class supplier partnerships and hedging strategies position us well to navigate near-term cost pressures and increased volatility resulting from the war in the Middle East.

Longer term, we believe there is an increased risk of higher cost inflation due to ongoing global supply chain disruptions. While we expect the external environment to remain challenging, we're focusing on what we can control, executing consistently across value, menu and marketing and leveraging the financial strength and scale of our global system. And with that, let me turn it back over to Chris.

Thanks, Ian. This quarter reinforces something important. In a challenging environment, we believe McDonald's can still do what very few brands can. We can lead on value, we can show up in culture in ways that matter, and we can keep bringing customers menu news that gives them more reasons to choose us. That's what this system delivered in the first quarter, and it's why I feel very good about where McDonald's is headed. Our history has been defined by our ability to remain green and growing. And what gives me confidence is not just the momentum we've built, it's the strength of this system and our ability to keep evolving with the customer without losing what makes McDonald's distinctly McDonald's.

We'll share more with the McDonald's system on what's next when we come together in June for worldwide convention. And later this year, we look forward to sharing more with all of you at our Investor Day on September 23 in Chicago. With that, we'll take questions.

[Operator Instructions]

Our first question today is from Dennis Geiger of UBS.

Following another solid U.S. sales performance in the quarter, can you talk a bit more about how you're thinking about the U.S. sales trajectory over the balance of '26, given some of those key sales drivers that you identified across value and marketing and menu innovation, but also against the currently challenging macro backdrop in the U.S.?

Yes. Thanks for the question, Dennis. As I look at the marketing calendar that they've got for the U.S. for the balance of the year, I feel very good about the plan that they have in place. I think clearly, we're going to expect to continue to benefit from the McValue program. That's locked in through the balance of the year. And then we have, I think, a great lineup of menu innovation as well as marketing news. Certainly, beverages is something that we're expecting is going to be a tailwind for us for the business for the balance of the year and hopefully longer than that.

What's obviously going on is the macro environment and consumer sentiment. That's not new news. But I think probably it's fair to say that it's getting -- it's certainly not improving, and it may be getting a little bit worse. How that plays out in all of this, I think, is an open question. But as Ian said in his comments, our focus is on what we can control. And on that score, I feel very good about the balance of the year.

Dennis, I might just tag on to Chris and just knowing, I'm sure, it will be a focus for lots of the Q&A today, just talk a little bit about kind of Q2 and beyond. I think as you heard us say upfront, I mean, we've had a solid start to the year. And I think what we're most pleased with is just the consistency of our performance across all of the 3 operating segments. The fact that we took share in the majority of our largest markets in the quarter, I think, is proof that we've positioned the business well to do well in any kind of environment even if the environment becomes a little more challenging than it has been.

I think just speaking a little bit to kind of Q2 and beyond, I mean, I think we expected April to be a difficult comp month, driven by the really successful global Minecraft program that you've all heard us talk a lot about. And as we had planned, sales in both -- comp sales in both the IOM and the U.S. segment were slightly negative in April. So I think as a result of that and as we had planned for in both the U.S. and IOM segments, we expect in Q2 that we're going to see a meaningful deceleration from the 3.9% that we put up in both segments in Q1 from a comp perspective, which reflects the soft performance in April, but we also expect for each segment comp sales to accelerate on a 2-year stack basis.

For IDL, comp sales growth in Q2, we expect to decelerate from the 3.4% in Q1, primarily reflecting a little bit what Chris was talking about earlier, just the volatility, obviously, of conditions in the Middle East and some markets in Asia, but also to accelerate slightly on a 2-year basis. I think just to be, I think, clear, I mean, obviously, with the April -- the difficult April comp now behind us, we're confident in our underlying momentum driven by what Chris was just talking about, the strength of value and affordability, which we think we've really got right.

You've heard recently about some of the adjustments we put in place in April as part of McValue 2.0 and then the lineup of activities through the rest of Q2 and into the rest of the year, like the recent beverage launches that we've talked about in Germany, Canada and the U.S. and then, of course, our FIFA partnership in June. So we certainly feel like we've got the business set up well irregardless of the conditions. And as Chris said, we're really focused just on making sure we continue to strongly execute.

Our next question is from Brian Harbour of Morgan Stanley.

I guess just on the value point, it seems like you're kind of continuing to revisit it here. I guess, could you just elaborate on sort of the need for another iteration? How often do you think you will change that? And then outside the U.S., right? I think you alluded to France, for example, where you also need to revisit that. What has made certain markets more or less successful on value given that many of them have had things in place recently?

Sure. Well, let's start with where we're at with McValue and the components, there's really 2 core elements that we look at. One is the Meal Deal program that we have, and that's been in place for over a year. And then we also have -- just recently, we launched this, what we call everyday affordable price point or EDAP menu, which is the 10 items for under $3. And what our experience has shown us in markets around the world as well as a fair bit of work that we've done is you've got to have both of those components in place.

You need to have a Meal Deal offering there to be able to drive interest and excitement around some of our core menu items. But you also need entry-level price points for those folks, who are maybe a little bit more stressed around affordability and are looking for what can I get for $3 or less. And so hats off to the U.S., they've got that in place. In rest of world, most of our IOM markets, we had the same construct. And in fact, that informed what we've done in the U.S. France was the one exception. We did not have as strong a program as we needed to in France on both dimensions of that.

And so what Ian referenced is getting that put in place. If I look at sort of our overall value and affordability scores, we've made a ton of progress. We were -- if you went back 18 months or so ago, there were places where we were seeing -- that we were starting to have declines in terms of perception there. Now we were still better than competition, but our leadership gap was narrowing. And if you look at what's happened more recently over the last 6 months or so, we've seen a significant improvement in all of our value and affordability scores to the point where I think we're in great shape on value and affordability.

Now because of the operating environment that we're in, thank God, we've got that in place because I think you need in this environment, value and affordability to be a strength. And I'm happy on behalf of our system to say that we've got value and affordability now where I think it's a real strength of our system.

I'm just going to hook on that one, Brian, just to add to what or emphasize maybe a couple of things that Chris talked to. I mean I think in this environment, agility is going to be -- continue to be key. And I think that's what our business is demonstrating. I think as you've heard Chris and I both talk about repeatedly, we're not going to get beat on value. And I just would echo Chris' comment on credit to the U.S. business that they have listened to consumers and really leaned into the areas of opportunity. And I think that's -- one of our key advantages is our strength and scale and our ability to kind of lean in proactively to what consumers are expecting and needing from us.

And I think we're really confident in the setup in the U.S. now because, as Chris talked about, we've had that model in place in most of our international markets for some time, and we know it works. And France is an example where if you don't stay disciplined, and keep being sharp on value and be -- have a winning formula that can get away from you and then you've got to come back and get after it again. So we feel really confident, as I talked about earlier, that we're positioned well no matter how the environment around us continues to evolve.

Our next question is from John Ivankoe from JPMorgan.

The question really is around system optimization. And you did mention that in the context of U.S. company store margins, but I'll even pivot that even forward and look at company store margins for the IOM business as well. So it seems like both of those markets might have opportunity to refranchise. I mean the stores would actually potentially create more from a P&L perspective as a franchisee than a company store. So just kind of comment on that, how big of an opportunity we may have to refranchise company-operated stores.

And in that context, especially if refranchising does occur, should we be rethinking previously set development targets in the U.S. and IOM, as margins have been under relative pressure in both of those segments since the initial guidance was given, I think, in late 2023.

John, thanks for the question. I think as I kind of said in the upfront remarks, I mean, our U.S. McOpCo performance is not acceptable. I think we were very clear on that. I think we have opportunities. Although I would highlight just because you referenced it, we saw McOpCo margin growth in our IOM segment in the quarter. And I would say that's in a set of conditions where the IOM markets are generally facing more inflation. So I think it goes back to what we've talked about pretty consistently when we are able to generate solid top line growth, we feel confident about our ability to grow margins over time.

I think at the end of the day, it's pretty straightforward, and you've alluded to this. I mean, we have a choice. We make a decision, obviously, when we own and operate a restaurant directly, and that decision is based on generating a strong return and generating a strong system outcome. And if we can't deliver that, I know we've got a lot of great owner operators in the U.S. or around the world that can run those restaurants well and generate strong outcomes for either themselves or for the overall business.

So I think we are going to be very clear and disciplined in how we make those decisions, looking at what's best for the overall system. I think in regards to new restaurants, what I would say is we still have a lot of confidence in our ability to grow. But again, it's -- as we've emphasized for the last couple of years, our primary decision matrix is based on delivering a strong return for McDonald's and a strong return for the owner-operator that's going to own and operate that individual restaurant.

And if we can't deliver a strong return and certainly, we're seeing more inflationary pressure, I think, with what's going on in the war, in the Middle East, and kind of the ancillary impacts on that. If that means that an individual restaurant no longer meets the right return threshold, then we're going to make those decisions accordingly. I think overall, we still feel confident in our ability to kind of get to about 50,000 restaurants by the end of 2027.

Yes. And I would just maybe underline a couple of points that Ian made. One is on McOpCo, frankly, it's any restaurant in our system. We're always looking to put the restaurants in the hands of the best operator. And so I think certainly, the performance in the U.S. right now relative to franchisees would indicate it's not being run as well as it could be. And so it's either on us to fix that or we're going to find franchisees who can run the restaurant better.

And if you look at the margins that our franchisees, the restaurant level margins that they're earning on their own restaurants, clearly, there's a lot of upside versus what the McOpCo performance was in the quarter. And you think about development, I would just say to build on Ian's point, we are relooking at the pipeline in light of what we think are going to be now the new construction costs, as a result of some of the supply chain challenges. And if that means that some of those restaurant locations that are in our pipeline no longer make sense, they'll drop out, and we will adjust accordingly.

But as Ian said, everything that we're doing around development is about getting good returns. And if we don't feel like we can get good returns, we're going to drop those out. We're not chasing an absolute growth number, but we do see significant opportunity for us on development still.

Next question is from David Tarantino from Baird.

My question is about franchisee profitability. And I was hoping you could give us an update on what those trends look like in the U.S. in light of the McOpCo margin performance. It sounds like maybe there's a unique issue there that's not affecting the franchisees. But just wanted to confirm sort of what the profitability there looks like. And then secondly, I was hoping you could comment specifically on IOM franchisee profitability in light of the spike in energy prices. I think maybe back in 2022, you had to provide some support there. So just wondering what the outlook for that dynamic is?

Sure. Well, no surprise with the inflation that we're seeing in the market, there's certainly a lot of pressure that we're trying to navigate with franchisees around their own profitability. U.S. cash flow last year, we've talked about that previously, but it was stable. But as we head into this year, there's certainly concern around franchisee profitability, not just in the U.S., but in IOM as well. And what we've talked about with franchisees, our system -- everybody needs to be successful in our system. And so we're keenly focused along with our franchisees on how do we make sure that we can navigate some of these cost pressures and the other investments in the business and also make sure that we're able to grow franchisee cash flow.

But beef inflation is just one example, particularly pronounced in Europe, but also a factor in the U.S. For a portfolio like ours, that absolutely puts pressure on this. And so I think if you were to talk to our U.S. franchisees right now, they're feeling under pressure from a cash flow standpoint. I think you'd find the same thing if you talk to our IOM franchisees. And we're working as we always do with our franchisees to make sure that all 3 legs of the stool are successful.

Yes, David, just maybe let me add a bit to what Chris has said. And just a couple of things. I think on commodity costs, just to be clear, because we've reiterated our guidance and part of the assumptions that went into the guidance that we issued at the beginning of the year was obviously commodity inflation from a food and paper perspective, which in the U.S., we expect to be in the low to mid-single-digit range and in IOM mid-single digits.

So I think we feel pretty confident in our ability to navigate inflation through '26, partly because, obviously, we've got a fair bit of hedging in place, both on food and paper and on energy. So that gives us confidence kind of in our ability to navigate what we're seeing right now. And obviously, we've got the strength of our supply chain system, our world-class suppliers who really help us to kind of navigate even some of these pressures like Chris alluded to on beef, for example.

I think -- obviously, based on what we know today, I think we certainly think there's more potentially inflation on the way as we get to the end of '26 and into beginning of '27. And obviously, what we're continuing to focus on is driving that strong top line growth. That's obviously what allows us and our franchisees to navigate kind of the external conditions as best we can and, of course, continue to manage the cost impact on the business as we do that.

Next question is from Greg Francfort over at Guggenheim.

I just wanted to ask maybe what you guys were seeing in performance of higher income and lower income customers. I think we're getting maybe mixed reads from companies in other sectors. And I just -- you were one of the first ones to call out maybe some pressure in 2024. I want to see how that might be evolving?

I mean I think at a macro level, it's largely unchanged and that the higher income continues to have very resilient spending, and that is true for our business as well, where we're seeing solid growth, good growth with higher income and also gaining share with higher income for us. On that lower income, while the declines are not as pronounced as they were maybe 6 or 12 months ago when we were talking about high single digit, the low income is absolutely still declining. I think some of that is probably due to lapping.

I think also in our business, we would look and say, we think we've recaptured some of those low-income consumers because of our value program. But clearly, when you have elevated gas prices, which is the core issue that I think we're all seeing about it in the press right now, gas prices, inflation on that, that is going to disproportionately impact low-income consumers. And so we expect the pressures there are going to continue.

Next question is from Sara Senatore with Bank of America.

I wanted to go back to FIFA, the World Cup. I think you sponsored it before, obviously, so you have a good read on what it does. I think in my recollection, it was an important driver of digital adoption, but maybe not in aggregate as much a demand accelerant. So I guess 2 parts. One is, is that the right recollection? And two, given that you have loyalty now, is this an opportunity to still see the kinds of increased frequency that you have previously? I think, you've talked about kind of doubling frequency when people join loyalty. So just kind of your historical experience with FIFA and kind of what you're expecting going forward.

Sure. Well, we're very proud of our 30-year-plus association and sponsorship of the World Cup, and that will continue this year. In terms of performance, it really depends on country by country. I think your question, Sara, is probably focused on the U.S. And the big benefit that we have this year, of course, is that the World Cup is in North America. And it's also going to be something that happens in stadiums across not just the U.S., but Canada and Mexico as well. And so I think that's something that for us, we see as a real benefit.

And the U.S. team as well as our Canadian team and Arcos Dorados have an exciting marketing calendar that's lined up that we think is going to have the potential to really drive performance in the restaurant. So I think because of the fact that this year, we're in North America, it's a little bit difficult to extrapolate from other years where it wasn't in kind of our big U.S. market, but we're optimistic about what we think it's going to do this summer.

Next question is from Dave Palmer over at Evercore.

This is [ Elliot ] on for Dave. This is the second quarter in a row where you've called out U.K. business strength. The turnaround has been remarkable, both in the speed that it has been achieved and the fact it was done in what seems to be a very challenging backdrop in the region. Are there any lessons you can take from the wins you have been able to generate in the U.K. and apply those to the U.S. and France?

I'll let Ian start and then if there's anything else to add, I'll jump in.

Elliot, look, I think it's a few things. I don't think it's necessarily anything new, but it's just a reminder of, I guess, discipline and focus. Obviously, it starts with having the right leadership in the market. We've made a fair bit of change there, and we feel really confident that we have strong leadership in the market now, which I think has been instrumental to building confidence both internally with our franchisees and externally with consumers. I think the U.K. has really done a nice job of adopting that formula of having a really strong value and affordability foundation, evolving that to meet the needs of consumers in the market, as the context has kind of continued to shift and then doing a great job of kind of brand activation combined with exciting menu news.

The U.K. has done a number of campaigns, whether that's kind of what we call our menu heist campaigns or kind of favorites around the -- from around the world to other exciting activations, and they've done that in a way, I would say, consistently to kind of get that holistic formula to come together very, very well, and they're taking share, which is the ultimate proof point of how the actions are kind of resonating with the consumer. And I think it's just -- it's obviously strong leadership and then it's consistency of execution. And I think us having impatience to make sure that if that's not the case, we act quickly to get it in place.

The only other thing that I would add, the U.K., as I think about the IOM markets was probably -- a franchisee profitability there was probably under the most pressure of any of our large markets. And if we look back I think probably it's fair to say that the team was overemphasizing traffic at the expense of franchisee profitability in some cases. And we've got a much better balance now. Franchisees have a clearer line of sight to how we're also going to be growing franchisee profitability. And that just drives much tighter system alignment, which then allows us to do all the things that Ian was talking about. So that would be my only other add.

Next question is from Jeff Bernstein of Barclays.

I just wanted to follow up on that U.S. ownership structure conversation. I know you mentioned not being happy with the company-operated margin. Seemingly, that's despite the solid top line that you delivered in the quarter, for example, which I think was what you noted was kind of needed to drive that margin. So I'm wondering if you can offer some color on the primary issue in terms of not being well run enough or perhaps the value menu is not profitable enough. Anything you can share in terms of the pricing you're taking? Otherwise, it does seem to imply...

I mean there's a lot of different things. I think if I were to simplify U.S. McOpCo performance, it was investing in labor -- additional labor at the same time that they were probably being even more restrained around pricing. And so when you are adding labor to the restaurants and you're also not passing through some of the costs because you're sort of being overly conservative around pricing, you end up having the performance that we've talked about here.

