Hello, and welcome to McDonald's First Quarter 2021 Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. Following today's presentation, there will be a question-and-answer session for investors. [Operator Instructions] I would now like to turn the conference over to Mr. Mike Cieplak, Investor Relations Officer for McDonald's Corporation. Mr. Cieplak, you may begin.

Good morning, everyone, and thank you for joining us. With me on the call this morning are President and Chief Executive Officer, Chris Kempczinski; Chief Financial Officer, Kevin Ozan; and President of McDonald's USA, Joe Erlinger. I want to remind everyone that 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 any reconciliations of any non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures. Following prepared remarks this morning, we will open the queue for your questions. I ask that you please limit yourself to one question and if you have more than one, please ask your most pressing question first and then re-enter the queue. Today's conference call is being webcast and is also being recorded for replay via our website. And now, I'll turn it over to Chris.

Thanks, Mike, and good morning everyone. It was a year ago this week that we had our first earnings call of the COVID-19 pandemic. We had just begun to experience the closings, openings and constantly changing regulations that would come to define the past year. I said then that in the face of such enormous challenges, I was immensely proud of the entire McDonald's system. Franchisees, crew members, suppliers and company employees banded together and continued to feed and foster communities amidst unprecedented change and disruption. My pride has only grown since then. Through the pandemic, we've seen the power of the McDonald's System and our franchise model at work. We are one of the world's most global corporations, but we are also one of the most local. Serving tens of millions of customers each day, across almost 40,000 local restaurants. That's our secret sauce. And it's hard to imagine how we would have adapted to the constantly changing circumstances of the past year if we were not a locally owned, locally managed system rooted in the communities where we operate. That ability to adapt enabled us to build a system playbook that tapped into our operating prowess and synthesized learnings from individual markets. We put our customers and people first and found ways to ensure their safety and security amidst the global health crisis. We leaned into our historical strength like our core menu and drive-through to continue serving our communities, creating feel-good moments that were more welcome and needed than ever. At the same time, we kept innovating in areas like digital and delivery, to offer customers new ways to safely connect with our brand and deepen our ability to meet their personalized needs. And we used our marketing muscle to keep the Golden Arches shining brightly, reminding people of their enduring trust in our brand and our purpose to feed and foster communities. Importantly, we did it all with the commitment to transparency. Every step of the way, we gave our stakeholders a clear sense of what we were doing and why we were doing it. That communication was made easier by our refreshed values that captured the essence of the McDonald's System and how we operate. No matter where you are in the world, our McDonald's values serve as the glue that unites us and guides our every decision. We put our people and customers first. We open our doors to everyone. We do the right thing. We're good neighbors and we get better together. Five simple statements that capture the essence of the company Ray Kroc founded over 65 years ago. Our renewed focus on these values has kicked off a virtuous cycle, energizing our workforce and attracting new leaders who embody these qualities and are inspired by our purpose. That includes Desiree Ralls-Morrison, who joined the team earlier this week as our new General Counsel. Turning to our business performance, despite resurgences and continued operating restrictions in many parts of the world, I'm pleased to share that in the first quarter, global comp sales and revenues have already surpassed Q1 2019 levels. Not surprisingly, we expect McDonald's to deliver strong global comp sales and revenue growth against 2019 levels for the full year, reflecting the strength of our business and the pent-up customer demand we are seeing as markets reopen. Specifically in Q1, global comp sales for the quarter were up 7.5%, with each of our segments achieving positive comp sales. And we will hear in a moment from our US segment President Joe Erlinger that improvement was largely driven by the US, with comp sales up 13.6% for the quarter. In Europe, we continue to face a tough operating environment, which is impacting recovery of some of our top markets in the IOM segment. We'll talk about our international performance in a minute. We remain laser-focused on achieving the sustainable growth plan laid out and accelerating the arches. Likewise, our three growth pillars, MC&D, continue to serve as both a guide and an engine for our path forward. We are maximizing our marketing to stay relevant and find those connection points with customers that will pay off in a big way. We're also committing to our core menu, making the chicken, burgers, and coffee our customers love even more delicious. In a moment, Joe will talk about the successful launch of the new Crispy Chicken Sandwich. Finally, we are doubling down on digital delivery and drive-through. We're creating a faster, easier, better customer experience. However, our customers want to interact with us, whether at the counter, through drive-through window, on the app, dining in the restaurant, or having that meal delivered to them we will offer experiences they love and that we believe will keep them coming back. Over the past four years, we went from just over 3,000 restaurants offering delivery to now more than 30,000 restaurants or 75% of our global footprint. We're excited about our success with multiple 3PL partners and we continue to innovate. That includes testing self-delivery models in select markets and identifying ways to improve restaurant operations for deliveries, so that customer experience will get better and better. Drive-through made McDonald's what it is today. The drive-throughs in 25,000 of our restaurants worldwide are a huge part of who we are and why we've been able to continue safely serving millions of customers each day this past year. Since the pandemic began, we've leaned into this competitive advantage by continuing to improve drive-through service times by putting more emphasis on operations and reducing menu complexity. We also see digital as an important channel to improve speed and convenience, provide customers with more personalization, and offer even better value. We have 40 million active app users in just our top six markets and millions more around the world. Our goal is to make sure that no matter how customers interact with us, they have a seamless and consistently enjoyable experience. One key lever in reaching our digital ambition is loyalty. In addition to France and a few other markets which already have loyalty, we are currently piloting our new loyalty program, My McDonald's Rewards, in the US and Germany with plans to deploy later this year. What inspires me the most about our digital transformation is that we constantly have the opportunity to become even more relevant in our customers' everyday routines. The power of our growth pillars comes to life not in isolation but in combination. The success of our Famous Orders program is a great example of how the three pillars, MC&D, are deeply interconnected reinforcing and bolstering one another. In last week's announcement that we're partnering with Super Group BTS from South Korea to offer fans in nearly 50 countries their favorite McDonald's order shines a powerful light on a simple truth. In every country where we operate, from every walk of life and in almost every stage of life, you have your go-to McDonald's order. This is much more than your traditional promotional partnership; for one, it will harness the scale of McDonald's and the relevance of authentic fans like BTS. I think it's fair to say that few other brands have the cultural relevance and global appeal to pull off this kind of partnership, that's the power of brand McDonald's. Famous Orders takes that universal insight of everyone's unique go-to McDonald's order, celebrates our fans' love of the core menu, and brings it to life through digital activations. The BTS Army will soon experience the M, the C, and the D of our plan, in a way that authentically taps into their love of these two global icons. And it doesn't stop there. Whether through successful traffic-generating promotions like digital calendars in Australia or Germany, building on the strength of core equities with line extensions like Katsu curry Chicken McNuggets and Grand Big Mac in the UK, we're piloting the McDonald's Rewards loyalty program. We continue to deepen our connection with customers and create a consistent and enjoyable experience. Let's turn it over to Joe to tell us what that experience is looking like in the US. Joe?

