Q4 2023 Earnings Summary
- McDonald's expects same-store sales growth of 3% to 4% in the U.S. and IOM segments in 2024, returning to historical norms and indicating steady growth potential.
- Operating margins have improved from approximately 44% in 2019 to over 47% in 2023, demonstrating strong profitability, and management is confident about continuing to grow margins over time.
- Aggressive expansion plans in China, targeting 10,000 restaurants by the end of 2028, with over 1,000 restaurants opened in 2023, signaling significant growth opportunities in a key market.
- McDonald's anticipates comp sales growth will moderate to historical averages of between 3% and 4% in the U.S. and IOM segments in 2024, indicating a slowdown from previous strong growth.
- Increased wage inflation, particularly due to significant wage increases in California, is expected to pressure company-operated margins, with wage inflation in the U.S. projected to be in the mid- to higher single-digit range.
- The war in the Middle East has had a significant negative impact on McDonald's IDL segment results, and the company does not expect meaningful improvement until there is a resolution, leading to uncertainty in that region.
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2024 Guidance and Margins
Q: Clarify 2024 comps and margin guidance?
A: Management expects 2024 comparable sales growth to normalize to 3% to 4% in the U.S. and IOM markets, returning to pre-COVID levels. They anticipate a slower start to the year with a stronger back half, and operating margins are expected to be in the mid- to high 40% range. -
Middle East Impact
Q: How is the Middle East conflict affecting sales?
A: The conflict is having a meaningful impact on sales, especially in the Middle East and Muslim countries like Malaysia and Indonesia. Management isn't expecting significant improvement while the conflict continues and notes it's a human tragedy. Franchisees are strong but support may be provided as needed. -
China Outlook
Q: Comment on China's performance and outlook?
A: China had a very good 2023, with strong growth and opening 1,000 restaurants. Despite macro challenges and a more promotional environment, management remains optimistic, aiming for 10,000 restaurants by 2028. -
U.S. Consumer Trends
Q: How is the U.S. consumer behaving?
A: The low-income consumer (under $45,000 annual income) is under pressure, showing reduced transaction size and some trade down. Eating at home is becoming more affordable, affecting this segment. -
Pricing Strategy
Q: What is the pricing outlook for 2024?
A: Pricing in 2024 is expected to align with lower inflation, moving to low single-digit increases. Last year saw mid- to high single-digit price increases. The focus will be on balanced growth between pricing and traffic. -
France Performance
Q: What's happening with performance in France?
A: France is underperforming due to being offsides on value and operational challenges. A new leadership team is addressing these issues, and management is confident in returning to strong performance. -
Company-operated Margins
Q: Expectations for company-operated margins?
A: Company-operated margins for 2024 are expected to be roughly in line with 2023 levels. Commodity inflation is expected to be in the low single digits, with wage inflation higher due to factors like California wage increases. -
Digital Initiatives
Q: Any changes to digital value offers in 2024?
A: Management will continue investing in digital initiatives, focusing on affordability and promotions through the app to drive higher ticket and frequency. They aim for balanced growth between traffic and pricing. -
G&A Expenses
Q: Can you flex G&A expenses?
A: The company is focusing on running the business efficiently and investing strategically, aiming to gain leverage in G&A as a percentage of sales over time.