Now those are fixable, but I think the broader question for us that Ian was discussing is having confidence that we can be running -- that we are the best operators of those restaurants. And we're working closely with the U.S. team, as we are in every other market. We'll continue to kind of evaluate that. And I would say if we're going to make any changes on that, that would be a topic we would talk about at Investor Day.

Next question is from Andy Barish over Jefferies.

I wonder if you could talk a little bit more to the beverage launch and maybe what caused you not to use kind of Red Bull and energy as part of the initial launch right now?

Sure. Well, we're really excited about what we're seeing so far. Yes, it's early days, but you get a sense sometimes of these things even in early days of the buzz and not just in the U.S., but we're also simultaneously right now launching in Germany and seeing great kind of consumer reception on that. I think as it relates to what are all the various products that we launch with, there's really 2 things. One is just operationally being ready in terms of launching the beverages, and there were some things that we needed to do in partnership with Red Bull to be able to meet the demand that didn't line up perfectly with this May launch, but it also gives us an opportunity to rehit the platform, which we'll do sometime later this year. So it's a combination of operational readiness and also our desire to continue to have new news to drive customers into this beverage platform.

Next question is from Jon Tower at Citi.

I want to go back to the comments regarding development and the idea of examining the cost to build, given the supply chain challenges. And obviously, it sounds like on the horizon, there's a new potential remodel cycle coming for the U.S. business. So I'm just curious how we should think about that dynamic playing into a potential remodel cycle. Are you looking at things a little bit differently given the cost? Would you have to maybe commit more capital on the company side for franchisees to buy into some larger remodels that might be coming?

Sure. Well, I'll start at a high level and then Ian can cover anything I missed. But you're right that we're in the midst of entering into a remodel cycle. And it's not just in the U.S. I'd say the same thing applies to IOM as well, which is we're now about a decade post really making EOTF or Experience of the Future, a big remodel program that we first started in IOM and then we brought to the U.S. So in our business, every 10 years, the expectation is that our franchisees will remodel their restaurants as part of just continuing to make sure that they look great and offer the customers the experience that they do.

So we're naturally heading into right now that remodel cycle. And we're taking the opportunity as we approach that to also think about, are there any other things that we need to go do around this business to make it set up for the future. Certainly, one of the things that we've seen over the last several years is just the growth of digital, the growth of delivery. That means that the kind of customer flows or customer journey in our restaurant looks a little bit different, how might we adjust that, et cetera. So we are certainly working with franchisees to think about what does that restaurant in the future need to look like.

There may be partnering on aspects of that, but typically, we don't partner on remodels as part of just the regular updating of the business. But if there are specific sales driving things on top of that, that makes sense for us to partner on, we would take a look at that. And I would imagine if we had more to share on that, that would be another topic we could cover with you all in September.

Yes. I think Chris has covered all the bases. I mean I think I think the key is any time we get into kind of these more significant reinvestment cycles, we're very, very thoughtful to look holistically at how we can kind of get the most out of the investment. And that obviously, a bit to your point, Jon, in this case, is just making sure in this environment, we're really confident that there are enough and the right levers to drive growth so that everybody, the franchisee, obviously, firstly, gets a strong return on their investment.

And if we are going to support elements of that investment, as Chris alluded to, sales driving elements that we're also getting a strong return on any support that we may put behind that. So I think that's pretty normal course, but it's certainly a good time for us to be looking at that, particularly in the U.S. where we've got a big investment cycle ahead.

Next question is from Lauren Silberman at Deutsche Bank.

I wanted to just follow up on the comp expectation for 2Q. I understand the April lap, but I guess, do you expect the balance of the quarter to rebound back to where you were running? And then just more broadly, do you think you're seeing any discernible impact from the rising gas prices on the underlying business? I know you mentioned low income will remain pressured, but have you seen a step down, I guess, since gas prices have accelerated globally?

Lauren, let me start, and I'm sure Chris may want to weigh in here. I think as I said earlier, April is isolated and discrete because of the lapping of Minecraft. We just wanted to be very clear to kind of call that out because it is quite a unique month. And as I said earlier, I think, we feel very confident about the lineup of activity and the underlying momentum of the business with all of the things we're doing, including obviously, the moves we've made on value and affordability.

I mean, I think the environment around us, as Chris talked about earlier, I think, continues to be challenging. But as also he said, it's not new. And obviously, our focus is on what we can control. And as I said earlier, we think we've positioned the business well and well to win irregardless of the environment. Obviously, higher gas prices, as you talked about earlier, are not going to be helpful, particularly for lower income consumers who are already, I think, under pressure. But we think we're offering the right choice and affordability on the menu that's going to appeal to consumers, whether across all income cohorts. And obviously, that's always our goal.

The only other thing I would add, I guess, to this point about do we expect the momentum to continue as we get past April. Certainly, our expectation is, as we've been doing, that we're going to continue to gain share. And so if you look at May and June, our expectation is that we should in our major markets be gaining share. Now that share growth against what is the industry growth, I think that's an open question. Whether there's been slowing or not, I don't know if there's enough data at this point to really give you a definitive answer on that.

But certainly, consumer sentiment is heightened anxiety, let's just say, and it may have an impact. But our focus, again, is on controlling what we can control and our expectation for continuing momentum around share growth, we're expecting that to continue.

Next question is from Andrew Charles over at TD Cowen.

Ian, you talked about the commitment to get to 50,000 restaurants by 2027. But I'm curious, given the state of cash flows in the U.S. and IOM that you've talked about, is it right to think that [ ILD ] is going to really be driving a lot more and pulling a lot more of its weight than you originally expected at the Investor Day a few years ago?

Andrew, well, I don't think we're expecting a kind of a shift in the mix. I mean, as you know, IDL already makes up the majority of our openings just because of the size of the opportunity in a lot of those developing markets like China or elements of Asia and Latin America, et cetera. And I think our partners continue to be optimistic about the opportunity for growth. And in those markets, a lot of them, you already have conditions where you've got to be very, very sharp to get good returns. So I don't think there'll be a significant shift.

I think for all of us, though, a bit to what Chris and I talked to earlier, it's just -- we just have to stay sharp on making sure we feel confident in our ability to deliver returns. And that's, I think, ultimately what will be any shorter-term adjustment. I think the long-term opportunities in all of our markets, we still remain very optimistic about, and we're going to stay focused on that.

Yes. The only thing I would add, I think sort of implied in your question was that cash flow pressures somehow affect our system's ability to invest on new restaurants. And I would just say we have a tremendous amount of financial firepower in our system, despite some of the pressures that exist in some markets with franchisees on cash flow because of inflation. The overall financial situation when you look at debt levels and everything else, we're in a really good spot there.

And so I have no concerns about our ability when it makes sense, when we can get good returns to continue opening restaurants at a strong pace. That's going to be ultimately what drives these decisions because we've got plenty of capital to spend if we need it and we see good opportunities.

Our next question is from Danilo Gargiulo at Bernstein.

I was wondering if you can share your thoughts on what you're seeing on the chicken category, both nationally and internationally. And perhaps what has been the evolution of your market share and the competitiveness of the category? And more specifically, whether the beef prices being more elevated is driving consumers to be eating more chicken mix for you and in general, for the rest of the industry? And any thoughts that you have on the evolution of beef costs would be great.

Sure. Well, as we've talked about -- and I know you are well aware, Danilo, the chicken category is bigger than beef globally, and it's growing 2x faster. So it's something that there's a ton of opportunity. If you think about beef where we have, call it, a mid-40% share, our share in chicken is, call it, high teens. So the opportunity, the headroom for us in chicken is really quite significant. And I'm pleased with how our system has performed over the last couple of years, the last several years around chicken.

We've gained significant share. I don't have the number in front of me, but it's probably close to 2 points of share that we've gained in chicken over the last few years because of all the work that our system has been able to do on that. So we're very excited and bullish on that. Because of the underlying growth, you're seeing everybody else is also excited about it. And so there's certainly a lot of activity happening in chicken across the industry. For us, it's going to continue to be a point of focus and a point of priority.

And I do think it's a fair thing to point out that when beef prices are as elevated as they are, chicken becomes a much more attractive value opportunity relative to beef. And I do think that, that's something that's playing in right now. And so how that continues or plays out in terms of its growth, it depends largely on how long these beef prices are at these sort of historic highs. But certainly, right now, in the environment that we're in, I think chicken is benefiting relatively to its better cost position relative to beef.

Our next question is from Chris Carril over at KeyBanc.

So I wanted to ask about your advertising focus and marketing message for the balance of the year, maybe with a specific focus on the U.S. Can you expand a bit more on how you're thinking about balancing the messaging around McValue in light of the current backdrop alongside messaging on new and perhaps more premium menu innovations such as beverages?

Yes. I think your question is kind of hinting at the fact that it needs to be a balance. And we can't be overtorquing on value at the expense of margin-driving initiatives. At the same time, you need to have a strong value program in place to be able to generate the traffic and offer those opportunities for trade-up and everything else. And so -- as I look at the U.S. calendar, obviously, I'm not going to share the details of that for competitive reasons for the balance of the year. But I think the U.S. team working closely with our franchisees has a good balance on their marketing calendar.

That's it for today, folks. If you need any follow-ups, please send me an e-mail or send it to the McDonald's IR inbox, and we'll talk to you later. Thank you.

This concludes McDonald's Corporation Investor Call. You may now disconnect, and have a great day.

Hello, and welcome to McDonald's Fourth Quarter 2025 Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded.

[Operator Instructions]

I would now like to turn the conference over to Mr. Dexter Congbalay, Vice President of Investor Relations for McDonald's Corporation. Mr. Congbalay, you may begin.

Good afternoon, everyone, and thank you for joining us. With me on the call today are Chairman and Chief Executive Officer, Chris Kempczinski; Chief Financial Officer, Ian Borden; and Chief Restaurant Experience Officer, Jill McDonald.

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 on our website.

And now I'll turn it over to Chris.

Good afternoon, everyone, and thank you for joining us today. I want to start by recognizing the resilience and commitment of the McDonald's system. Our franchisees, suppliers and employees showed up for our customers and supported communities to close the year with strong momentum and a solid foundation heading into 2026. In 2025, McDonald's delivered system-wide sales of nearly $140 billion, up 5.5% in constant currency for the full year. This reflects solid comp sales growth of more than 3% for the full year and over 5.5% in the fourth quarter with strong growth across all segments. Our system-wide sales growth also reflects the benefit of our accelerating pace of new restaurant openings. In 2025, we opened 2,275 restaurants on top of the more than 2,000 restaurants we opened in each of the prior 2 years. all while we've continued to see attractive returns from these new restaurants.

Our pace of new store openings will accelerate further as we target approximately 2,600 gross restaurant openings in 2026, which keeps us on track to achieve 50,000 restaurants by the end of 2027. Despite a challenging industry backdrop, our system stayed agile throughout 2025 by concentrating on what we can control. As we look to 2026, success will again depend on going 3 for 3, compelling value that brings customers in the door, breakthrough marketing that creates meaningful moments for our fans and menu innovation that provides great tasting food for our customers. We believe this disciplined focus enables McDonald's to outperform in any environment.

Let's start with value. We've listened to customers and adjusted along the way with a relentless focus on delivering leadership in value and affordability. And our efforts are working. In the U.S., we launched McValue at the start of the year, which drove immediate incrementality and then we relaunched extra value meals in September. As we've said before, we'll measure success of our EVM program in 2 ways: through our ability to gain share of low-income traffic; and by improving value and affordability experience scores. I am pleased to say that our EVM performance in the fourth quarter is exactly where we had hoped to be at this point. Together with McValue and marketing, we gained share with low-income consumers in December, and we've seen a meaningful increase in our value and affordability scores.

Predictably, as U.S. franchisees provided these stronger value offerings throughout the year, their cash flow grew versus the prior year. In our big 5 international operated markets, we've offered everyday affordable price options or EDAP and menu bundles since early 2025. As awareness for these programs has grown, we've seen value and affordability scores steadily improve throughout the year, which also tell us they're resonating with customers. As I've said before and I will say again, McDonald's is not going to get beat on value and affordability. It's in our DNA, and we will remain agile to respond as appropriate to a dynamic competitive landscape.

That takes us to marketing. We once again activated in ways that reached far beyond our restaurants and into global culture in 2025. The Minecraft movie collaboration was our largest global campaign ever, bringing together 2 iconic fandoms across more than 100 markets and 37,000 restaurants. And most recently, The Grinch returned after first debuting in Canada in 2024. The campaign, which came to life in several markets in 2025, drove extraordinary excitement, sparking sellouts and becoming a true holiday moment for millions of families. With the inclusion of Grinch's themed collectible socks in many markets, we were the largest seller of socks in the world for nearly a week. We sold about 50 million pairs globally across the first few days of the campaign. Both record-setting programs show how uniquely positioned McDonald's is to tap into culture at massive scale, reinforcing the power of a One McDonald's way of marketing and our ability to share creative excellence across the system.

The last element of our trifecta is menu innovation. We saw strong performance from the return of Snack Wraps in the U.S., the debut of McWings in Australia and the introduction of the Big Arch in several markets, each resonating with different customer segments and bringing excitement to our menu. As we build what's next, we're grounding our work in a sharper focus on taste and quality, creating dishes that feel unmistakably McDonald's and resonate with customers around the world. There is so much exciting work happening in this space. In a few minutes, Jill McDonald, our Chief Restaurant Experience Officer, which includes leading the global category management teams, will share more of what's coming this year. I was recently in Australia and saw firsthand how they're going 3 for 3 with value, marketing and menu to win. Our close partnership with franchisees is driving strong momentum in the market. It's proof of what happens when you hit the mark on all 3, driving strong business momentum and market share gains.

With that, I'll turn it over to Ian to talk through our 2025 results in more detail.

Thanks, Chris, and good afternoon, everyone. As Chris mentioned, I'm proud of what the McDonald's system accomplished amid a challenging year for the industry. In the fourth quarter, we delivered strong comp sales, revenue and earnings growth while also driving improvements in overall customer satisfaction scores across our top 10 markets in aggregate. Specifically, in the fourth quarter, global comparable sales were up 5.7% with positive comparable guest counts. In the U.S., comp sales for the quarter were up 6.8%, which was above our expectations and was driven by positive check and guest count growth. While some of the performance is attributable to easier prior year comparisons, it largely reflects the success of value menu and marketing initiatives that supported steady improvement in our baseline momentum.

Together, these drove the highest quarterly comparable guest count gap to near-end competitors in recent history and set a solid foundation for 2026. Two marketing initiatives contributed to our strong performance. First, we kicked off the fourth quarter with MONOPOLY, which resulted in one of our largest digital customer acquisition events ever. Today, we have about 46 million 90-day active users in our U.S. loyalty app. And during the MONOPOLY event, we saw nearly 500 million games played. Second, we closed out the quarter with the Grinch Meal, which set new sales records, including the highest single sales day in our history. Overall, for the entire campaign, we sold nearly as many Grinch meals as our highly successful 2025 Minecraft movie meal and 2024 collector cups promotions combined. The Grinch meal captured fans attention, a true testament to the power of the McDonald's brand with the right marketing execution.

In addition to these marketing events, as Chris mentioned, in early September, we relaunched extra value meals to address customer value perceptions of our core menu offerings. In the fourth quarter, we increasingly saw evidence that this was working as intended. In addition to the improving trends in low-income share and value and affordability experience scores, the program drove improvements in units sold for our top EVMs, supported by the nationally price pointed $5 sausage egg and cheese McGriddles meal and $8 10-piece Chicken McNuggets meal in November. The momentum has continued in January behind the support of the nationally price pointed $5 Sausage McMuffin with egg meal and $8 2 Snack Wrap meal, and we remain on track to achieve our targets for incremental traffic associated with the EVM relaunch.

Turning to our international operated markets. Comp sales were up 5.2% in the segment, marking a third consecutive quarter of comp growth above 4% despite the challenging industry backdrop. Strong execution in the U.K., Germany and Australia drove performance with each market delivering comp sales growth in the mid- to high single digits. Momentum behind McDonald's U.K.'s turnaround continued in the fourth quarter with market share gains for the first time in over a year behind the execution of several exciting promotions. As in the U.S., the Grinch campaign also exceeded expectations and featured McShaker Fries and special edition socks. The Menu Heist campaign, which is the U.K.'s version of our popular Taste of the World promotion in other markets, showcased the global strength of the brand by offering customers a curated selection of international menu favorites at their local McDonald's restaurant. This promotion delivered sustained strong performance through its 6-week run.

And given the success we've seen in the U.K. and other markets, we plan to expand it to even more markets in 2026. Germany and Australia also went 3 for 3 on executing value, menu and marketing initiatives, resulting in share gains in each market in the fourth quarter. Both markets leveraged solid foundations and value offerings and capitalized on strong marketing campaigns. Germany's strong performance reflected the annual return of the Big R�sti, a large-format burger as well as a Friends TV show themed marketing campaign that was similar to a successful promotion in Spain just over a year ago and which we also plan to expand to more international markets in 2026.