Thanks, Chris. Our US business ended 2020 in a position of strength and that carried into the first quarter, delivering a 13.6% comp sales increase with double-digit positive comps across all dayparts. We exited Q1 with historically high average daily sales volumes and the record high operating cash flow our franchisees experienced in 2020 continued in Q1. While we have seen some benefit from consumers receiving government stimulus checks during the first quarter, our results are truly a testament to the hard work happening each day in our restaurants. I recently visited our restaurants in Maine and Massachusetts, and you can feel the energy and excitement. Our franchisees and, importantly, their restaurant teams are focused on keeping our crew and customers safe. In addition, they are delivering gold standard execution, especially around chicken and the three D's, and this has led to higher customer satisfaction scores. I want to give a special thank you to our owner-operators and restaurant teams for all they've done during extremely challenging times. Our growth plans in the US are rooted in the Accelerating the Arches strategy and focused on the MCD framework. As for our results, the quarterly performance is a product of the accumulation of what we've done over the past 12 months and not because of any one action we took during the quarter or four-week marketing window. The values and brand-based decisions we've made, along with simplifying our menus, strengthening our digital business, and recommitting to our core, are having a multiplier effect. I've seen this recipe for success in several markets during my time overseas, and I'm confident that the right pieces are in place for our US business to sustain results. Let me pull back the lens and give you some examples. Driving customer visits begins with committing to the core menu. Early in the pandemic, the US business removed dozens of menu items. As a result of this focus, our drive-through service became faster, margins grew, and customer satisfaction improved. Put simply, our restaurants became easier to run and more profitable. Reducing complexity set the stage for the right investments in the core, beginning last fall with spicy chicken McNuggets, which we brought back for a limited time in February. They drove customer excitement and comp sales growth during the quarter. Then in late February, we introduced our Crispy Chicken Sandwich line of three delicious new sandwiches, marking the beginning of our multi-year chicken journey. While the category is very competitive, we are currently exceeding our projections. We are selling substantially more chicken sandwiches compared to our previous Chicken Sandwich line, and we're seeing strong unit movement, especially after 4:00 PM. Our success is a demonstration of McDonald's at its best, with all three legs of the stool working together. First, we develop the platform and build the supply chain. We then align the system around the opportunity. Finally, we create engaging and exciting marketing, PR, and social media plans nationally and across our ten field offices. Today we're learning from each other and working to transfer the success we're seeing in our top restaurants to all restaurants. We expect to refresh and sustain this platform, and do so in a very culturally relevant way throughout the rest of 2021. At the same time, we're doubling down on the three D's: digital, delivery, and drive-through. With COVID as the catalyst for the consumer behavior shift, we experienced an absolute surge in off-premise dining. We drove our digital sales mix and app usage. In the first quarter, we had nearly $1.5 billion in digital sales, which includes app, kiosk, and delivery. We now have over 20 million active app users with loyalty yet to come. We grew delivery to an all-time high in dollars and sales mix. We continue to reduce overall experience times, especially impressive given the increased volume of business we experienced through the drive-through. Chris mentioned the Famous Orders platform earlier. Nothing has had a greater impact on our digital business than the introduction of this program last year. We've retained many of the digital customers acquired during those Famous Order promotions, and the US business is very excited about the upcoming BTS meal, which continues to maximize our digital investments without adding any restaurant complexity. With that foundation, we are well-positioned heading into our loyalty program launch later this summer. When we built My McDonald's Rewards, our goal was to create a platform that elevated our brand, excited our customers, and engaged our crew, and we did just that. In our two test-and-learn markets, Phoenix and New England, we're encouraged by the initial results. User adoption, as measured by guests ordering through the app, has increased significantly since the test began. Frequency has risen. In fact, our loyalty customers are far more likely to return in the next 30 days compared to non-loyalty customers, and customer satisfaction is up. Customers love the personalized experience of being addressed by their first name. We've received overwhelmingly positive feedback from our restaurant crew, not only on the program itself but on the ways in which we've trained them, for example using digital simulations. Of course, as in any test, we've captured many learnings around training operations and deployment that will help us maximize the impact when we launch this nationally. As I close, I want to reiterate that there is not one single reason for our success. The accumulation of our decisions grounded in our values has returned the US business to a place of brand relevance for our customers and meaning for our people, providing us a strong foundation for sustained business growth. Now, I will turn it over to Kevin to talk about our international performance and our financial results.