And in Australia, the breakfast daypart drove performance through menu innovations such as Matcha lattes, the Brekkie Wrap and McGriddles, while the highly successful Grinch promotion highlighted innovative menu offerings such as the Chicken Big Mac and McWings and a special hot cake syrup sauce. Finally, in our international developmental license markets, comp sales for the quarter were up 4.5%, led by Japan with all geographic regions reflecting comp sales growth. Japan's performance has been consistently strong all year. It was supported in the fourth quarter by the launch of the My McDonald's Rewards loyalty program, marking a significant milestone in our global digital strategy.

In China, although the market continued to face macroeconomic pressures, we maintained share in the quarter. In addition, we opened more than 1,000 restaurants in 2025 and now have a presence in every province.

Turning to the P&L. Adjusted earnings per share was $3.12 for the quarter, which includes a $0.10 benefit from foreign currency translation. Adjusted earnings per share on a constant currency basis increased 7% versus the prior year quarter, reflecting sales-driven margin contribution. Our total adjusted operating margin for the full year was 46.9%, in line with our expectations and reflecting the strength of our business model and the resilience of our system. Total restaurant margin dollars were more than $15 billion for the year.

As we look back on the full year, our capital expenditure spend was $3.4 billion, slightly above the high end of the range that we provided for the year as we invested more toward our future year development pipeline, setting us up for success as we continue to increase our pace of openings in our wholly owned markets. I'm proud of what McDonald's has been able to deliver in a challenging environment, and we believe that we are well positioned to deliver solid results in 2026.

And with that, let me hand it over to Jill.

Thanks, Ian, and good afternoon, everyone. I'm pleased to be here today to share more about the work of our restaurant experience teams and preview what's coming in 2026. It's been 9 months since we established the global restaurant experience team. And when we announced this change, we noted that it would be significant for 2 reasons. First, our new integrated structure sets us up to execute with greater pace, which means ideas can start showing up in our restaurants even sooner. We can develop and scale product innovations faster than ever before with menu supply chain and operations all in one team. And second, our new category structure with dedicated leaders for beef, beverages and chicken would give us better accountability and a sharper line of sight into what it takes to win in each of these large and growing verticals.

We know that while value remains important for customers, delivering great taste and quality are their top needs, and that's at the center of everything we're doing across the restaurant experience. With that context, let me share more on each of the 3 categories. Starting with beef. We've continued rolling out Best Burger, which is now in more than 85 markets and on track to deliver on our commitment to be in nearly all markets by the end of 2026. Best Burger is the key to hotter, juicier and even tastier burgers, which improve customer satisfaction scores and streamline operations for restaurant crew. We also began to pilot Big Arch about 1.5 years ago, and it's shown strong traction across several markets. Customers are responding to this delicious, more satisfying burger that meets their demand for something heartier while still feeling distinctly McDonald's. Its strong performance helped it most recently earn a permanent spot on the U.K. menu, and we see potential to continue scaling this platform as we strengthen our position within this tier of the beef category.

Now let's turn to beverages. We are excited about the global beverage opportunity of more than $100 billion. You can expect to see new offerings in the U.S. as well as select international markets in 2026. Designed to capture share of this large and fast-growing category, we're exploring energy, indulgent iced coffees, fruity refreshers and crafted sodas. We're thrilled to launch our new U.S. beverage lineup later this year under the McCafe brand. It builds on a highly successful test that exceeded expectations in the fourth quarter across more than 500 U.S. restaurants. As we've said before, the new beverage offerings drove incremental occasions across different dayparts as well as higher average check, including strong results from our Red Bull collaboration, which we plan to continue building in both the U.S. and beyond.

We're applying learnings from the U.S. test as we expand offerings across the system. Australia, for example, ran a small beverage test at the end of 2025 and adapted those insights by refining some of the recipes and tailoring some of the flavor profiles to meet local preferences. Lastly, chicken. Just as a reminder, this global category is 2x the size of beef and faster growing. We grew our chicken category share across our top 10 markets in 2025 and believe we're well on our way to increasing our share by at least 1 percentage point by the end of 2026 versus where we were in December 2023.

At the foundational level, we achieved our target of deploying the McCrispy Sandwich equity to nearly all major markets by the end of 2025. And on the innovation front, many of you have spotted something cooking at a few restaurants in the Chicago land area. We're in the early stages of testing new flavor combinations and new ways of cooking as we continue to explore great tasting recipes for customers to enjoy.

While I've shared how speed and scale show up across the 3 menu categories, innovation at McDonald's doesn't stop there. The same disciplined approach is guiding the technology advancements coming to life in our restaurants, rounding out what it truly means to deliver the full McDonald's restaurant experience. The restaurant experience team is using these tests to learn quickly and apply those learnings to capabilities like voice ordering, shift management tools and other AI-enabled tools and digital enhancements that help make running great restaurants easier and more enjoyable for both crew and customers.

Taken together, these efforts reflect how we are continuously innovating and improving the full scope of the McDonald's experience, bringing forward even more delicious food, smarter operations, thoughtful design and technology that meets customers and our restaurant teams where they are. It's all part of how we're modernizing the way McDonald's shows up every day.

And now I'll turn it back over to Ian.

Thanks, Jill. As we look ahead to 2026, we remain confident in our strategy and our ability to outperform our competitors in any operating environment by focusing on what we can control and by leveraging our global scale and financial strength. We believe the underlying assumptions for our 2026 outlook are prudent and reflect our expectations that the QSR industry environments in the U.S. and across many markets will remain challenging. Should the environment improve beyond our expectations, we believe McDonald's is well positioned to benefit disproportionately relative to our competitors. We expect that net restaurant expansion in 2026, along with restaurants we opened in 2025, will contribute approximately 2.5% to system-wide sales growth. We expect our operating margin to be in the mid- to high 40% range and to expand from our 46.9% adjusted operating margin in 2025.

We're targeting G&A as a percentage of system-wide sales for the full year to be about 2.2%, reflecting our ongoing investments in our strategic growth drivers like technology and digital and Global Business Services or GBS. These investments are designed to unlock efficiencies in running the business and to support long-term growth for our people and stakeholders. Below the operating line, we expect interest expense to increase between 4% to 6% from the prior year, primarily due to higher average interest rates and expect our full year effective tax rate to be between 21% and 23% with some volatility quarter-to-quarter that may cause the quarterly rate to be outside the annual range.

We expect foreign currency to be a full year tailwind to 2026 EPS, totaling in the range of $0.20 to $0.30 based on current exchange rates. As always, this is directional guidance only as rates will likely change as we move through the remainder of the year. Turning to capital allocation. We're committed to maintaining financial discipline and creating value for our shareholders over the longer term. Our priorities remain unchanged. First, we look to invest in the business to drive growth, including capital expenditures to primarily support new restaurant openings as well as investments in technology, digital and GBS.

Second, we prioritize our dividend, which has increased in each of the last 49 years. And third, we repurchased shares with remaining free cash flow over time. With respect to restaurant development and capital expenditures, as Chris mentioned, we continue to accelerate our pace of new unit openings and remain on track to achieve our target of 50,000 restaurants by the end of 2027. In 2025, we exceeded our openings plan for the year with gross openings of about 2,275 restaurants and net openings of 1,880. And in 2026, we're targeting approximately 2,600 gross restaurant openings with about 750 of these in our U.S. and IOM segments. We expect to open more than 1,800 restaurants in our IDL segment, including about 1,000 in China. Overall, we anticipate about 4.5% unit growth from the approximately 2,100 net restaurant additions in 2026.

We expect our capital expenditure spend to be between $3.7 billion and $3.9 billion this year, with the majority invested in new unit openings across our U.S. and IOM segments. This increase in CapEx versus the prior year of $3.4 billion is in line with the targeted increase of about $300 million to $500 million that we outlined at our December '23 Investor Day. Lastly, we're targeting our net income to free cash flow conversion rate in 2026 to be in the low to mid-80% range, which is in line with the 84% in 2025.

And with that, let me hand it back over to Chris.

Thanks, Ian. As we close the books in 2025, it's only natural to reflect not just on the year that was, but on how far we've come since announcing Accelerating the Arches in November 2020 and expanding our ambitions in December 2023. We made bold commitments to grow our business. We've made great progress on our accelerator priorities, and we've become a fundamentally different company. You heard from Jill how that transformation is coming to life across the restaurant experience from food to operations, design and technology. When we started this journey, from a company standpoint, we didn't have a global business services function. Today, we do. We didn't have revenue growth management function. Now we do. We didn't have a standardized global tech stack. Today, we're close. The early benefits from these new capabilities gives us a clear line of sight into how they'll unlock growth and productivity moving forward.

Loyalty is another great example. In November 2020, the McDonald's loyalty app was just beginning to launch in the U.S. In 2023, we had about $20 billion in system-wide sales to loyalty members across 50 markets. In 2025, we almost doubled those sales with nearly 210 million 90-day active users across 70 markets. And we're on track to reach our target of 250 million 90-day active users by the end of 2027. This matters because we know that loyalty increases visit frequency and opens the door to new ways to engage with our fans like multi-visit bonus games such as the Snack Wraps campaign in the U.S. or exclusive partnerships available only through the app. Another critical proof is the connection between the app and the deployment of Ready on Arrival in our top 6 markets. It's already driving faster service, reducing wait times and improving customer satisfaction, and we expect those benefits to compound as adoption grows across the system.

These touch points simply didn't exist a few years ago. When we execute, we know we can outperform the competition in any environment. What's clear is that we've earned the right to look forward. We're excited to share what's next with our system at our worldwide convention in Las Vegas in June, and we expect to share more details with all of you during an investor update sometime this fall. Stay tuned.

Before we turn to your questions, I want to again thank our franchisees, suppliers, restaurant teams and everyone across the McDonald's system for the commitment, the partnership and the passion that you bring to this business. Your dedication is the driving force behind our achievements and what enables us to pursue this next chapter with confidence as we transform our long-term ambitions into tangible results. And with the new year well underway, we'll continue to lead, innovate and deliver for our customers, our people and our shareholders. Together, we will make 2026 a year that defines the future of McDonald's.

With that, we'll take your questions.

[Operator Instructions]

Our first question today is from Dennis Geiger of UBS.

Appreciate the insights. And Jill, very helpful to get an update from you as well. Chris and Ian, following a strong end to 2025, you both talked about a solid foundation into 2026. Could you talk a bit more on how you're thinking about the U.S. sales trajectory in 2026, given some of those sales drivers you identified and perhaps how you think about going 3 for 3 across value, marketing and innovation to drive U.S. sales growth this year?

Sure. I'll start and Ian, if you have any additional thoughts. But let's start with value. And as I mentioned in the call, the U.S. put in place the McValue program. That has performed well for us. We added to that the EVM toward the back half of the year. And as we go into 2026, McValue for us is going to continue to be the foundation for our value program. It's going to be something that always continues to evolve. Jill has talked about that in the past. And there's real conversations, live conversations going on right now in the system. But I feel really good about where McValue is headed in this year. And then I think also we've seen the power of great marketing. We've seen how something like a Minecraft or MONOPOLY or Grinch when you have strong value with that can really be an accelerant for the business. And I'm feeling good about the lineup that the U.S. team has there. And then, of course, we've talked about beverages. Jill also mentioned some of the other things that we're doing with burgers and chicken.

And so I think we've got a strong slate of menu news lined up for the year as well. So now it comes down to what I talked about also in the comments, which is it looks great on paper. We've just got to go execute. But I think Joe and the team are working well with the franchisees. I know there's a lot of energy and excitement around this. And so I'm confident we're going to go out and execute with excellence.

And maybe, Dennis, just a couple of small builds to what Chris teed up. I mean I think value and affordability, as we've talked about pretty consistently are the greens fees. I mean you've got to have it. It's core to our DNA as a business and brand, and it's certainly core to what consumers are expecting. And I think we would say we've done a pretty good job of kind of strengthening our value and affordability with the things that Chris talked about us putting in place. And that is certainly what we believe is one of kind of the underpinnings to the momentum that we're seeing in our U.S. business. We talked about the fact that in Q4, the U.S. had positive guest count growth, which is always a really strong indication that you're kind of getting to that sustainable top line growth that is going to drive both sales and more volume into the restaurants.

And I think just maybe something to note that I think is another important proof point is our U.S. business had its strongest comp guest count gap to the nearing competitive set in Q4 in recent history. So I think those are all signs of encouragement to us. The key, though, is you've got to get the 3 for 3. It's not just about value and affordability or about menu or about marketing individually. It's how you bring those together and leverage them to kind of get that holistic output that you saw us, I believe, deliver in Q4.

Our next question is from Sara Senatore of Bank of America.

I guess maybe I wanted to sort of dig in a little further on that value. I know you kind of approached it 2 ways. One was sort of streamlining or systematizing the approach to the meals, kind of that 15% discount to a la carte prices. Then you also pulled some very sharp price points, as you said, the 5 and 8. So as you think about the pricing architecture, I guess, which of those do you think was more powerful? Because I'm asking in the context of restaurant level margins that were sort of flattish year-over-year. And so assuming maybe there's some kind of pressure from that on franchisee margins. And maybe just tacking on to that, are any of the technology solutions that Jill mentioned, are those some of the ways to kind of maybe support this sharper value?

Sure. Well, I guess I'd say I don't think it's one or the other. I think what we've seen and certainly what we're trying to execute is the customer absolutely wants predictable value. And having an EVM is, I think, the way historically, we have always delivered for that customer that predictable everyday value. So you need to have that and certainly pleased with where the system in the U.S. was able to get to on that. As you well know, it's something that has been well established on our international business for years. And so we're in a good shape there as well.

But then also the customer is looking for in this environment, some price pointed items that are offering particular value on top of that. And so I think you've got to be able to have the predictable value, but the customer also needs to be excited around price pointed items that come in and out of the menu, and that's what we executed against.

Maybe, Sara, just to kind of hook on to Chris because I know you highlighted kind of margin pressure. I just -- I think if you kind of go back to what we've talked pretty consistently about what it takes to grow margins, obviously, is strong top line sales growth. We saw that in Q4. We grew margins in Q4, including in the U.S. on the back of that. Obviously, if you look back to earlier quarters, we had less top line growth in the U.S. combined with obviously higher levels of inflation, I think that put more pressure on that.

I think the other data point is a little bit to what Chris highlighted, which is you got to do both. I mean, at the end of the day, our owner-operator average cash flow in the U.S. was up year-over-year. And I think as we've talked about historically, the way you get to sustainable profitability and profitability growth is you drive more volume, more customers into restaurants. And I think if we get that 3 for 3 formula right as we've done in Q4, I think you've seen that we're clearly capable to do that and do that well.

Next question is from Brian Harbour, Morgan Stanley.

I wanted to ask about just the capital budget. I think it's generally run kind of at the higher end of, I think, where you thought it would a couple of years ago. It will probably end up being up by $1.5 billion versus '23. Is that exclusively because you want to move faster on constructing new stores? Or is there some other piece of that we don't see? And I think it's interesting just even in markets with not much population growth, you're pushing pretty hard on unit growth. Is that a function of you think because the industry is under stress, this is the time when you should really be taking market share and trying to secure new sites to -- because you think the share opportunities are greater today? Is that the main driver?

Yes. Brian, it's Ian. Let me take that one. Well, I'd start just kind of going back to what we outlined in our December '23 Investor Day event. And we said there we expected our capital budget to go up basically $300 million to $500 million every year consistently as we got to our run rate of 1,000 gross openings in our wholly owned markets in 2027. And we've basically been fully on track to that every year. We were slightly above that range in 2025 at $3.4 billion of capital for the year. But that was driven by 2 things, some kind of FX headwinds from a weaker U.S. dollar and us being a little bit ahead of our future opening pipeline, so more spend related to '26 and '27 openings. So it was a healthy, let's call it, adjustment, as you would have seen in our guidance, again, in '26, we expect the capital to go up another $300 million to $500 million.

So again, consistently in that range. We did, as we've talked about before, a lot of work before we kind of committed to where we thought we wanted to be at 50,000 units by end of '27 in '23 to really get deep on where we felt the gaps in trading areas, where we felt the opportunities were. And as you know, we've used the U.S. as an example before, which is one of our more mature, fairly penetrated markets, but a market where we hadn't grown net units since 2014, I think until basically '22, '23, a market where there's been a lot of population migration over time where our openings have not kept up.

And so I think the ultimate measure is, are we getting the first year sales in those new sites? Are we getting the returns that we expect? And the answer to both of those questions is yes, and that is confirmatory to the fact that we're getting the right sites in the right places and building the brand in a very healthy way.

Next question is from Dave Palmer at Evercore.

I'm just trying to think about how I want to ask this question about what feels like picking up in momentum, but also a picking up in your pipeline of ideas that you have going at the same time. Beverages is one example where you've tested something, you're coming out and you're confident that you have it and it will work. It sounds like you're testing stuff with chicken. It sounds like maybe earlier days there. I'm not sure there. even on value, it feels like that's something where you're continuing to refine as you're getting momentum. So like a lot of companies coming out of COVID, there was a little bit of just a disruption during that period and adjustment. And now you're kind of getting your footing in terms of the pipeline.

So maybe I don't know if that's an open-ended question, if maybe you want to comment on that. And then maybe even stuff that are more foundational beyond just even the tech stack, if you're thinking about things in terms of kitchen and other that might be things that we can think about for the future.

Yes. Thanks for the question. I would say if you think about the company today and frankly, the world that we're operating in, it's just -- it's a very -- we're at a very different starting point. And I went through a number of the things that we've done from a company standpoint with Accelerating the Arches that I think put us in a very different place today. When you have what will be 250 million consumers, 90-day actives on your loyalty platform, that opens up a whole different way of engagement with your customers than what we had when we began that journey back in 2020. When you have the ability to get every market onto a common tech stack, our ability to move with speed and to deploy solutions gets increased by factors of significant numbers.

And so we've been trying to spend some time to just think about with these new capabilities, how do we actually start to bring those to market in a way that makes a meaningful difference on both the top line, but also on the productivity side. And I think at the same point, if you go back to where we were in 2020 or even 2023, nobody was talking really about AI. Certainly, we weren't talking a whole lot about AI. There was not some of the commentary and thoughts around what does GLP-1 do in the industry, what are the impacts of that. We're certainly leaning into all of those things and thinking about all those things and making sure that we're ahead of the curve that we're seeing around corners and keeping this brand position at front.

So what Jill is laying out, we're testing a ton of ideas. And I would say also in the restaurants that we've got, they're different in each restaurant. It's not the same thing in each restaurant. And we're excited about sharing more of what we're learning with our system, which we'll do in Las Vegas. And then you'll hear more from us, as I mentioned, in the fall where we bring to life what we think is what's next for McDonald's.

Just perhaps to build on that, we've introduced, as I said upfront, the new category management structure, which we're pleased with the progress that we've made in the first 9 months. And that really is helping to focus the organization. We're bringing together operations, supply chain, menu, marketing around the table together to work in concert to move at greater pace. And we can certainly see consumers are reacting well to new news as evidenced by the beverage test that we ran earlier in 2025 in the U.S. So we're seeing early benefits from moving with pace. And I think one part, but an important part has been the introduction of category management.

Next question is from John Ivankoe of JPMorgan.

So it's certainly an admirable goal to have taste and quality as metrics that you want to improve or at least kind of pursue for the McDonald's brand. But my question was really what kind of changes that might have to happen within the kitchen itself to maybe achieve some of these goals, both in the near term and the medium and longer term? In other words, is there equipment technology layout that may have to really be changed in a fairly significant way to maybe achieve some of the taste and quality goals. And I do ask this question in my travel, seeing some stores in France, for example, that had very different equipment and a very different layout than the McDonald's that I'm used to seeing. And what I'm really asking is, is there something like -- and I don't know what to call it, an Experience of the Future version 2 that might be part of the plan in the next couple of years?

Thanks for the question, John. One of the benefits of being in 115 different countries is we've got innovation going all over the system. And I'd say when we think about moving the needle on taste and quality, we're going in without any kind of preconceived notions. We're not going in with any constraints. We're just -- the challenge of the team is how do we continue to make further improvements around taste and quality, recognizing that the competitive set is raising the bar on that. And so that's some of what Jill and the team are testing. As to how that impacts the restaurants, we don't have the answer right now.

But I think as you all are aware, we're heading into a remodel cycle. EOTF is as hard as it is to believe, the EOTF process in the U.S. is now almost a decade ago that we began on that. It was even longer in some of our IOM markets. And so we're in a natural cadence where our system historically does do remodels around every 10 years or so. And so let's just make sure as we go into this remodel cycle that we're doing it mindful of how do we continue to come up with ideas that are going to drive the business. And we think taste and quality is certainly one of the biggest opportunities for us. Jill, I pass it over to you.

Sure. So Chris has outlined some of the sort of the early thinking on where can we innovate going forward to make sure that our restaurants are set up to grow where we've identified growth opportunities, chicken. There's plenty of growth still in beef as well as the new areas of beverage. But we are also thinking about improving taste and quality around how we renovate today as well. So how do we help the restaurants execute to the gold standards that we have today as well. So we're kind of really thinking about this in a couple of different time frames, what we can do today and how do we get ready for the future.

Next question is from David Tarantino with Baird.

I had a couple of questions back on the U.S. value strategy, Chris. And I was wondering if you could comment on how franchisees in the U.S. are embracing the strategy and really 2 parts to that. One, some of the strategies you've had have required McDonald's to support that financially. What's the current sentiment in the system on extending that without McDonald's support?

And then the second question, perhaps more importantly is, I think you've rolled out some new brand standards. And I was hoping you could comment on what that might mean for the pricing strategy on the core menu going forward. It seems like keeping price points low and price increases perhaps at or below inflation is important. So just wondering if you can provide some insights on how the system is thinking about that equation.

Sure. Well, I'd say, certainly, in my travels, and I was just with some operators in Dallas earlier this week that there's good enthusiasm for where the business is at. Certainly, finishing the year as they did in the U.S. is great kind of heading into the new year. And so when cash flow is up, when there's business momentum, I think all of those things work toward having positive sentiment, particularly in an environment right now where our performance relative to what we see from some others, I think our franchisees are understanding or appreciative of -- it's not easy out there, and we're certainly pleased with our performance.

As to how that continues to evolve, you're right, our support for EVMs rolls off. In many cases, it's already rolled off. in some places. But I think our system generally looks at business results. And I think the numbers are pretty clear that the EVM strategy for us is working. And I would expect that anybody who's looking at the data, it's a pretty easy conclusion as to what you would do with that. But ultimately, our support, as we've talked about a number of times, it's timely, targeted and temporary. We don't subsidize pricing on a permanent basis.

And so I think with how we've worked together as a system over the last quarter, now heading into 2 quarters, I think the pathway forward is pretty clear. But ultimately, that's going to be up to franchisees on that. And then to your question around brand standards, I mean, just to reiterate or state the obvious, franchisees set pricing. But at the end of the day, we are the custodians of the McDonald's brand. That is what we're selling. And one of the things that's core to our brand is our value positioning. And so we don't prescribe exactly how the franchisees have to go deliver value, but the franchisees need to protect the brand. And part of that brand DNA is our value leadership that we have there.

And so there's lots of different ways. We provide support to franchisees through RGM, this revenue growth management on different ways to go do it. And the expectation is that however franchisees decide to align against it, they're going to continue to live up to what Ray Croc started with this brand, which was one of the world's great brands that also continues to lead on value.

Next question is Greg Francfort over at Guggenheim.

I guess I had 2 questions. One, you made a comment about customers increasing their frequency on the loyalty program. Do you have a sense for how much of a needle mover that is? And then just the second part of that is, I think you also made a comment about accelerating the global tech stack and being kind of almost where you want to be. What are the remaining hurdles to getting that done?

I'll let Ian take both of those. And if he clubs it, I'll jump in.

Greg, let me try and take those. So I think on the loyalty program, I just -- I'd go back again to just emphasize that when we laid out in Investor Day in December '23, loyalty membership, you'll remember, we laid out a metric of getting to 250 million 90-day active users by end of '27. We said in our upfront remarks, we're now at 210 million 90-day active users, well on our way and confident to get to that 27 goal. And we have said that loyalty -- active loyalty membership is our single most important digital metric because it -- when we get consumers into our loyalty program, they visit more often and they spend more over time. And they interact with us more frequently.

So they get more value in their interaction with us, and we get more value by them interacting with us. And I think we have a lineup of -- a pipeline of ideas of how we're going to continue to build and add capability that will add further value to our loyalty customers as we look forward. To kind of get to your question more specifically, and we gave this data point, I think, a quarter or 2 ago, if you look at our U.S. business as an example, a customer in the 12 months -- an average customer in the 12 months before they joined our loyalty program visited us 10.5x. In the 12 months after they became a loyalty member, they visited us 26x. So we increased their frequency of visit by more than 2.5x, and they also spend more with us over time. That's why loyalty is important, and that's why we're excited to kind of continue creating value so that consumers will be compelled to join and compelled to continue to interact with us on a more frequent basis.

I think on the tech stack, I think we've been pretty open over time. I mean it to go from a fragmented decentralized kind of tech organization to common platforms. And you'll remember, again, in our Investor Day in '23, we laid out we want to get to 3 common platforms in our business that are tech-enabled through a common tech backbone, so to speak, that's our consumer platform, our restaurant platform and our company platform. We're making progress. against each of those 3. We've got a little more work to do, as Chris alluded to, but we feel really confident in where we're at and the pace of what's left to go to kind of get us to that overall outcome.

Next question is Andy Barish with Jefferies.

Wondering if we go back to the beverage efforts in the U.S. and kind of interesting that you did not mention CosMc's that seems to be a shift. And any color you're willing to provide just in terms of the rollout as we look towards the rest of this year?

Sure. I'll take that question. So we are -- obviously, we're really excited about the beverage launch in the U.S. later this year, and we are going to do it under the McCaf� brand. So we obviously learned a lot through the CosMc's test, and those learnings have been applied to how we've decided to set up this new beverage range. but we are going to be launching under the McCaf� brand. And just to give you a little bit more color. The results did exceed expectations for the entirety of the program. It did drive incremental occasions. These were mostly snack, dinner and evening. And we also saw higher average check. So the financials are really playing out well.

We learned a lot about the recipes. We offered a range of recipes across indulgent coffees, refreshers, energy and soda -- crafted sodas. All did well, particularly the crafted sodas, refreshers and energy. And we're going to do what we do best at McDonald's. We are going to offer great tasting products, great prices, with the speed and convenience that our customers want and expect. So more to come on that. We're not going to reveal too many more specifics of the timing, but you can expect to see news in the U.S. and outside of the U.S., too.

Next question is from Lauren Silberman at Deutsche Bank.

Very much Great quarter, strong acceleration across segments on a 2-year basis. As we look to '26, we still have a lot of dynamics in the consumer environment. It sounds like you have a really strong playbook. Can you give any color on how we should be thinking about, I guess, Q1, knowing there's some weather there, still have a little bit of the E. coli lap? And then thoughts on the same-store sales progression as we move through '26.

Lauren, it's Ian. Let me take a crack at that, and I'm sure Chris will add on here. Look, I think as we've talked about already, we feel really good about the underlying momentum and kind of the consistency of that across each of the 3 operating segments. I think we expect that momentum to kind of continue in '26. And obviously, what we're focused on and we've talked about a lot is really going 3 for 3, focusing on the things that are within our control. I think we expect probably that the first half will be likely a little stronger than the second half, and that's just largely a reflection of kind of the benefit of the favorable year-over-year comparisons that we're up against.

Maybe just to give a little color by segment. I think for the U.S., we've had a solid start in January. We had good kind of underlying momentum, as you've heard us talk about today, supported by, I think, what we've done with extra value meals, obviously, McValue more broadly. I think we would say we expect Q1 comp sales growth to decelerate sequentially from the 6.8% in Q4 that you saw. I think there are 2 key reasons for that. One is Q4 growth was particularly strong, obviously driven by 2 really strong activations in MONOPOLY and Grinch. And then as is well known, you've heard from many others, obviously, we had severe weather impacts in the U.S. kind of beginning in late January that pressured the industry traffic, pressured our traffic, obviously, and caused quite a few restaurants to close or reduce hours for a number of days.

We estimate that weather impact to be about 100 basis points for the full quarter just when you look at kind of the drag that we saw in January. I think on international, kind of a similar story. I mean, we had a solid start in IOM in January. Again, we believe we've got kind of strong and consistent underlying momentum. But we do expect Q1 to decelerate sequentially from the 5.2% that we had in IOM in Q4. Again, we've got some weather, I would say, impacts in a number of markets in Europe through January that have put a little bit of pressure kind of on the underlying momentum.

And then IDL, again, expect a sequential decrease from the 4.5% that we had in Q4. Again, we feel pretty good about the underlying momentum. It's really just driven by, I would say, the kind of continued macro pressures in markets like China and parts of Latin America. So I think we're really confident about what's within our control, really confident about the underlying momentum of the business and certainly feel good about our ability to continue to kind of execute well even though the environment remains challenging.

Next question is from Jon Tower of Citi.

Maybe, Jill, one for you. I was hoping you went through a lot of the menu ideas coming in 2026 across the globe in the U.S. Specifically in the U.S., though, I was hoping you could drill a little bit more into how you're thinking around the GLP-1 adoption likely picking up this year with orals being available and how you're thinking through the menu operators across your system actually asking you how McDonald's is going to potentially address this shift in consumption?

Sure. Well, let me start, and then I'll let Jill fill in. But as I mentioned in my comments earlier, we're certainly spending a lot of time and paying close attention to it. I can tell you right now, we've looked pretty hard, and we don't yet see evidence of it really having a material impact on our business. Now that said, as you noted, pill form has just become available. We know the pill form has had pretty strong adoption in the early weeks. Lilly will come out with a pill form of their own sometime in probably Q1, Q2.

And so certainly, our view is that adoption is going to continue to grow. And as adoption grows, we know that consumers' behavior changes. We know that in general, they eat fewer calories in the day, but also what they eat, the mix of that changes. Fortunately, for us, protein is one of the areas that this consumer, the GLP-1 consumer is still very much interested in, and we've got a great protein offering on our menu. So I think that's an area of strength for us. But we're also seeing changes around maybe less snacking, changes in some of the beverages that they drink, less sugary drinks. And so all of those things are factoring into some of what we're out there experimenting with and testing with. And ultimately, as we learn more about that and get feedback from our customers, those things could make their way on to the menu.

But Jill, I'll let you kind of pick it up from there.

Sure. We do have a history of staying close to customers and innovating and adapting our menu as required. So we are already pretty protein forward, fish, chicken strips, Snack Wraps, sausage biscuit. We have a number of items on the menu that customers who are on GLP-1 are enjoying. I think we can call out and just help customers a little bit more, understand what is high protein on our menu because there are a number of options. But we're also going to continue to learn, see what's going to interest them. We have a couple of ideas that we are already looking at for the longer term. So we will be led by the customers and what they want from us, but there's plenty for them to enjoy in our menu currently.

Our last question today is from Jeff Bernstein at Barclays.

Just trying to get a sense for the barbell strategy. We talked a lot about value. So I was hoping, at least in the U.S., you could share some color on the scores you're seeing, the -- maybe the share of value or mix of sales? Just trying to get a sense for where value sits and your comfort level there. And on the flip side, obviously, a lot less talk these days about the premium offer positioning. But how do we think about the balance there? Obviously, franchisees would love to push as would you, I'm sure, the upper end of that barbell. So what do we have on tack? Or how do you feel about your ability to push more premium product offerings as we move through '26 to balance with that value?

Sure. Well, we've talked about on prior calls the fact that industry-wide, we've seen traffic hold up pretty well with upper income consumers and traffic has been pressured with lower income consumers. And of course, lower income consumers are more value and affordability sensitive. We were pleased to see that we gained share with that low-income consumer in December, which was very much one of the criteria that we set around our value program. And so obviously, we've got to continue that. But I think we're in a better position certainly with that part of the consumer cohort. And then on the premium side, we're going to have menu innovation that I think is going to continue to appeal to the upper income consumers.

I think some of the beverage items could clearly go in that category. I think some of what we might be able to do in chicken and burgers as well could fit under that. So we're a business where 90% of the customers are coming into our restaurant in the U.S. at least once a year. And we need to make sure that we've got a broad offering that appeals to all of them and recognizes that they have different needs. So I feel think we've got a good strategy on that. But certainly, the expectation for the balance of '26 is that, that low-income consumer is going to continue to be under pressure, and there should be, call it, mid-single-digit growth available with the upper income consumer. And so how do we make sure we're winning with both of them.

Thanks, everybody, for joining the call. If you want any types of follow-up, please send me an e-mail. We can get something scheduled. Other than that, have a good evening, and we'll talk to you later.

This concludes McDonald's Corporation Investor Call. You may now disconnect, and have a great day.

Hello, and welcome to McDonald's Third Quarter 2025 Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded.

[Operator Instructions].

I would now like to turn the conference over to Mr. Dexter Congbalay, Vice President of Investor Relations for McDonald's Corporation. Mr. Congbalay, you may begin.

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 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 1 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.

And now I'll turn it over to Chris.

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%, 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 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, 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 U.S., 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 2 years. In contrast, QSR traffic growth among higher income consumers remained strong, increasing nearly double digits in the quarter.

We continue to remain cautious about the health of the consumer in the U.S. 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 U.S. 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 with a nationally advertised $5 Sausage McMuffin with Egg meal and an $8 BigMac meal. And for the month of November, we're back with a $5 Sausageg 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 2 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 U.S., 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 mix smart meal and lose change venue value offerings for 12 months beginning in July, giving customers confidence and consistency in a volatile economic environment while helping us maintain relevant 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've had market share gains for 6 quarters amid consistently strong performance. Just a couple of weeks ago, I visited our restaurants in Tokyo and my first-hand 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 and 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 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, fruit or refreshers, crafted sodas and 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 dayparts 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 in the U.S. and abroad.

Turning to chicken. A global category that is 2x 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 U.K. and Mick Wings 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 and taste and quality and outperform competitors over the long term.

With that, I'll turn it over to Ian.

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% and 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 4-week window exceeded our expectations. Snack Wraps were the most popular new chicken product launch in the U.S. in recent history, with nearly 1 in 5 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 U.S. 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 1 AD1 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 U.S. 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 U.S. 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, 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 U.S., 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 2 years, extending the trend of market share gains to nearly 4 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 U.K.