Thanks, Joe. As Chris mentioned earlier, global comp sales and revenues for the quarter surpassed Q1 2019 pre-pandemic levels, largely driven by the US. For the quarter, global comp sales increased 7.5% with growth across all segments. Comp sales were up significantly in March as we started to lap the impact of COVID-19. In the IOM segment, comp sales were up 60 basis points in Q1. With widespread resurgences and ongoing government restrictions across Europe, including dining room closures and reduced operating hours, the segment has not fully recovered to pre-COVID levels. As a result of the restrictions, we saw varied performance across the markets. Strong results continued in Australia as customer mobility has mostly recovered and the country remains nearly COVID-free. The market benefited from sales of their new chicken line along with successful limited-time offers on core burgers. Average check has continued to hold up, with sustained growth in delivery and drive-thru sales and a shift into more core and premium menu items. Comp sales were positive for the UK and Canada for the quarter and surpassed 2019 pre-pandemic levels. Despite the UK's national stay-at-home order for nearly all of Q1 and Canada's recent surge in COVID infections, both markets have successfully leveraged the competitive advantages of our three D's to grow sales. In France and Germany, comps were negative for the quarter as dining rooms were closed and curfews were in place. Government restrictions are expected to ease somewhat in Q2, but we don't expect these markets to recover to pre-COVID sales levels until later in the year. Comp sales in the IDL segment were up 6.4% for the quarter, with growth across nearly all geographies. Performance was largely driven by positive results in China and Japan. In China, comps were up significantly for the quarter, as we compared against COVID impacts from February and March last year. By leveraging their large digital members base, compelling digital offers contributed to the results for the quarter as they continue on the path to recovery. Additionally, China opened 150 new restaurants in Q1, keeping on pace to open nearly 500 new restaurants this year. Japan maintained momentum in Q1 with comps up 9%, building on over 5% growth last year as a strong balance of core, value, and family-related promotions resonated with customers. Looking ahead to Q2, we expect the US to continue to outpace 2019 with two-year comp sales growth relatively in line with Q1. In the IOM segment, we expect the two-year growth rate to improve over Q1, but the segment will likely continue to lag 2019 until the second half of the year. Given our strong start to the year, we now expect full-year system-wide sales growth in the mid-teens in constant currencies. While we continue to see pandemic-related stops and starts in markets around the world impacting customer behavior and our business, there is still some uncertainty. Turning to earnings, adjusted earnings per share in Q1 was $1.92, up 27% in constant currencies. Adjusted operating margin was 41.9%, reflecting improved sales performance, higher other operating income, and lower G&A costs compared to last year. Total restaurant margin dollars increased 10% in constant currencies, with improvement in both franchise and company-operated restaurant margins. Franchise margin dollars grew by over $170 million in constant currencies, mostly from the strong sales performance in the US. Company-operated margins in the US were strong as we continue to see top-line growth driven from higher average check. As I mentioned last quarter, we expect US margins to moderate somewhat as check growth tempers and we reopen dining rooms. In the IOM segment, company-operated margins improved in Q1. With the ongoing impact of COVID on the segment, we don't expect to get back to full-year pre-COVID margin levels this year. This is a result of near-term sales and cost pressures, but there is nothing structural to prevent us from returning to pre-COVID margins long term. Turning to G&A, Chris and Joe both talked about the contributions from digital in our results, and we continue to invest in this important area to fuel growth. For the quarter, G&A was down 6% in constant currencies, due to some one-time costs we incurred in the first quarter last year. As a result of our strong start to the year, we're now expecting higher incentive-based compensation, so for the full year, we expect G&A to be about 2.4% of system-wide sales. Because of this increase in incentive-based comp that just relates to current year performance, it will only impact this year's G&A. Our effective tax rate was 21.3% for the quarter, and we're still projecting a full-year rate in the range of 21% to 23% with some fluctuation across the quarters. Finally, foreign currency translation benefited Q1 results by $0.06 per share. Based on current exchange rates, we expect FX to benefit EPS by about $0.10 for Q2 with an estimated full-year tailwind of $0.24 to $0.26. As usual, this is directional guidance only as rates will likely change as we move through the year. I'm pleased with our global recovery to date. Even as we face resurgence and restricted operations around the world, I'm confident that our Accelerating the Arches strategy will continue to drive growth in the business. Now, I'll turn it back to Chris.

Thanks, Kevin. I want to close by saying once again how proud I am of everything our system has accomplished and continues to do amidst such difficult circumstances. If last year was about defining who we are, what we stand for, and where we're going, this year is about execution and how we're going to get there. Every year we check in with our staff to get their feedback on the work that's happening. In our latest survey results received last week, almost 90% of employees expressed strong confidence in our business. Just as importantly, they agreed that we were abiding by each of our core values. Just a few weeks ago, we held our Annual Leadership Summit virtually, bringing together our top 50 field and corporate leaders. Across each of our markets and amongst this leadership group, there was strong alignment against our Accelerating the Arches strategy and universal recognition that our continued success depends on great execution. Back in November, at our Investor Day, I said that distinctions between the corporate brand and the consumer brand are blurry. They are now two sides of the same coin and you can't build an inclusive, family-focused global consumer brand like McDonald's unless the corporation's actions give evidence of those attributes. That's why in February we set five- and ten-year goals for increasing diversity and leadership across our Corporation. Research has shown that businesses that prioritize diversity, equity, and inclusion recruit and retain stronger talent, unlock greater innovative potential, and bolster financial performance. We are committed to making measurable progress in disclosing representation data to hold ourselves accountable for results by tying a portion of executive compensation to making progress in this area. Earlier this month, we also shared global brand standards designed to reinforce a culture of safety and inclusion. We want employees and customers to feel safe and protected, and it's critically important to clarify that violence, harassment, and discrimination of any kind is not tolerated. All 39,000 McDonald's restaurants across the globe, including company-owned and franchise locations, will be required to uphold these standards. We're continuing to put resources and tools in place to help restaurants implement these changes and ensure these standards are met. Beginning in January 2022, restaurants will be assessed in accordance with the applicable McDonald's market business evaluation processes. We understand that the way we show up in our communities and for stakeholders impacts how customers see us and their trust in us. We must make sure our values reflect the lived experience of everyone who interacts with our brand. We've seen powerful examples of service and dedication across the McDonald's system during the most difficult year we've ever experienced. Around the world, our people embody the belief that we must all pitch in and help one another. They take pride in that, and they should. While we all remain hopeful that this will be a year when life begins to return to some version of normal, we know the operating environment remains volatile. We expect that there will be stops and starts that impact results, but, as we saw even during the most difficult moments last year, delicious feel-good moments from McDonald's remain high in demand. We will continue to lean forward and make bold bets on our future. I believe more strongly than ever, as I said in November, that this is the start of something new for McDonald's. As we continue to accelerate the arches, lead with our values, and serve our customers and communities, I look forward to seeing what the McFamily can accomplish in the months ahead. I look forward to our global system coming together in person next April in Orlando for our Global 2022 worldwide convention. With that, we'll begin Q&A.