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 MyMaca's app, drove increased app downloads and registrations and contributed to digital sales growth.

In our international developmental license markets, comp sales grew 4.7% and led by Japan, which has delivered consistently positive guest count growth for nearly 2 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&L. Adjusted earnings per share was $3.22 for the quarter. which includes a $0.04 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 income. 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. G&A increased versus the prior year quarter, reflecting $40 million of incremental marketing spend to support the relaunch of extra value meals in the U.S., 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 $0.05 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 returned 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.

Thanks, Ian. Each fall, McDonald's celebrates our Founder's 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. Founder's 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 are building on our legacy in ways that matter most to today's consumer, and we're doing it together as 1 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, and that's exactly what we're doing.

With that, we'll take your questions.

[Operator Instructions].

Thank you, everybody. Our first question today is from David Palmer from Evercore.

Great. I wanted to ask you about the U.S. 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 U.S.? 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%. So it could -- I could imagine higher margins than that. And 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. I'd love to hear about that.

Sure. Thanks, David. Well, I think the formula for us is pretty well established over time, which is basically, if you do what you need to do to let your customers and serve them well, you're going to attract more people to the business, and ultimately, that's going to drive unit economics. And so I think for us, the focus is always on getting more people through the door, getting them to be buying larger items.

And ultimately, that drives AUVs that you were talking about. I don't think that related to that, that it's at all incompatible that improving value scores actually is also part of improving unit economics. And that's very much our focus right now. As we think about the full year, our U.S. franchisees cash flow is going to be solid. The cash flow performance is going to be solid. At the same time that we're making these investments that we talked about on our last call around EVM.

So I think for us, the test of time, just get more people through the door, get them buying more and everything seems to take care of itself.

David, I just might add a bit to what Chris said. And obviously, what he said, we've talked about pretty consistently that we've got to get after guest count-led growth. And I think nothing certainly from my lens has changed in terms of over time if we keep driving more volume and more customers through our doors, which is obviously what we're always focused on. Nothing fundamentally has changed, I think, in our belief that we can drive margin accretion over time.

I mean I think obviously, as you know well, a bit of the dynamic right now is inflation levels are still elevated from, I think, kind of what I would say are the historical norms. The pricing environment is challenging. And so I think in the short term, that continues put pressure on margins. But again, I think we're focused on what do we need to do to meet the needs of our consumers in the environment, and we certainly believe value and affordability is right. And if we get that right, that will pay off both in the short and long term, as Chris just talked about.

Our next question is from David Tarantino, with Baird.

My question is on the value strategy in the U.S. And I believe, at least in the near term, you're offering some support or co-investing in that strategy with your franchisees. And I was wondering, Ian, if you could kind of frame up what the level of that support looks like on an aggregate basis?

And then I guess, Chris, the second part of the question is franchisees at some point, will need to decide whether to continue this or not without your support, presumably. So -- just wondering what -- how you would frame up the thresholds and how the system is thinking about what success looks like from a financial perspective? Do they need to see the traffic growth covering the de facto price investments? Or are they more focused on the metrics you mentioned, which is the value scores, et cetera. So any thoughts around that would be helpful as well.

David, it's Ian. Let me kick off, and then I know Chris will jump in and address the second part of your question. I think just from a support standpoint and -- and maybe a bit of the framing, which I touched on in my opening remarks is you've heard Chris and I talk a fair bit about -- we felt really good about the value that we were offering both through the McValue platform and then through, I think, the digital value that is available to members of our loyalty program. And if you put those to kind of components or programs together, that addresses about 40% of our total sales in the U.S. business.

I think -- the purpose of the EVMs, as we talked about in September is really that 60% of the menu, which we would call kind of the everyday core part of our menu, the everyday core consumer. We felt we had an opportunity to strengthen value in that part of our mix and EVMs represent about half of that 60% or about 30% of our overall portfolio in the U.S. that was really important to address that, which was what we targeted with our EVM relaunch in September.

I think to kind of support, there's a few elements of support that we're providing. We've talked already about the $40 million of incremental corporate marketing support we provided to support the relaunch of EVMs in September. As you will have seen already, we've got a rehit of that that Chris talked about in his opening remarks in November. That's being funded through our normal advertising co-op in the U.S. that the franchisees contribute to. So there's no incremental support behind the November activity, but we are providing a co-investment from the launch in September through the end of 2025. at 50% of the kind of effective menu price reduction.

And I think before we relaunched EVMs, the average discount level across the U.S. business was about 11%. Obviously, what we've targeted now with our kind of 8 core EVM meals is a minimum discount level of 15%, and we're co-investing half of that reduction. That was about $15 million in September of McDonald's support, and we only had about 3 weeks of activity, and we expect that support in Q4 to be about $75 million.

The last piece is Q1 2026, where we are continuing to provide a level of support, but it is different support. That support is basically to address Again, I'll call it a co-investment or 50% of the net negative cash flow impact that's associated with kind of the EVM reintroduction, and that is net of any lift in EVM units in individual restaurants.

And because the nature of that support is different, we expect that to be significantly less in Q1 than what we're providing in Q4 this year. And then at the end of Q1, all of our corporate support will stop.

And then with that, I'll turn it over to Chris to maybe kind of address part 2.

Sure. Thanks, Ian. So on value, as you know, and as Ian just referenced, we put in place McValue now it's well over a year ago, and we feel very good about our McValue platform. But what we also talked about was that consumers' value perception, the #1 driver of consumers' value perception is actually what's going on in the menu board. It's not meal deals or offers, it's what's going on in the menu board.

And we, along with our U.S. franchisees recognize that we had an opportunity there. And that through kind of a number of things that had happened over time, we have gotten out of whack on EVMs, and that was having a drag on our value perception. And so we went to the U.S. franchisees with a path forward on how we're going to fix EVMs. And the good news is the vast, vast majority, and I'm talking like 98%, 99% of our franchisees recognize that we had an issue with EVMs that we needed to address.

And so the support that we came in with was to design to give them a pathway on how we can get this corrected but also protect on what was going to be, we knew in the short term, a drag. I mean that's a challenge when you do some of the pricing actions that we're doing with EVM is in the short term, it's going to be a drag until you can get the incrementality and then thereafter, it becomes more sustaining. So that's exactly what we did.

And what we expect is going to happen is that by the end of Q1, our system is going to be a position here where it's actually going to be a better decision to continue with the EVM than it is to go back to where we were and create the problem all over again. So my expectation is that we're going to see the system continue with this EVM program because we've essentially bridge them through the most difficult part of this and any move backward would actually, I think, be self-defeating.

And maybe just a final hook to that, David. I just would say, I mean, again, when we put this in place in September, you heard us say this wasn't a short-term decision. This is going to take at least a couple of quarters I think, to kind of get the momentum and the lift and the repetitive activity that you need. I would just say we're obviously still early days in, but we're pleased with the progress, and we're on track to what we would have expected at this point a few weeks post launch in September.

Our next question is from Dennis Geiger, UBS.

Great kudos on the solid sales momentum in the U.S. in the quarter in a tough backdrop. I was wondering if you could talk a little more about how you're thinking about the U.S. sales trajectory looking out over the coming quarters, given a bunch of the key sales drivers that you identified? And also kind of curious if you think sort of the underlying guest count baseline trends that you've kind of touched on in the past a bit, do you think that that's improving for the business or sort of if those underlying baseline trends are set to improve in '26, if you feel good about the direction of those those baseline trends?

Well, I'm not going to get into trouble with giving any forecast. So I'm going to let Ian handle that one.

Dennis, good question. Thanks. So let me touch on it, I'm sure Chris may want to weigh in here at the end and just Bill. But I think what we would say is we feel like we've had 2 kind of consistent consecutive quarters now of solid growth. And we certainly feel like we're developing good momentum across each of our 3 business segments.

I think as we've talked a fair bit about by obviously focusing on what we feel we can control in a continued challenging external environment. And I think we would say we certainly still feel cautious about the consumer. And I think, I mean, you've heard from many others, obviously, the conditions still remain challenging in the U.S., and we certainly see that as well in many of our top international markets.

I think we saw that in the U.S. kind of get a little bit worse from B3 and into the start of Q4. I'm talking about from an external perspective. But we certainly believe we're positioned to deliver another solid quarter of growth in each of our segments if we look forward to Q4. And I think that's anchored in I think Chris talked about this last quarter. in this environment, you really got to be what we call 3 for 3.

You can't be just strong on value individually or you can't just be having a great marketing execution quarter or a great menu news quarter, you've got to get all 3 of those things to come together. And I think we feel we're doing a better job of really strong execution across the business. I think a little specifically maybe to get into the segments. I think in the U.S., we actually expect our comp sales growth will accelerate in Q4 versus the 2.4% that we delivered in Q3. And -- there's some obvious reasons for that. Obviously, we're lapping the food safety incident in last year's Q4 we've had a decent start to the quarter based on MONOPOLY running in October, as you heard us talk about in our upfront remarks.

And we feel we've got a really good quarter of activity, obviously, monopoly in October. And then as you heard Chris talk about the kind of rehit of our EVM $5 and $8 price points in November. We also expect in the U.S. that we'll see a notable step-up in comp sales growth for those reasons in Q4 and expect -- I think our comp sales growth on a 2-year stack base will accelerate modestly from the 2.7% that we saw in Q3 on a 2-year basis.

On the international segments, I would say, I think we expect operating conditions across our top markets in Q4 will be pretty similar to what we've seen in the last couple of quarters. I think we believe that our Q4 comp sales in each of our international segments may decelerate sequentially, but that's largely a reflection of the lapping of more difficult prior year comparisons. And so on a 2-year stack basis, we expect Q4 comp sales growth for both segments will accelerate meaningfully and sequentially.

So that would be a bit of a texture, I think, on the looking forward. I mean I think the external conditions remain challenging, but I think what we've really done, and you've heard us talk pretty relentlessly about this, just on value and affordability and then getting the power of great marketing and great menu news to come together is what's driving results. And I think to your point, what is giving us a positive baseline momentum in a difficult external environment. And I think that's highlighted by some of the markets that we called out like Germany and Australia, where the external conditions remain challenging, but I think our performance has been really, really strong.

All I would add to that is it's still a difficult environment and inflation is proving to be sticky. I mean we're expecting to see there's going to be above average inflation next year. You've heard about others referencing what's going on with beef prices. Certainly, we're seeing very, very high inflation around beef prices versus what we're used to historically. And so I think all of that just keeps putting pressure on the industry. And I referenced it in my opening remarks, but it's very much kind of how we're feeling, which is this is an environment where you've just got to grind it out.

I mean that was an expression that that Ray Kroc always love to talk about. And it kind of feels like that's sort of how we're having to operate, which is just grinding out and getting growth. And fortunately, our system is executing well. We've got good alignment with our franchisees. So I think we're going to continue to do well, but I don't want to minimize some of the pressures as well that exist in the industry today and that we're expecting to continue into next year.

Our next question is from Greg Francfort over Guggenheim.

I'm wondering if you can maybe just give some more detail on the beverage tests that you've been running. I think you're running 2 kind of very different tests in terms of breadth of product and including the energy drink and not including the energy drink and just what that sales mix looks like? And if there's any just consumer behaviors that you can call out?

I'll let Ian start and then I can add. But as we referenced, we're pleased with it. We're not trying to make too much of an inference around what it's going to do from a comp standpoint. It's more about the operations and I think getting a sense of the mix, but I'll let Ian talk about that and then close out anything else.

Yes. Thanks, Greg. Well, look, I mean we're running that test in a couple of regions in our U.S. business. It's about 500 restaurants. I think there is a very purposeful construct to the different lineup. I mean there's some overlap between what the product portfolio in both regions, but there's also some differences. I mean I think as you've heard us talk about before, the beverage test is really -- has come out of the learnings we had from the COSMIC stand-alone restaurants that we stood up last year. That test told us that we could get after the majority of the opportunity without creating a manageable level of complexity that would impact our ability to execute in the restaurant.

So I think there are a couple of purposes of the task. One is just to gauge the consumer demand, the consumer reaction, the consumer kind of feedback on the portfolio. One is obviously to test at a little bit greater scale. Our assumptions on kind of the complexity that those lineups are adding our business manageable. I mean, I think we've seen, from a complexity standpoint, what we expected, which is we're able to kind of manage that in the restaurants.

Obviously, the purpose of any test is you're learning and adapting I think we've seen a really positive consumer reaction, both in the portfolio and kind of is it meeting the needs and kind of the on-trend expectations for what consumers are looking for from a beverage standpoint. And so again, early days. And as Chris said, we've got more work to do, but I think we're certainly encouraged by the reaction that we've had to date.

The only thing I would add is on this test, one of the things that we're also looking at is we're being very thoughtful and purposeful about where we price these products. And we have a variety of different items, but we think the opportunity for us is to be actually able to bring value into this segment as well. And so with our franchisees, we've been very thoughtful about where these products are priced relative to the competitors that would have similar offerings.

And I think what we're seeing here is, for us, should we roll this out nationally, being very disciplined on pricing and making sure that we're delivering value on these beverages versus the competitive set is going to be the way that we're successful in this segment.

Next question is from Sara Senatore from Bank of America.

Great. Just maybe 2 clarifications. The first is just -- on the high-income traffic being up double digits, is that an acceleration from what you've seen, I guess, trying to figure out if there's kind of evidence of trade down happening now?

And then on IDL, I know you mentioned strength across all regions, but that China was still seeing some pressure. Does that mean China -- the market was perhaps not positive? I feel like we've seen some signs of improvement being reported from other consumer companies. So I just wanted to understand if China perhaps is an exception in that region.

Sara, it's Ian. So let me try and touch on those 2 things. I think high-income consumer -- it's certainly not a change in trend. I mean we've talked pretty consistently for quite a while now about the bifurcated consumer environment in the U.S. And I would just say that the Q3 data only continued to emphasize and maybe even showed that bifurcation, I would call it extending because as we said, low income consumer was down in terms of visits to QSR, high single digit and high income consumer was up high single digits.

So that just, I think, is kind of extenuating that bifurcation. Obviously, the whole point of what we're trying to do with value and affordability is make sure we're meeting the needs of all of our consumers and continuing, obviously, to be well positioned on that.

I think on IDL, I mean, again, I think on China, nothing new, I think, from what we've been talking about for several quarters. I mean, I think the macroeconomic environment continues to remain challenging in the short term. We haven't changed our view on the mid, long-term opportunity and our confidence level. And I think as we said in the note, all of the geographic regions in IDL and I would include China and that were positive, at least from a comp sales standpoint.

Yes. The only thing I would add on China, we're pleased with how the China business is performing. We're still gaining share there. There's just there's overcapacity in China and what you're seeing is you're seeing a delivery war that's going on there, which is putting pressure on pricing. Pricing is down in that market because of what's happening between kind of the 3 different delivery guys all duking it out there. And so I think that's -- it's great for consumers. It's putting a pressure on the business.

But net-net, as Ian said, we're growing comp sales. We're still on track with where we need to be on new units. It's just -- it's a more deflationary environment in China than I think we would want to see normally.

Our next question is from John Ivankoe at JPMorgan.

I like the way that you framed Australia value is having -- giving consumers in that market, predictability and confidence. And I did want to put that in the context of the U.S., broadening the typical EVM discount from 11% to 15% does that give consumers price certainty across that EVM platform? Obviously, it's 30% of your sales, it's very important, whether it's local, regional or national, where consumers can come in and know that they, for example, can get a Big Mac combo meal at a certain price.

Do you think having specific price certainty in the U.S. over time to achieve that predictability and confidence is something that perhaps we can migrate the brand to, obviously, with some exceptions, but moved the brand more to kind of a sustainable national pricing type model on the EVM side.

I think you're exactly right. Part of why we wanted to address the discount on the EVM is because through a lot of our work over history, I think we've certainly condition the consumer to expect that there's going to be a certain amount of value that you get when you go and you buy an EVM item. And as we've talked about before, we had drifted a little bit away from that. And so the move that we did is very much meant to reestablish.

And then to the earlier question around whether we expect it to continue, we would expect it does need to continue because it's what the consumer expects. And I think once we've kind of gotten through sort of the medicine they have to take for a couple of quarters to get the incrementality, once you've got that back in place, you don't want to lose it. So I think this was very much meant as an idea to give us that predictable value. And then you're going to have the MacValue platform that will pulse in and out with various deals and offers, and that's going to just sort of be something that goes and it evolves over time. but the EVM is that foundation, along with being disciplined, not just your regular menu boards.

Our next question is from Brian Bittner of Oppenheimer.

Chris, you said in your prepared remarks that while you're taking share in the U.S., the low-end consumer cohort does continue to be down double digits. It's a theme that's been in place for almost 2 years now, and you said you expect this dynamic to linger into 2026.

And the question is, at this point, what do you think it's going to take to turn this lowering consumer from a headwind to a tailwind. It seems like that's the main unlock for comps to really inflect. You've thrown a lot of industry-leading value at this low-end consumer, yet they remain pressured, so just additional thoughts on what you think it's going to take into 2026.