Thank you. [Operator Instructions] Our first question is from John Glass with Morgan Stanley.

Thanks. Good morning to you. My question is on the health of the European consumer and how you think about the recovery. So, we have a lot of data, obviously on the US, and we see it in the numbers. I'm asking, I guess, if you can tease out between the closures and restrictions how you think the consumer is there, particularly in your Continental European markets? What do you think you need to do differently on reopening? Is value going to be more important? How do you think - is it as simple as reopening or do you think there is a lag from a consumer response perspective in those markets as well? Thanks.

Hi, John, it's Chris. Good morning. And I think on the European market to start with, it's difficult to talk about it as one single market. I think you have to break it down by each of the big markets there. It varies. In the case of the UK, we're seeing the UK consumer is quite strong; that business is performing well. Markets that are heavily tourist-dependent, however, like Spain, Italy, and France, those markets are struggling. For us, part of what we believe is that this summer many of the European markets are going to start opening up. There has been some commentary about perhaps a vaccine passport that allows for travel within the European market, which I think will have a big impact in stimulating those markets that may have had a little bit more of a headwind. Getting the dining rooms open is also key; our dining rooms are closed in about 50% of our restaurants in Europe. Dining for dine-in is a big part of our European business, so getting those open will be another important step for us in regaining momentum in the European business. However, from a consumer standpoint, I think it's best described as being concerned and anxious about many of the things coming with COVID. There is also pent-up demand that we've seen. When we reopen a market or even last year when we had some openings that then resulted in closures not long thereafter, during the second and third waves, we have seen that there is nothing that gives us any concern that as we reopen, we will see the same pent-up demand come back and get the European business moving forward.

Next question is from David Tarantino with Baird.

Hi, good morning. My question is on the US business and really wanted to get your thoughts on how much you think the stimulus might be helping the trends in the US. And then secondly, what are you assuming in your guidance either for the remainder of Q2 or the remainder of the year as it relates to the health of the consumer and whether the current momentum in the business can carry through for the rest of the year.

Why don't we have Joe talk about what we're seeing right now and then Kevin can touch on what's in the guidance.

Thanks, David, and thanks for the question. Relative to the stimulus checks, there is no question that it provided a boost to our business. But I think, as I shared in my prepared comments, the positivity we saw in the first quarter was beyond just stimulus checks; it was the accumulation of all the things we've done over the last 12 months that put us in a strong position. You could also argue that the stimulus checks are now wearing off generally, but we're seeing continued momentum in our business. As Kevin said, we expect our second quarter two-year stack to be roughly the same as our first quarter stack.

I wasn't going to say much more other than, I think going forward to Joe's point, consumers in the US are still healthy. It's certainly helpful for us, obviously when they have money in their pockets, and stimulus certainly helped in the first quarter. But we are seeing that when we do reopen dining rooms in the US, consumers are ready to come back to visit and have some money to spend. So, I don't think we have a big concern right now about consumer ability to spend.

Next question is from Dennis Geiger with UBS.

Great, thanks for the question. Chris and Joe, just another one on the US where you've got very strong momentum. Clearly, based on the plan you outlined, it seems like the momentum continues for the year and beyond, but wondering if you could help frame your expectations for the coming quarters as the US continues to reopen. How do you think about tailwinds-headwinds? You're getting your own benefits as it relates to that reopening. I assume; how you're thinking about that? And just kind of building on that, Joe, you talked about the US relative to some other really strong countries internationally. I'm just wondering if you could draw some parallels there for the potential for a multi-year period of outperformance in this US business compared to some of the other really strong countries outside of the US historically.

Yes, thanks for the question. There is no question that thinking back to the initial onset of the pandemic, there was a surge in off-premise dining, and we were set up incredibly well, given the investments that we've made historically in digital delivery and drive-thru within the US business to succeed in that environment. Beyond that, we have made great investments in chicken and the core, setting us up well for the future, and we continue to have our prowess around value. As you look forward, there is no question that consumers will want to come back into dining rooms. Chris mentioned it in Europe, but we think it's the case in the US as well. We will continue to open our dining rooms in a way that drives sales, making it an event as we reopen because over 90% of our business was through the drive-thru. If we can sustain that and return our dining rooms and take-away to pre-pandemic levels, we have set ourselves up for a very good run here. In terms of parallels between the US business and other successful markets overseas, it's never one lever; it's always a combination of things that are put together so that you're not dependent upon the next promotion or deal. This idea of underlying baseline momentum is what we feel we are experiencing in the US, which is similar to what I saw in many international markets as they set themselves up for multi-year runs, and I think that's where we are.

Our next question is from Eric Gonzalez with KeyBanc.

Hey, good morning. Thanks for the question. Clearly, the stimulus provides a nice boost to industry sales in recent weeks, but on the flip side, the labor pool seems to have shrunk. How are your franchisees handling the labor shortages? What is your expectation for labor inflation this year? Do you see this as a temporary step-up that might recede after the supplemental unemployment benefits go away, or are you looking at this as a more permanent environment, speaking about the staffing issues restaurant operators are facing today? Thanks.

Hey, Eric. You have accurately characterized what we're seeing in the US right now; it’s indeed a very tight labor market that's putting pressure on both us and our franchisees. One of the things that we are thinking about, and I'll have Joe talk about it, is in our company-owned restaurants how we think about what the pay and benefits package needs to look like for ensuring we get the right people. Joe can also talk about how franchisees are addressing that.

Yes, thanks for the question, Chris and Eric. About two weeks ago, we came together with a system webcast because across 14,000 restaurants and nearly 2,000 franchisees, there might be some general struggles, but there are also specific best practices in areas where we are succeeding. There are opportunities for our franchisees to talk about the best practices that yield success. Interestingly, we are faring a bit better in our company-owned restaurants. We have higher crew sizes overall than the average franchisee. We recognize that we need to stay ahead of this issue. So, we're working through what some potential changes in our company-owned restaurants might look like from a wages and compensation perspective. The external environment is conducive to this, and we believe the internal environment is also right to make it a good business decision.

Next question is from Andrew Charles with Cowen.

Great, thank you. Looking back a little bit, in the International operating margin markets, you saw four consecutive years of 3% comp growth and positive traffic from 2015 through 2018 after the EOTF remodels hit a tipping point. Do you feel that the US is at the start of this? The remodel program is substantially complete, and you've got traction over the last year with digital and the early success of the loyalty program that's coming this summer. Thinking forward to 2022 and beyond, am I wrong to think the business seems poised to go through this tipping point? Is there something unique about the IOM that would prohibit the US from delivering similar 3%+ comps in 2022 and beyond? Thanks.

Thanks, Andrew. What we embarked on in the US several years ago drew heavily on the learnings we had seen in our European or IOM markets, and a key feature was the EOTF program. The fact that we have been able to remodel almost all of our restaurants and that big reinvestment cycle is behind us is a significant positive. In 2019, we had a record cash flow year for franchisees, and 2020 was also a record cash flow year for franchisees. I believe having franchisees with this purchasing power is crucial, similar to what we saw in our European markets. Additionally, we're starting to see brand improvement in the US, which has come from a lot of hard work from Joe and his team, along with how our franchisees execute the brand every day in the restaurant. We are optimistic that the playbook we used in Europe will translate over into the US, and we have several years of momentum that gives us confidence in that. Joe, do you want to add anything?

I think you've captured it incredibly well; that was my experience overseas. When you make the right investments, you continually tap into them, whether it’s the strength of your modernization, digital experience, or improvements in the menu. These all work in concert to create a multi-year run.

Our next question is from David Palmer with Evercore.

Thanks. Question on loyalty: could you give us a sense of how much you think loyalty will impact McDonald's globally and in the US? Just France and the US piloting shows incrementality to sales and not just increased visit frequency like you mentioned. What changes to technology or otherwise can help ensure that loyalty works with the drive-thru? You've made some strides there, but you don't want customers fumbling per scan codes. It sounds like from Joe's comments that you're closer than we thought on customer identification. Thanks.