Sure. I think if you think about the low income consumer and you think about the pressures that they face, I mean, right now, you're seeing across the country, rents are at pretty high levels you're seeing food prices, whether it's in restaurants or grocery, you're seeing food prices are high. You're seeing child care is high.

There's just a lot of things that when you think about nondiscretionary spend, there's some significant inflation there that the low-income consumer is having to absorb. And I think that's affecting their outlook and their sentiment and their spending behavior, not just in QSR, but across a number of other product categories as well. If you're not in that segment and your higher income, you maybe not -- you don't feel it as acutely, but lower income for sure, you're feeling it acutely. And I think some of what's going on most recently with Snap and other things might be additional pressure on that.

So what's going to change, I think, is that consumers will need to feel some relief around cost of living and need to feel like real incomes are growing. And how that changes, I think that's more of a macroeconomic question. There's probably a variety of things that need to happen there. But I think so long as that consumer cohort is feeling like real incomes are under pressure. I wouldn't expect to see significant change there.

Our next question is from Brian Harbour at Morgan Stanley.

I guess to that point, though, are you seeing yourselves take share across different income cohorts? I mean, do you think that the value push has sort of worked and then I guess more at the higher end, do you think some of the digital initiatives, some of the other product stuff that you've done, have you seen that be effective across different income cohorts?

Sure. Well, we're gaining share with upper income, and as we referenced, upper income industry traffic is up almost double digits there. And even in that environment, we're gaining share with upper income. And I think there's a variety of things that go into that digital, our marketing programs, the strength of the brand, all of those things are attractive to that consumer. So I think that, that very much continuing. And then how we think about that over time, value certainly has a play.

I think sometimes there's this idea that value only matters to low income. But value matters to everybody, whether you're upper income, middle income, lower income, feeling like you're getting good value for your dollar is important. And so I think for us, continuing to do what we're doing with EVMs, continuing to make sure that our McValue platform is competitive. Those are things that benefit not just the low-income consumer, but they also continue to attract that upper income consumer who is still looking for good value, they just maybe have more discretionary dollars in their pocket that they go spend.

Our next question is from Lauren Silberman at Deutsche Bank.

I have a quick follow-up and then a question. On the high income side, fast casual has been a weaker segment this year, Tensile a bit more higher income. Is there any evidence of share shift from fast casual into QSR from that higher income consumer?

And then if you could just talk about what you're seeing across dayparts you guys have talked about breakfast being weaker. Have you seen any pickup with the everyday value meals.

Well, Lauren, it's Ian. Let me maybe just start with the higher income consumer, and I can let Chris do the second part there. But look, I think, as I said earlier, we've been talking about the bifurcated consumer in the U.S. for quite a while, and we've been talking, I think, about the strength of the higher end consumer.

So I don't think we've seen any fundamental change in trend with that consumer. As you said, I know a number of others have talked about seeing some weakness there. Certainly, as Chris said, we continue to gain share with that consumer. And so I think -- as we've talked about a fair bit today, our goal is to make sure we're positioned strongly on value and affordability for all 3 consumer groups.

I think we did a really good job on that from the McValue platform standpoint and the loyalty and kind of digital offer component. But as you've heard us talk about, we felt we were missing the strength of value that we needed on that core menu, the 60% EVM being half of that. So that's what we're now trying to address. And as we've talked about before, I think our unique positioning is that we've got the financial strength to make these types of investments when maybe others are going to have to be a bit more defensive. So I think we're doing the right things for the consumer.

And as you've heard both Chris and I say, I don't think we see any near-term kind of change in the environment. And so we just want to make sure we're well positioned to do as well as we can in a kind of a continued external challenging landscape.

And then on your breakfast question, we have talked about in the past how breakfast tends to be one of the more -- well, it tends to be the most economically sensitive daypart. It's an easy daypart to either skip the meal or to eat the meal at home.

Breakfast continues to be under pressure as a daypart industry-wide. We're holding share in breakfast. So we're doing okay in that segment, but we are still seeing that daypart is under pressure for the reasons that we've already talked about. And when that changes, I think that goes with the broader macroeconomic things that we've talked about.

Our next question is from Jeff Bernstein of Barclays.

Great. Just thinking about that value push maybe from a 30,000-foot view, I know 12 months ago with signs of a U.S. economic slowdown, we assumed fast food broadly and McDonald's specifically would benefit on both ends of the consumer spectrum, retaining the low income with value and perhaps seeing trade down from middle and upper income.

Obviously, that didn't transpire from much of this year. But it seems like it's set up well as we look to '26. Wondering if you believe it's reasonable to assume that we could see this play out, especially as you now have a more compelling value offer to bring back the lower income, and you're lapping that weakness now.

And on the other hand, again, signs of middle and upper income perhaps being a little bit more vulnerable and trading down. So perhaps on a 1-year lag, but do you see that scenario playing out where you could actually benefit from both ends kind of converging back on the quick service segment.

I'd love that scenario to play out. I'm not going to predict whether it does play out that way. I think what we've said -- and I would reiterate on this call is McDonald's, its values in our DNA. And we absolutely are going to make sure that we are protecting our leadership position in value.

And you've seen us take the actions where we felt like we had some opportunities there. We're not going to lose as a brand. We're not going to lose on value. And so what you outlined is maybe one scenario. Again, that would be great if it played out that way. But if there's any opportunities for us, it's not going to be because we were offsides on value. I think we learned our lesson on that, and we're going to make sure that we're set up well for 2026 on that.

Our next question is from Andy Barish over Jefferies.

Yes. I actually wanted to kind of dovetail on that question. And I was intrigued by your comments, Chris, on the inflationary environment, which may continue to bring about difficulties in margins. How do you see that kind of playing through to the industry promotional environment in '26, which has kind of been relentless for the last 18 months or so.

I think it's going to continue to be a kind of -- you're trying to thread a needle here because you're trying to be able to push through some pricing to offset the inflationary pressures that are going to continue. At the same time, you've got a consumer, particularly a low-income consumer, who's really resistant to any additional pricing. And so then you've got to try to figure out what is that sort of right combination there where you're able to get some pricing to offset that inflation at the same time that you're delivering a great value message.

And there's no easy answer to it. I think everybody in the industry is trying to figure that out. But the worst answer would be to be losing traffic because you're just not getting people through the door. That's not going to be a winning formula. So I think different people will approach it different ways. You've certainly seen an uptick in a lot of digital offers as well.

The challenge with that, of course, is that you don't have the majority of your customers on the digital app. And so that can only go so far. So I think different players are going to have different approaches. We've obviously got our plan on how we plan on approaching it, but I do expect you're going to continue to see people are going to need to be having compelling value offers because they're also going to be trying to figure out ways to be capturing some of the pricing due to the inflation.

And the only thing, Andy, maybe I would just add to what Chris said, and we touched on it on an earlier question is I do think consumers are looking for a little bit of predictability. And so I think they'll be the tactical price wars or digital offers or kind of short-term efforts by people to kind of win in a difficult environment. If you believe the environment is going to continue to remain challenging for a while, which I think certainly as good as our crystal ball is, we would say that certainly seems to be what's on up over the next at least several quarters.

I think the predictability is really important, which gets back to Certainly, our view, which is why platforms like McValue and having predictable components to that, the EVM which is a, again, a more predictable outcome for consumers is really important because I think the certainty and the predictability. I think nothing frustrates consumers more right now when they come in and they don't get what they expect.

So as Chris said, we're going to make sure we're positioned to win across all the spectrums of value and try and make sure we do that in a way that has a level of consistency and predictability for our consumers.

Our next question is from Jon Tower at Citi.

Great. Chris, you had mentioned in the prepared remarks, the idea that you're thinking about expanding the beverage platform, the COSMIC stuff globally beyond the U.S. And I know in the U.S. you had also commented on the idea of keeping that kind of value-centric price point here in the states.

So how are you thinking about expanding it globally? Obviously, still in test now, but I think outside the U.S., the platform is positioned differently to consumers across different markets. Are you continuing to think about that in the same manner if you were to roll COSMIC globally, or do you think you'll kind of use it as a value platform across the globe?

So we will be testing what we've got in the U.S. You're going to see that in some international markets where it will get tested. It may look a little bit different from what we're doing in the U.S., but we'll test that and see how that resonates in a few other markets.

And let me just be clear, beverage is an exciting incremental opportunity for us that we like because of its ability to drive incremental traffic. It's check add-on. It's got a lot of benefits. And to do that, it needs to be also I think priced at a competitive value for us to win.

We're not seeing it though as a value platform per se. And so when we talk about what it's going to be in the U.S., it's very much designed to drive margin. It's very much designed to drive check. But how we do that is also being mindful about where it's priced vis-a-vis the competitive set. Well, I think, take that same approach as we test it in some of the international markets and whether that rolls out beyond the U.S. or not will obviously be dependent on how it performs in some of those other markets.

Our last question today is from Andrew Charles from TD Cowen.

More about the U.S. [indiscernible] margin contraction in 3Q and help unpack as a bigger headwind this quarter was general inflation for customers seeking lower margin value. And also, if you can just touch on your outlook for beef within that response as well.

Sure. Andrew. Well, look, I think as you've certainly heard from me say, pretty consistently. I mean, obviously, the kind of fundamental driver of margin growth is so strong top line growth. And we see -- we need a certain let's call it, minimum level of top line growth to drive margin accretion. And while we had a good quarter in the U.S. at 2.4%, I would just say it wasn't enough top line growth in the quarter to offset some of the inflationary pressure we saw in areas like wages and food and paper costs.

So I think as you've heard, both Chris and I talk about, I mean we have no change in our view that we're going to be able to drive margin accretion and margin growth over time as we drive that top line growth. But obviously, we continue to operate in an environment where sales have been a little bit more subdued, and inflation has been a little higher than what I'll call kind of the historic norm.

I think on food and paper in the U.S. We've said this year, we expect kind of our basket of food and paper inflation to be in the low to mid-single-digit range for the year. Obviously, beef inflation is up. a fair bit. I think the strength of our supply chain means our beef costs are, I think, certainly up less than most. They're still elevated, but I think our basket of goods means we still have confidence in that kind of low to mid-single-digit range.

I mean, obviously, what we're trying to focus on, as we've talked a fair bit about today is -- how do we make sure we've got that baseline momentum, obviously, value and affordability across all parts of the menu is a really important component of that. And so that's -- I think what we're focused on is kind of getting that stronger top line and growth in place as we look forward.

And as we said earlier, certainly, we've had a decent start to Q4, and I think we're getting through things like our EVM relaunch, some of those may be missing components back firmly in place.

That concludes the call today. Thanks for joining us. If you have any follow-up questions or would like to set a meeting, please send me an email, and we'll do so. Thanks again, and have a good day.

This concludes McDonald's Corporation Investor Call. You may now disconnect, and have a great day.

Hello, and welcome to McDonald's Second Quarter 2025 Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. [Operator Instructions]

I would now like to turn the conference over to Mr. Dexter Congbalay, Vice President of Investor Relations for McDonald's Corporation. Mr. Congbalay, you may begin.

Good morning, everyone, and thank you. For joining us. With me today 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 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. [Operator Instructions] 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, Dexter, and good morning, everyone. In the second quarter, McDonald's delivered global system-wide sales growth of over 6% in constant currency and global comparable sales growth of nearly 4%. This includes driving positive comparable guest counts globally despite a challenging backdrop for the industry. In this landscape, the power of McDonald's value and affordability platforms, exciting marketing and menu offerings and world-class execution are working together to drive comparable sales results and guest count growth as we also accelerate new restaurant development.

Our internationally operated market segment, comp sales increased by 4%, with all markets driving positive comp sales growth. Our international developmental license markets delivered comp sales growth of more than 5.5%, led by Japan and with positive comps across all geographies. The results speak for themselves. When we get our value proposition right and execute with excellence, good performance follows.

As we shared last quarter, all of our big 5 IOM markets now have both meal bundles and everyday affordable price or EDAP menus in place. Our EDAP menus feature a variety of sandwiches, snacks and beverages, typically priced below $4, pounds or euros. Value and affordability scores improved across the majority of our major IOM markets as these offerings as well as offers available through the McDonald's app, continue to gain traction and awareness with consumers. Despite continued high inflation across most of Europe, our IOM markets are being prudent about pricing actions, knowing the continued challenging environment for many of our consumers.

I recently visited Germany and saw firsthand how the market is executing our playbook and outperforming the competition. McDonald's Germany is defining good value in the market with a clear EDAP menu, Big Smart Snacks that just launched a few months ago. They've paired this EDAP menu with compelling meal bundles, giving them a strong 1-2 value punch. At the same time, Germany launched exciting marketing and full margin menu innovations such as the Chicken Big Mac, which hit record high sales in the market during its first full week of launch. As a result, this quarter in Germany, we drove positive sales and guest count gaps versus nearing competitors and gained market share despite what continues to be a challenging industry environment.

Turning to the U.S. business. Comp sales were up 2.5% in the quarter. We outperformed near competitors on both comp sales and comp guest counts. Certainly, overall QSR traffic in the U.S. remained challenging as visits across the industry by low-income consumers once again declined by double digits versus the prior year period. Reengaging the low-income consumer is critical as they typically visit our restaurants more frequently than middle- and high-income consumers. This bifurcated consumer base is why we remain cautious about the overall near-term health of the U.S. consumer. In this environment, we will continue to remain agile with respect to our value offerings to ensure the U.S. strengthens its leadership in value and affordability. Overall, we've made good progress with our value offerings.

The $5 Meal Deal continues to resonate with consumers as we recently celebrated the 1-year anniversary of the program. We've also continued to see incrementality from our McValue platform which also includes our Buy 1, Add 1 for a Dollar deal, which launched at the beginning of this year. And of course, we're excited to welcome Snack Wraps back onto the menu after a 9-year hiatus. We launched Snack Wrap with an attractive $2.99 nationally advertised price point and early results are encouraging.

Our franchisees also recognize the importance of the $299 price point, and we're excited to announce that they recently voted to extend this advertising through the end of the year. But we recognize that consumers' value perceptions are most influenced by our core menu pricing. We're working closely and collaboratively with our U.S. franchisees on this opportunity, and we're developing ideas for how we might address this as an entire system.

In combination with strong value, we're also unlocking growth across our most important menu categories of beef, chicken and beverages. Ian will discuss beef and chicken shortly, but I'd like to touch on beverages. The work of our beverage category team is rapidly moving forward. As we recently announced exciting things are brewing with an upcoming test in about 500 restaurants in the U.S. with a beverage lineup that includes a variety of options from Cold Coffee and Fruity Refreshers to crafted soda and energy.

We've been able to quickly embed CosMc's key learnings into our McDonald's core business, demonstrating the speed, scale, system prowess and efficiency of our cross-functional category teams. We're finding new ways to tap into what customers want and believe no one is better positioned than McDonald's to deliver more of these moments to our fans.

Finally, central to our Accelerating the Arches strategy is aligning our greatest assets, our iconic brand and unmatched size and scale with the power of data and technology. It's happening in 3 distinct ways. We're reimagining how we improve the restaurant experience, transforming how we engage our most loyal brand fans and modernizing the employee experience. Our progress to digitize the Arches is unleashing the full potential of our size and scale, all while strengthening our foundation, such as increasing the reliability of our systems.

As I said during our investor update in late 2023, when we first introduced the restaurant, consumer and company platforms, we believe they can create a step change in our sales and margin trajectory over time. slowly at first, with increasing speed and impact as we scale like no other brand can. We're excited to see this start coming to life. In our restaurant platform in partnership with Google, we're developing edge computing, which extends the cloud to our restaurants.

Edge is the digital foundation for the next generation of restaurant innovation that powers AI and Internet of Things enabled restaurants. The expected benefits are many. Increased restaurant uptime and enhanced customer and crew experience, improved food quality and cost savings opportunities. We're currently live with edge in hundreds of U.S. restaurants and are beginning to deploy it internationally.

Running great restaurants is just one component of serving up great customer experience. Our fans want greater personalization, convenience and value. And bringing millions more consumers into the McDonald's digital universe is how we're ensuring customers feel seen and satisfied with each and every visit. In 2023, we set a goal to reach 250 million 90-day active loyalty users by the end of 2027. As of this quarter, we've reached more than 185 million 90-day active users across 60 loyalty markets.

In the U.S. alone, on average, the same customer visits 10.5 times in the year before joining the loyalty program and then 26 times in the year after joining. They are earning points in the app and using them to unlock exclusive deals. And thanks to our recent partnership in the U.S., customers were able to extend rewards to new experiences like the Snapchat Plus subscription with premium features.

Fans ordering on the app are already saving time with ready on arrival. Our geofencing technology can let our restaurants know when to start your order. In the U.S., restaurants with ready on arrival can reduce wait times for food pickup by more than 50%, and in many cases, eliminate them all together. Ready on arrival is deploying in restaurants across 5 of the top 6 markets and we're on track to launch in the last of the top 6 later this year.

Finally, we're applying new technology across the company that will change our ways of working. We're moving from hundreds of legacy systems to standardized modern global platforms to help our employees be more efficient and make data-driven decisions while increasing the speed of innovation. We took a couple of big steps towards improving processes by going live with a new finance system in the first wave of markets just a few weeks ago and rolling out a new HR or human capital management system in the second wave of markets this past quarter [indiscernible] not just the customer experience, but provide new capabilities for our system.

With that, I'll turn it over to Ian.

Thanks, Chris, and good morning, everyone. Our performance in the second quarter shows that customers continue to choose McDonald's as a trusted destination for the food they love, that's delivered with the quality, convenience and value they expect. Our financial results in the quarter were largely in line with our expectations. Global comparable sales increased 3.8% with comp sales growth up sequentially from the first quarter's low point. Importantly, the sequential improvement was broad-based with comp sales and guest count performance accelerating in each segment.

Our ability to adapt within a challenging environment remains a core strength. Execution of our Accelerating the Arches strategy and our ability to implement and scale necessary adjustments drove positive results in the quarter, including market share gains across a majority of our larger international markets. For example, in France, we've continued to widen our positive comp guest count gap to Niren competitors. This was supported by the successful launch at the end of March of a new EDAP platform, which we paired with compelling meal bundles that are resonating with value-conscious consumers.

The EDAP platform includes several À la carte offerings, each under EUR 3. We've seen an increase in take rates for all items and continued increases in customer value and affordability perceptions and overall customer satisfaction scores. In addition, in early April, we introduced the big arch. It was our top-selling large burger in France following its launch, and that trend continued after the media campaign ended.

We followed the Big Arch's rollout in France by launching it in the U.K. in mid-June. Early results are meeting our expectations, fueled by positive response to the marketing campaign and social media bus and we're looking to build on Big Arch's success as we continue efforts to improve the U.K.'s overall performance.

While we recognize that restoring sustained positive performance in the U.K. will take time. As we've demonstrated most recently in France and Australia, we have a solid track record of identifying areas of improvement and executing turnaround plans that deliver results. In addition to launching Big Arch in France and the U.K., we're working to unlock growth in beef by continuing to implement Best Burger across the globe. Today, it's currently in more than 80 markets, and we expect it will be in nearly all markets by the end of 2026.

Chicken also remains a significant opportunity. It's a larger global category than beef and continues to grow at a faster rate. In the second quarter, we increased chicken market share across our top 10 markets. and we remain on track to grow our global chicken share by 100 basis points by the end of 2026, in line with the target we shared at our investor update in late 2023.

Chicken was key to driving sales growth and overall market share gains in Australia in the quarter. The market saw its first share gains in a couple of years thanks in part to the Hot Honey Chicken campaign featuring both McCrispy and McSpicy options that worked in conjunction with the strong foundation of value and affordability that has now been put in place. Australia also introduced [indiscernible] Wings in early June as a permanent menu item with performance to date exceeding our expectations, further strengthening our chicken portfolio.

Chicken also helped to drive our performance in China in the second quarter, where we gained market share, not only in the category, but in overall QSR as well. While we're pleased with our relative performance in China, the near-term macroeconomic environment remains challenging. Despite these headwinds, we remain confident in the long-term potential of the China market and remain on track to deliver on our new restaurant opening target there this year.

In addition to our commitment to the core menu and exciting innovations, we leveraged the One McDonald's Way approach to creative excellence this quarter. This drove positive comp guest count gaps to near-end competitors in the U.S. and across the majority of our major international markets. The centerpiece of this One McDonald's Way approach was the marketing campaign in partnership with a Minecraft movie our largest global campaign ever with participation by more than 100 markets. The consumer response to this campaign was incredibly strong. It boosted guest counts in each of our major markets. most of which sold out of the Minecraft Collectibles ahead of the intended promotion window.

In the U.S., in addition to leveraging One McDonald's way to marketing, we're staying agile and we'll continue to focus on strong execution to drive market share growth. We launched McCrispy Strips in May and saw an initial groundswell of excitement and high levels of customer satisfaction. We followed it with the highly anticipated snack wraps in mid-July at a $2.99 nationally advertised price point. And we've been encouraged by the positive consumer response so far, which we believe comes from pairing the right product with the right value proposition.

We have also recently updated our McValue Meal offerings by introducing the daily double, a new burger meal that provides customers with more entry-level meal options. McValue now has 3 meal deal offerings, and customers can continue to find a $5 meal at their local restaurant.

U.S. leadership team and our U.S. franchisees are confident about the calendar for the remainder of the year, which includes exciting news across all levers of our plan: value, menu and marketing. However, as Chris noted, U.S. restaurant traffic, especially for the QSR industry remains challenging. Accordingly, we will leave no stone unturned when exploring ways to drive guest count-led growth and strengthening our value leadership. As Chris mentioned, we're working closely and collaboratively with our U.S. franchisees to evaluate the opportunity to improve upon our core menu offerings. We know what it takes to win. And as a market leader, we plan to leverage our size, scale and financial strength to deliver for our customers.

Turning to the P&L. Adjusted earnings per share were $3.19 for the quarter, an increase of about 5% versus the prior year quarter in constant currencies. Adjusted operating margin was nearly 47% for the first half of the year, highlighting the durability of our business model. Despite continued pressure on consumer spending, top line results generated nearly $4 billion of restaurant margin for the quarter. That's an increase of about 5% in constant currency, driven primarily by franchise margin performance.

With respect to the remainder of the year, the headwinds facing our business and consumers in the U.S. and our top international markets remain largely the same, while cost pressures in some markets, most notably in Europe, have become more challenging. Nonetheless, we continue to target a full year adjusted operating margin in the mid- to high 40% range and above the 46.3% adjusted operating margin in 2024. This includes the expected impact from tariffs that are currently in place. However, we're adjusting our full year margin target for company-operated restaurants to be around the 14.8% that we delivered in 2024, which we had previously targeted to increase slightly.

We're still targeting G&A as a percentage of system-wide sales to be about 2.2% for the full year. We continue to remain disciplined with investments in our strategic growth priorities, including digital, technology and our transformation efforts led by our global business services organization. Below the operating line, we're projecting our full year interest expense to increase by about 4% compared to 2024. That's at the low end of our previous estimate of 4% to 6%, largely due to lower-than-expected increases in average interest rates. We continue to target a full year effective tax rate of 20% to 22% with some quarterly volatility.

We currently estimate the tailwind from the impact of foreign currency translation on adjusted earnings per share to be about $0.15 based on current exchange rates. That's up from our previous estimate of about a $0.05 tailwind. As always, our updated estimate is directional guidance only as rates will likely change as the year progresses.

Finally, we remain on pace to open approximately 2,200 restaurants globally this year and continue to target about 1/4 of these openings to be in our U.S. and IOM segments. We expect to open more than 1,600 restaurants in our IDL markets, including about 1,000 in China. In total, we continue to expect slightly over 4% unit growth from the nearly 1,800 net restaurant additions in 2025. Overall, despite the ongoing industry headwinds, McDonald's is well positioned due to the resiliency of our business and our overall financial strength.

We're on track to deliver our financial targets for the year. and remain confident in our ability to drive long-term profitable growth for the system and to create value for our shareholders. We remain confident in our Accelerating the Arches strategy and believe with strong execution, it will continue to deliver. As shown in the majority of our IOM and IDL markets in the second quarter, having a solid foundation of value and affordability is critical. And when we get value menu and marketing to work together, consumers increasingly choose McDonald's.

And with that, let me turn it back over to Chris.

Thanks, Ian. I want to take a moment to reflect on what continues to set McDonald's apart. 7 years in, we remain one of the most culturally relevant brands in the world. Our recent global Minecraft movie campaign is just the latest example of the strength of our brand and a reminder that McDonald's isn't just a restaurant, we are a part of people's lives, they're routines and their favorite moments.

McDonald's was once again named as the most valuable global restaurant brand by Kantar. It's a testament to the trust that we've built with customers and the consistency of our brand experience around the world. That legacy is intentional. We recently brought together our top leaders from around the world as part of our routine planning process to shape our plans for 2026 and beyond.

One thing was clear throughout our time together. When we make a commitment to value and affordability and couple that with world-class marketing and menu innovation, we can drive strong results. Our continued opportunity lies in the ability to execute with discipline at a scale that only McDonald's can deliver. We know that when we focus on what we can control and execute, we win. We're seeing that internationally, and I'm confident that we're taking the right steps to get value and affordability right in the U.S.

Time and again, McDonald's has demonstrated its ability to remain agile to meet the moment by focusing on what we do best, delivering great food, exceptional value and memorable experiences. With the dedication of our franchisees, the passion of our crew and the power of our global scale, McDonald's is uniquely positioned to lead the industry we help to find today and into the future.

With that, we'll take your questions.

[Operator Instructions]

Our first question today is from David Palmer from Evercore.

It sounds like you're still exploring ways to bolster value perception in the U.S. ahead of anything there. Could you just speak to where you think McDonald's value and affordability scores are today in the U.S., perhaps before and after Snack Wrap in your recent McValue menu changes, where is the consumer perception today versus McDonald's in the past and versus nearing competitors and maybe even fast casual competitors. And if there's a difference between the U.S. perception in terms of value versus other key IOM markets, would love to hear about that. as well.

David, it's Chris. Thanks for the question. I think when we talk about value, it's important that we really break it down and get very specific about the different consumer segments. And I'll start with our most loyal consumers. And these are the ones who are on our loyalty program. Roughly 1/4 of our business in the U.S. is on our loyalty program. And what we see is, if you are a loyalty member at McDonald's, we have exceptional value and affordability scores amongst those consumers.

And probably that's most evidenced by what I shared in the prepared remarks, which is the uptick that you see in terms of frequency when we have a loyal consumer in our loyalty program going from 10 -- roughly 10 visits to 26 visits. So I think with our loyalty members, our most McDonald's customers, we are really good position as it relates to value and affordability perception.

If you move then to the McValue program, McValue is working. And if you think about what we have with McValue, we have the $5 Meal Deal, which is the anchor for that. That continues to perform very well for us. And then we also have the Buy 1, Add 1 For a Dollar program. What's interesting is those 2 programs are very complementary. If you look at consumers who are using both, it's only about 8% or so. We're actually using both. So they're going after to very different occasions, 2 very different users, but compelling to both. So I feel good about the loyalty program.

I feel good about where we are with McValue, but the issue where the opportunity is if you add those 2 up, that's, call it, roughly 50% of the business. And we know there is the other 50% that today isn't coming into a restaurant isn't using McValue, isn't using the loyalty program, and that's where we have the opportunity, which is around core menu pricing that we talked about in our prepared remarks.

Today, too often, if you're that consumer, you're driving up to the restaurant and you're seeing combo meals could be priced over $10 and that absolutely is shaping value perceptions and shaping value perceptions in a negative way. So we've got to get that fixed. As I mentioned in my remarks, we're having, I think, very active and productive conversations with the franchisees, but the single biggest driver of what shapes consumers overall perception of McDonald's value is the menu board. And it's when they drive up to the restaurant and they see the menu board that's what's shaping -- that's the #1 driver. So we've got more work to do on that in the U.S.

I'd say on the IOM side of the business, we're in a better position on that. Part of it is, as I mentioned in the remarks as well, we have a really strong EDAP program in all of our markets. So these are essentially $1, $2, $3, $4, euro, pound whatever the currency is. But that is proving to be a very strong addition to the value programs in the IOM market. And then also, as I mentioned, our operators there have been very prudent, and I think are doing the right things to make sure that our core menu pricing continues to be at leadership levels in the market.

I would just note also on our international side, it's not as competitive a market as it is in the U.S. There's a lot of different players in the U.S. We don't face the same breadth of those players or competitors in our international markets. And so I think it's a little bit easier for us to stand out and represent good value in international.

So Ian, I don't know if you have anything to add. He's shaking his head, no. So we'll go to the next question.

Our next question is from Dennis Geiger.

I wanted to ask a little bit more about the U.S. and what sounds like encouraging momentum into the third quarter given the positive response to Snack Wraps. Can you talk a little more about how you think about the U.S. sales trajectory and underlying momentum over the coming quarters given the exciting value menu and marketing news you mentioned on the way, but also relative to the challenged industry traffic trends that you noted?

Dennis, it's Ian. Yes, let me start that, and Chris will certainly weigh in and add some texture at the end. Look, I think as you said, the industry environment certainly remains challenging. I think we saw overall QSR traffic in Q2 negative, which was consistent with what we saw in Q1. I think Chris certainly touched on a little bit the consumer. But if you think just about the consumer environment, I mean, we've got lower income consumers that remain under pressure, their visits to QSR were down double-digit again in Q2.

I think the middle-income consumer was marginally positive in visits in Q2, so a little bit better than Q1 and then we've got the kind of higher income consumer who continues to kind of grow visits, I think, positively and consistently. So I think that is what we touched on upfront. You've got a bit of this kind of bifurcated consumer environment. I think we expect those kind of dynamics and headwinds to kind of continue through the rest of the year. I think what we do feel good about is just kind of what is within our control. And I think as we talked about upfront, we feel very confident about the lineup of kind of marketing and menu activities that we've got planned in the U.S. business for the rest of the year.

I think if you start a little bit with kind of Q2 and just the dynamics of what took place as you'll remember, we had a really strong activation to start Q2, which was the global Minecraft activation. We ran out early, but generated some really strong momentum. But I would say we saw sales moderate through Q2 as I think those headwinds kind of persisted. And I think if you think of what we talked about at the beginning of the year, we set upfront at the beginning of the year that we thought the back half of the year would be stronger than the front half of the year, I think that remains our belief.

And then I think if you look at a little bit more texture, we certainly believe will be stronger in the U.S. business than Q3 simply because we've got that lapping of the food safety event that we worked through in Q4 last year. And I think if the dynamic maybe just to have as context in Q3 is we'll be lapping the start of the $5 Meal, which, as Chris touched on earlier, was a really strong and probably kind of our first significant incremental effort on value and affordability in the U.S. business that work really well.

So those are a bit of dynamics. I think the headline would be, we certainly feel confident about what's in our control. We've got some opportunity, as Chris touched on, that we're working towards to kind of address that value, broader value and affordability. But I think the kind of the consumer headwinds are -- we certainly expect to persist through the remainder of the year.

Our next question is from David Tarantino.

I was hoping you could unpack the key drivers for the IOM segment this past quarter. And in particular, I guess, what drove the strength? And do you think that this is more structural in nature and something that can be sustained as you look forward? Or were there some maybe just successes on the promotion side that might have helped the most recent quarter. Anything you can offer there would be helpful.

David, let me start, and then I'm sure Chris will weigh in here. Look, I mean, I think we've talked, as you know, very consistently about this. I think we've done a lot of work over the last 12 to 18 months in IOM to really get what I'll call the solid foundational elements of value and affordability in place, which is that EDAP or everyday affordable price kind of platform with those choices of entry-level items in place. We've got that now in place in every one of our large international markets plus the entry-level value meals.

So it's that foundation on value and affordability. And I would say we've seen meaningful improvements in our value and affordability scores across all of those key large IOM markets. So we know that what we've done on value and affordability is resonating in this kind of challenging environment in most of those markets. And then it's -- when we kind of get that foundation in place and which is helping us, I think, to drive some stronger fundamental momentum and pair that with the great menu in marketing execution.

And I think we saw in Q2 some really strong execution on menu and marketing across our key IOM markets, obviously, the quarter started, as we've talked about already with that Minecraft activation, which was successful in all of our key markets. And then we had some really strong other activities, the Chicken Big Mac in Germany, which kind of set records from a promotional standpoint in the German marketplace. We had the launch of big arch in both France and the U.K. in the quarter. And then in Australia, as an example, we had this hot honey Chicken activation as well as the introduction of McWings, which is exceeding our expectations.

So to me, it's those 3 fundamental pillars of our Accelerating the Arches strategy that have come together supported by getting that foundation strongly in place on value and affordability, which is really meeting consumers where they are and I think a continued challenging external environment.

Yes, I would just add a couple of things. I think Ian touched on this, but we talked about value menu innovation and marketing. And in this environment, you got to go 3 for 3. If you go 1 for 3, if you go 2 for 3, you're not going to be putting up the kind of performance that I think we would all aspire to in terms of being able to really have outsized share gains. And so credit to our international teams that they're going 3 for 3 right now. And of course, it's on us to continue to execute and make sure that we're doing it.

The other thing I would just note is we've had significant inflation in our international markets, particularly in Europe. Beef prices, you've probably seen some of the headlines here, but beef prices are up by 20% in Europe for a number of different reasons, but primarily it's a supply issue. And in the face of what, in most markets is high single digit inflation. Our franchisees are being disciplined on pricing. The pricing taken is low single digits.

So I think our franchisees recognize that even in the face of continuing high inflation on inputs continuing inflation around labor, being disciplined and making sure that we're leading on value and affordability is the foundation for what we're seeing in our international business.

And maybe just one final look, David, I just -- because I think it's always so important because to the essence of what we do. I mean, our operational execution metrics continue to improve. And I think the result from that and from what the work we've done on value and affordability is that our overall customer satisfaction scores continue to improve across all of those key markets as well.

So I think we're doing all these things, and we're delivering a better execution for the customer, which is obviously really important when customers, I think, are being more discerning about their choices.

Our next question is with Brian Harbour.