There's no question that the results from our tests in New England and Phoenix have been incredibly positive. The operators in those markets love what loyalty is doing; our customers love what loyalty is doing, and our restaurant teams have really embraced it as well. We're very confident in the business case thinking about the impact this could have on the US business where over 85% of the US population comes to McDonald's at least once a year. Loyalty has the potential to build frequency given our substantial customer base. This is a tremendous unlock for us. On the operational impact, it is having a modest effect in our drive-thrus; we've trained our people well. The order-taking time has slightly increased, but we will be seeing benefits in cash-taking time as we become more digitally penetrated. Momentum in the system will build in the coming months as we prepare for our launch later this summer. I would just add that we wouldn't be doing this globally if we didn't think there would be an incremental benefit to loyalty; we're not quantifying that yet, but we believe there will be an incremental benefit. Regarding customer identification at the drive-thru, we're not there yet, but we have several ideas that will help us achieve that as part of our rollout plan over the next couple of years. You can expect that we will implement solutions that improve our speed in identifying customers at the order point.

The only addition I'd make is that we've been working on our underlying tech stack around the world over the last couple of years. While we're piloting this loyalty program in the US, we're also piloting it in Germany and intend to roll it out there and in Canada by the end of this year, in addition to several countries that already have loyalty programs like France and China.

Okay. Our next question is from Sara Senatore with Bernstein.

Thank you. I have to talk about the technology investments you've mentioned, working on the underlying tech stack. Can you maybe provide some color on your market share gains in the US to validate the view that it’s not just the environment that's helping you, but it's also the initiatives you're undertaking? Anything you can share about your performance versus competitors in different dayparts? Without disclosing anything competitive, can you discuss more about the evidence that shows your investments are paying off, especially in relation to G&A spend? Not the incentive comp, but the elevated G&A spend as a percentage of sales that you're seeing versus what anybody else in the industry could stand. So, any color you can provide that gives credibility to the idea that this is the right amount of investment and allows you to lead competitors would be great. Thanks.

Relative to market share, especially on traffic, it's been challenging to read exactly what’s going on in the industry since you've seen shifts of all kinds, particularly early in the pandemic with a notable shift away from the breakfast daypart towards dinner. There has also been a substantial increase in average ticket, with more people per transaction or eating off of that transaction. We feel positive about our competitive position and our standing relative to our key competitors. Our two-year comp stack reflects our growth numbers, and we feel confident in our positioning. I'll let Kevin cover our technology investments. Our McDonald's USA digital sales were nearly $1.5 billion in the first quarter, with over 20 million active app users.

Yes, I'd add that we benchmark our tech spend against peers, looking at our spending as a percentage of revenue, and generally find ourselves favorable in comparisons. You won't directly relate every year's technology spend to that year's specific sales. Some of the investments we've made over the last couple of years facilitate our ability to roll out programs like loyalty in Germany and the US at the same time. Part of the essential catch-up we needed involved establishing a common tech stack, allowing us to deploy new initiatives across multiple markets in a relatively short timeframe.

Our next question is from Nicole Miller Regan with Piper Sandler.

Thank you and good morning. I appreciate the color around the franchise partners, especially domestically, and what they're doing to put the brand to work. Could you give us an update on the profile, you know, the tenure in the system, number of stores? I haven't asked for a while around first, second, and third-generation, and I'm just curious how anything in the past year has shaped the natural passing of these legacy systems. And then the second part is on the survey results; I wasn't clear if that was a headquarter kind of survey or field survey. If you could clarify that and what was most validating and surprising, I'd appreciate it. Thank you.

Thanks, Nicole for the question. Relative to the franchise profile, it hasn't dramatically changed in the last year or two. Several years back, we did begin moving towards having fewer and larger franchisees, and that trend roughly continues, but not nearly at the pace seen three to five years ago. There is a substantial number of second and third-generation franchisees; upon returning to the US business 18 months ago, I noticed numerous second and third-generation operators in the McDonald's system. It's a hallmark of our brand and legacy. I’ll allow Chris to address the survey.

The survey results were a global survey of all company employees. We had a high response rate and were pleased with it. Again, it was global. I think we were most pleased about the overall optimism that exists around the world for our business outlook. The second is, we had individual questions regarding our performance against each of the five values I outlined. We saw strong performance both in absolute terms and in year-over-year growth in those areas. So, I was pleased with that. The opportunity for us, as I mentioned, is to create a culture where people feel comfortable challenging and debating. We still have work to do there.

Our next question is from Brian Bittner with Oppenheimer.

Thank you. Good morning. I want to return to the IOM segment. I realize that you're still not reaching pre-COVID sales levels, but as markets successfully wrestle with COVID, I believe we have enough evidence to suggest it’s just a matter of time, not if, regarding a full sales recovery in the IOM segment. Given that you have 1,700 company-owned units there, I’d like to understand how the company is positioned regarding margins in that segment as you inevitably reach above 2019 sales levels. I know you indicated that you do not expect this year to reflect a full recovery, but could you share insights from what you’re seeing in the UK or Canada where trends are already above 2019?

Yes, Brian. One thing I talked about in my remarks is that while we are below historical levels, that's due to certain markets not having sales levels back to pre-COVID levels, as you mentioned. However, in markets that have returned to pre-COVID levels, they can grow their sales and margins similar to before COVID. To us, this is a matter of time. We expect, as restrictions ease and curfews lift, dining rooms will be key for our significant markets, such as France and Germany. These elements are essential for the recovery of company-operated margins. There's nothing structural preventing us from returning to historical margin levels, and we are experiencing robust margins in markets performing well.

Next question is from Chris Carroll with RBC.

Hi, good morning. Thanks for taking the question. Joe, you mentioned that US comps were double-digit positive across all dayparts. However, I was curious about the morning daypart and its trends throughout the quarter, specifically how breakfast trends compare to last year’s laps and what you're seeing recently. Looking ahead, how do you envision building on breakfast share gains you've noted recently?

Sure, thanks Chris for the question. We turned positive in the breakfast daypart back in the third quarter, I believe, and have remained positive since then. This positivity wasn't simply due to comparing against pandemic lows. Our historical strength in this daypart was bolstered by the importance of drive-through speed, especially at breakfast. Menu adjustments, such as our McCafe Bakery offerings, have also set us well for the breakfast daypart. We are focused on this daypart as consumer habits return to pre-pandemic norms, and we do expect the market share battle to continue.

Next question is from John Ivankoe with JP Morgan.

Hi, thank you. The comment was made on Australia, in terms of maintaining average ticket even though traffic is recovering, which I believe is an inevitability. Can you maintain that average ticket, which I think has driven comps over the past 12 months? The second question is related: what is unique about this Chicken Sandwich? We've seen various iterations over the past 20 years that have come and gone. What gives you the confidence this time that it will not only sustain but also grow?

Thanks, John. On the ticket side, several markets weathering the pandemic, such as Australia and Japan, have seen ticket levels remain elevated. The extent to which channel mix reverts to pre-pandemic levels or remains elevated will influence ticket performance; sustaining high delivery and drive-thru levels can positively impact tickets but negatively affect traffic. It’s difficult to predict broadly how that will roll out, but we anticipate that some changes, like increased delivery and drive-thru, will have staying power, positively impacting tickets. Joe, could you discuss the Chicken Sandwich in the US?

Yes, I feel very confident about our Chicken Sandwich. I acknowledge that there have been many in-and-out products over the years, but we grounded our launch significantly in consumer research. We also integrated trends like our spicy offerings into the chicken line. I believe this strategy is contributing to our success. Upon launch, we've seen a markedly different decay curve compared to past products. We're two months post-launch of late February, and we still view the volume and movement positively.

I'd just add that when we think about chicken, it's a holistic strategy. It’s not solely based on one sandwich. We have a strong nuggets platform and McChicken as well. The investment in this category gets broader support from our franchisees and is not merely a fleeting promotional push but rather a sustained commitment across the board. That gives me confidence regarding what we're seeing in the US.

Our next question is from Lauren Silberman with Credit Suisse.

Thanks. Just on the global partnership with BTS and the third Famous Order, can you share if and how these partnerships help you reach and engage with a new audience? Broadly speaking, how has your social media strategy evolved over the last 18 months?

I'm delighted by the digital uptick we saw with our first Famous Order with Travis Scott. There was a phenomenal surge in digital engagement for us, and we continue to utilize the Famous Orders for digital engagement, especially as celebrities attract a digital-first consumer. This strategy is key. Regarding our social media approach, we have become more nimble and consumer-centric. Our content now feels less like a corporate message; it’s presented more reflectively of our engaging, fun brand personality. That's resonated well, leading to significant engagement.

If I could add one point about the digital consumer, the US business has historically struggled to retain digital consumers. We proactively built retention and lifecycle management frameworks leading up to our Travis Scott meal, driving significant interest. We continued utilizing these retention strategies for holiday promotions, J Balvin, and now BTS. As we enter loyalty, we will have a greater retention opportunity through My McDonald's Rewards.

We're at the bottom of the hour. Thank you, Chris, Kevin, and Joe, and thank you to everyone that joined our call today. Have a great day.