I guess just, Chris, you talked a lot about some of the technology initiatives and stuff like that. And I know it's early days on some of those. But how should we sort of gauge the success of those? I mean are you already seeing some cost benefits, for example. On the corporate side, do you think that those are driving sales in some markets? Or do you think that, that will be the case as you deploy them? How should we think about the success of those?

Sure. Well, thanks for the question. I'll kind of address each of the 3 platforms that we've talked about from a tech standpoint and talk about the benefits that we are seeing and then the benefits that we anticipate seeing. On the consumer platform, we've talked about our goal, our aspiration is to get to that 250 million 90-day active loyalty members. I think we're making really good progress on that. As I've noted a couple of times now, we're seeing that, that loyalty program drives significant increases in frequency, which at the end of the day, when 80% to 90% of the population comes to McDonald's, our opportunity is always around frequency.

And so getting more and more consumers to be in our loyalty program, that's how we're going to drive this business because it's going to be frequency-led growth. So I feel good about that, and we've got a whole pipeline of enhancements that we're going to continue to make on the consumer side in the years ahead that I think are only going to deepen consumers' experience and relationship with McDonald's.

On the restaurant side, I'd say we're still early days on this. And we talked about having ready on arrival. We're seeing significant speed of service improvements. We're seeing that increased customer satisfaction. We're seeing that, that makes the job easier for crew. So we're starting to see benefits attached to that. But some of the other bigger ideas that we're working on, things like automated order taking, things like having Internet of Things so that our ship managers actually know when equipment is in need of service before it actually goes down, things like what we're calling Boost, which is essentially this shift manager AI-enabled capability.

All those things are still very early days for us. Those are going to roll out over the next couple of years. And as that happens, I think you're going to see kind of this 1 plus 1 equals 3 benefit, which is it's going to improve the restaurant experience for the customer. It's going to improve the restaurant experience for the crew person and it needs to be able to deliver cost savings, productivity to the franchisee to ultimately enable the investment that goes behind these things.

Lastly, on the company side, we've talked about -- we've rolled out our finance system. We've rolled out our HR system. We've set up a global business center in India. We have one that's also up and running in Mexico. That's going to give us better capabilities. It's going to mean that we can move faster. And yes, ultimately, it's going to deliver cost savings that's going to ultimately show up in our G&A line as a percent of system-wide sales.

So all of those things are coming to 4. I'd say we're probably most advanced on the consumer side. I think you're going to see the restaurant and company platform benefits emerge over the next couple of years.

Maybe just a couple of builds to what Chris said, just maybe as a reminder because I think as we lay these out remember in the investor event at the end of '23, what we talked about is these would be tech-enabled platform, as Chris has touched on, which means getting -- moving away because we've been a very decentralized business as we've grown over history. And so we've become very disaggregated. It's about how do we move from common platforms, standard infrastructure that allows us to scale innovation at speed get the benefits of our size and scale, as I've talked about previously, starting to come to their full advantage because we can start leveraging scale to drive efficiency.

And I think just a reminder on, I think as we've talked about before, '25 and '26 and frankly, into the beginning of '27, I'll call the investment years. or significant investment years to kind of build the platform, to build the capability. I think it's really, as we get beyond that investment period, we'll start to see more of the kind of efficiency benefits. And certainly, we can talk more at that point about how those are going to come to life.

Our next question is from Sarah Senatore from Bank of America.

Actually, 2 quick clarifying questions. The first is, I think last quarter, you had said that the middle-income consumer was seeing decline similar to the low income. Does that does that persist? I'm just trying to understand if you're still seeing maybe a broader weakness?

And then on the loyalty, maybe you can help reconcile the sort of going from 10.5x to 26x is more than doubling transactions. And yet I suspect it looks like your transactions in the U.S. were down kind of low single digits. Maybe just the loyalty membership, is it big enough yet? I know you combined it with $5 Meals and said that was 50% or maybe it's just the over-indexing to other lower income consumers is offsetting that. But I wanted to sort of think about how loyalty because it's such a huge lift could drive going forward if you expand that loyalty program. So 2 questions there.

Sara, it's Chris. Very quickly, the middle-income has improved in Q2 versus Q1. So we're seeing that, that's gone to slightly positive in Q2. And then on your question around loyalty, the short answer is it's just not big enough. It's not at the size yet. And at the same time, we're seeing, like Ian mentioned, we're seeing high -- we're seeing double-digit declines with that low-income consumer, and we and the industry over-indexed to that low-income consumer.

So I think for us, that's why we're so focused on driving our 90-day actives and increasing that number because as you get more and more consumers into that, you're going to see the frequency benefits. And today, as I mentioned in the U.S., it's roughly around 1/4 of our consumers are in the loyalty program, but when we look to markets like China, when you can get the number to 90% or something along those lines, that's when you would see some really significant benefits attached to that.

So that's the aspiration, but I think it's -- right now, it's just a little bit early to be able to see the benefits, the full benefits that you're asking about.

Our next question is from John Ivankoe from JPMorgan.

The industry has been talking about weakness in the consumer base and lower income consumer base really since at least the second half of 2023. So it's been quite some time. So I'm really hoping for some diagnostics, I guess, at this point in terms of why that's happening. If I were to take a step back and look at your compression of pricing versus grocery year-on-year total employment, gas prices some of the normal pressures that would be affecting quick-service traffic quite frankly, don't exist, at least from a macro perspective.

So can you explain, I guess, what's happening in the U.S.? And is U.S. potentially a leading indicator for other major markets or might other major markets, in some ways, be a leading indicator for the U.S.

Well, I think if I had an easy quick answer to that, I'd probably be working in the government because I think that is a big question for all of us to try to unpack. But I would just note a few things. With the low-income consumer, despite improvements in wage gains, real incomes are down. So real incomes are down with the low-income consumer. That absolutely is going to put pressure on visits into the QSR industry.

Second thing is there's a lot of anxiety and unease with that low-income consumer I think we could all speculate the reasons for that, probably tariffs and the impact that, that might have questions around employment situation. But it's clear from the data that there's also beside real incomes being down, that sentiment is being down is down. And the result of that is you're seeing people either skip occasions, so they're skipping a daypart like breakfast or they're trading down either within our menu or they're trading down to eating at home.

So those would be sort of my simple kind of read on what's going on. But I'd say -- that's as much conjecture as it is being able to point to specific things. It's a big question for the industry.

And I think the only hook to Chris' comments, John, would just be -- I mean, internationally, I think we're seeing pretty similar dynamics. I think maybe the additional point that we've talked about previously in international as we see families under pressure, families just because they have obviously a larger kind of population within their family to kind of serve. I think they're also very value conscious, and I think under pressure for similar reasons to what Chris articulated.

I think the only difference internationally, as Chris talked about a little bit earlier is probably we have less competitive pressure. So we are clear choice and I think are still winning because of what we've done with value and affordability. But as we've talked about a lot, we've got to work even harder to make sure were attractive for all consumers, including the lower-income consumer.

Our next question is with Jon Tower from Citi.

Great. Maybe a clarification and then a question. First, on the G&A spend for the balance of the year, I think based on where it's trending year-to-date, it implies effectively a nice uptick in spend in the back half relative to system sales. So maybe you can clarify what's going on there? And then secondly, just curious, Chris, you hit on the idea that beverage is a fairly large opportunity. You're investing a lot of time and energy and testing it right now.

Curious how you see that hitting on the menu going forward, assuming much of it runs through the test well. Is this something that's going to be core to that value platform specifically that every day either McValue platform or Meal Deal platform? Or do you see it kind of playing well across the premium and the everyday value platforms in the U.S.

John, let me just get the G&A clarification out of the way, and then I'll let Chris touch on your question around beverages. I mean, I think the kind of natural cycle of G&A spend is back-half weighted. And frankly, generally fourth quarter weighted. I think it's just the reality of a lot of the projects kind of take time to get up to full speed.

And I think as you've heard us talk a lot about -- we've got a lot of activity in regards to areas like transformation and some of the work we're driving in tech and digital. And it's just that, I think, is kind of the spending pattern that we anticipate this year, which is pretty typical, but probably a little bit more kind of back half weighted this year than maybe what we've seen in prior years.

On beverages, I would just say, obviously, what we've talked about in the past is just the big opportunity that we see in beverages. It's really large market opportunity. It's growing and it's more profitable than food. So there's a lot of things to like, which is why us as well as, I think, a few of our competitors are also excited about this.

What we learned through the CosMc's tests that we've talked about previously is it's not nearly as complicated as we thought because what we discovered is actually the consumer isn't looking to design the beverage from sort of a blank slate. They actually want to be given a recipe and then they just want to make adjustments around the edges on that. And so what we've got with our beverage tests that we're doing now is we're bringing a much more expanded lineup of beverage offerings into the market to see what resonates with customers.

I think on your question on value, Certainly, there's always going to be parts of the beverage opportunity where we'll have on the value menu. As you've known from the past, coffee has been a great way for us to drive traffic. They've done dollar coffee in Canada for a long period of time. I imagine you're going to continue to see that there will be some beverages that continue to live on the value menu. But I think the bigger opportunity for us is you can actually get a lot of full margin products from these beverage offerings.

And so that's what we're getting after. I think that's why we're excited in the franchisees because you're not going to have to discount all of these. Now there's actually, for us, benefit because the -- a lot of these are priced with some of our competitors, gives us an area to come underneath that. But relative to what we do from a value menu standpoint, we're not going to have to go all the way to putting everything on the value menu.

Our next question is from Lauren Silberman, Deutsche Bank.

I wanted to follow up on the menu architecture. It seems like it's been a bit more difficult perhaps in recent years to get franchisees to coalesce around national price points. given some of the differences in costs across markets and reading into some of your commentary regarding your current efforts on the core menu, I guess what can actually be done to solve some of those challenges? Is it more about adding items at entry-level price points like Snack Wraps more national price points? Anything more you can share there would be helpful.

Sure. Well, there's been pricing. There's been inflation pressure in the U.S. There's been inflation pressure, as I've mentioned in IOM. That certainly has added pressure on the franchisee P&L to be able to take pricing to offset that. And then that also then disrupts the value programs that were in place, which has led to all the efforts that we've done over the last 18 months to get that fixed.

I think there still is absolutely a need and a benefit for having actually advertised price points. And we know that when you have a nationally advertised price point, it drives significantly more incrementality than if everybody is off sort of doing their own pricing, which is why something like what we're doing with the Snack Wrap, the $299, the fact that the franchisees have endorsed that for the balance of the year to stay at that price point. I think we have good alignment with the franchisees, on the need and the power of doing nationally advertised price points.

At the same time, the wage rates that exist across the U.S. are quite varied. And so we need to respect that and work with the franchisees on how do we solve for that in a way that works for everybody's P&L. It's not easy, but I think we've shown the ability with whether it's the $5 Meal Deal, the $299 that we can come together and do it. But all of these things take a lot of conversations and collaborate collaboration with the franchisees.

Our next question is with Christine Cho from Goldman Sachs.

You've reiterated your plans to open 2,200 stores this year on track to growing stores around 4%. But are there any factors that you're closely watching that could impact the development pipeline for 2026 and beyond. Any shift the margin dynamics or store economics your franchisees are seeing that could change the demand for opening new stores.

Christine, let me take that. Well, look, I think we're -- as we talked about in our upfront remarks, we're really confident about delivering the 2,200 gross openings for this year. And I think we've got a really strong and robust pipeline. As you know, we are in the process of kind of accelerating our pace of development. We'll get to basically about 1,000 gross openings a year in our owned markets by 2027, that commitment that we made at the end of '23 to get to 50,000 restaurants. I mean at the end of the day, we make our decision based on the returns that we generate.

Obviously, we want to make sure we have a really strong starting point. So we've closely watched kind of the first year performance. But ultimately, what we're also looking for is what do we expect the longer-term return to be for those locations. I think as I've touched on previously, we continue to see solid starting points for new restaurants. We continue to see returns that are kind of in line with our expectations. I think, obviously, any time you accelerate, there's always the potential risk that you can have some slippage in the quality. So we're monitoring that very, very closely. And it goes back.

And I think as we've talked about before, to I think the volume and the solidity of the work that we did leading up to kind of making that commitment at our Investor Day in 2023 and really getting granular on the opportunity and really precise on where those kind of open trading areas were, which is what our pipeline is addressing.

So of course, we're going to continue to monitor that. Of course, we're going to continue to make sure the quality is delivering. But again, I think we feel really confident about where we are and on pace to kind of deliver to what we've kind of laid out.

And the only thing I would add on that when we were all together with our leadership -- our market leadership in late June. We looked at pipelines for the next few years, and our pipelines are in really good shape. I feel very good about that. And I'd say when you're doing development, the first Year 2 is maybe a little bit more challenged because it takes a while to get the pipeline filled. But as we look now to the out years, we're in great shape on our pipeline.

Our next question is from Andrew Charles at TD Cowen.

Chris, with the upcoming specialty beverage test in the U.S., what are you monitoring for to decide this is something you're looking to expand further. And if you could also just touch on the time line, is this is something that you're finding to be successful, could you see the pilot expanded to more stores beyond the initial 500 later in 2025?

Sure. Thanks for the question. Well, I'd say with any test, we're looking for the consumer reaction, and we're looking for the uptake on buying these products and then also understanding how that works with the rest of the menu is an add-on, sort of to get a full read on this. I think as we've talked about -- we feel good about the operational elements of this. And the test that we have in place, we think operationally is going to be sound.

But ultimately, it's going to be able to then give us the confidence about the scale of the opportunity and how aggressively and how quickly we go after it. So in my mind, I don't see us going from 500 restaurants to 1,000. I mean this is 500 restaurants to then when are we going full market potential.

Our next question is from Danilo Gargiulo from Bernstein.

I wanted to double click on the comment that you were making earlier, is on consumers being more deserting with the dollars also in the breakfast day part, perhaps consuming coffee home a little bit more. So I'm wondering if you can share what is the breakfast mix today? And how does it compare versus the pre-COVID?

And then the real question is, how are you strengthening your foundations in the daypart? And how much does that depend on your kind of results on the new beverage lineup versus strengthening the value for consumers?

Yes. Thanks for the question. Well, as you note, and I would agree the breakfast daypart is the most economically sensitive daypart because it's the easiest daypart for a stress consumer to either skip breakfast or choose to eat breakfast at home. And we, as well as the rest of the industry are seeing that the breakfast daypart is absolutely the weakest daypart in the day. So I think that's confirmation of the economic stress that we've talked about, the weakness overall in the industry in the breakfast day part.

That said, I think this is still an area for us where if you've got the right value programs in place, you can drive and get that consumer to come into your restaurant. And so the U.S. earlier in the year, as you know, started going back in advertising breakfast nationally, which is something that we haven't done for a period of time. There's also conversations around what more we might be able to do with breakfast value.

So for us, breakfast is still a big part of the business. It's one that we think we have a right to win in, but it's one that right now is under pressure because of the economic issues that I've cited, and there's work underway to figure out what else we need to do to restimulate growth there.

Next question is from Jeff Bernstein over Barclays.

Chris, franchise sentiment, it seems like it's critical as they're key to so many of these initiatives. No doubt, I assume their health and volumes and profits are still industry-leading, but perhaps down year-over-year. So just wondering, as you mentioned, you're working closely with them to improve the menu offering, the value of the core. How would you describe those discussions with franchisees, specially around value in the U.S. and unit growth outside of the U.S., it does seem like you're focused on accelerating those growth components and the partnership with franchisees who is critical. So I'm just wondering how those relationships are going relative to past quarters or years?

Sure. Well, as you know, I mean the relationship and our partnership with our franchisee partners is everything because ultimately, what gets executed in the restaurant is what's going to drive the business. It's tough to always generalize with the franchisees. We have 5,000 franchisees around the world. It's almost a country-by-country conversation. But I'd say broadly, with our franchisees, the same ones that we've talked about with the consumer exists with the franchisees.

And they're sort of 2 sides of the same coin. The more the consumer is concerned, the more our franchisees are concerned. At the same time, our franchisees are seeing this cost inflation most pronounced in Europe, but there's continuing cost and particularly labor inflation in the U.S. So all of that, I'd say, creates unease, let's just say, with franchisees on these things.

You asked about development. I think that's another depends on the market really. But I think in some places where the consumer is perhaps decreasing visits to the industry it does raise a question around what is the appropriate development pace in that market if traffic is declining.

What we talk about in all of this is that McDonald's success has been winning on value and affordability. And that if we're winning on value and affordability with our brand, with our menu innovation, we're absolutely going to be able to take share and then taking sure you're going to be able to grow cash flow. And so I think that's the conversation we're having with franchisees right now, which is cash flow growth is within our control if we execute the playbook.

On the unit development side, a lot of where we're doing unit development is where we don't have penetration. So the impacts are maybe not as significant as sometimes our franchisees are concerned or worried about and at this point, we're not having any difficulty finding franchisees, and I'm talking globally, we're not having difficulty finding franchisees or willing to take on these restaurants. So to me, that ultimately is showing their underlying confidence in our unit development plans.

Thanks, everyone, for joining us today. If you have any follow-up questions, please shoot me an e-mail, and then we can schedule a call for some time today or in the coming days. Again, thank you, and have a good day.

This concludes McDonald's Corporation Investor Call. You may now disconnect, and have a great day.