Hello, and welcome to McDonald's Third Quarter 2024 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. I would now like to turn the conference over to Mr. Scott Meader, Interim Treasurer for McDonald's Corporation. Mr. Meader, 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 filed 8-K also apply to our comments on the call today. Both of those documents are available on our website, as are reconciliations of any non-GAAP financial measures mentioned on today's call, along with their corresponding GAAP measures. Following prepared remarks this morning, we will take your questions. Please limit yourself to one question and then re-enter the queue for any additional questions. Today's conference call is being webcast and is also being recorded for replay via our website. And now, I'll turn it over to Chris.

Thanks, Scott, and good morning, everyone. I look forward to sharing our third quarter performance and the progress we have made on key initiatives against a challenging backdrop for the QSR sector. Before I do that, I want to address the recent E. coli cases related to slivered onions in a handful of US states. While the situation appears to be contained and though it didn't affect Q3 numbers, it's certainly an important development, which I know is on many of your minds. For over 70 years, McDonald's commitment to food safety has been uncompromising. Nothing is more important to us than the safety of our customers, and we've been proud of our industry leadership in this area. The last serious public health issue in the US associated with McDonald's occurred more than 40 years ago. The recent spate of E. coli cases is deeply concerning and hearing the reports of how this has impacted our customers has been wrenching for us. On behalf of the entire system, we are sorry for what our customers have experienced. We offer our sincere and deepest sympathies and we are committed to making this right. One of our core values is to do the right thing and that has been and will be our guide as we address this situation. After the CDC first informed us of the investigation, we were able to quickly link the cases identified to slivered onions from one facility at our Taylor Farms supplier. We swiftly removed them from our supply chain. We understand from health authorities that slivered onions from Taylor Farms Colorado Springs facility are the likely source of contamination. McDonald's has stopped sourcing onions from this facility indefinitely. Importantly, the Colorado Department of Agriculture confirmed on Sunday that they did not detect E. coli in the samples of beef patties from our restaurants and have no further plans to test. This supports our investigation that ruled out Quarter Pounder patties as the source. Based on this information, we are confident we can return Quarter Pounders to menus. On Sunday, we announced that our beef suppliers are producing a new supply of fresh beef patties in the impacted areas and we expect all restaurants in the US to resume the sale of Quarter Pounders in the coming week. We are proud of our franchisees' unwavering commitment to food safety and for executing our stringent food safety procedures. Doing the right thing also means communicating openly and transparently. Our US President, Joe Erlinger, has been regularly sharing updates with the system about the actions we are taking and Joe will continue to do so as the investigation begins to wind down. As I said at the outset, serving customers safely is our top priority. We'll never compromise on that. I want to thank the health authorities for their strong partnership. I'm relieved that this situation appears to be contained and I remain confident in the safety of eating at McDonald's. Let's turn now to the update on our performance in Q3. On our last call, we shared the QSR sector had meaningfully slowed in many of our markets with industry traffic declined in several major markets, and that consumers, especially those in the low-income category, were choosing to eat at home more often. This trend continued in the third quarter. QSR traffic has remained pressured, reflecting industry-wide challenges. And while we anticipated a challenging environment in 2024, our performance so far this year has fallen short of our expectations. While the QSR industry has slowed, we recognize that there are still many factors within our control to impact performance guided by our Accelerating the Arches strategy. We're encouraged by signs of progress in the third quarter and the more consistent market share traction we are seeing, especially in the US, which included strong compelling value platforms, which is fundamental to the McDonald's brand promise, menu innovation, which excited our customers with great-tasting food, and strong marketing prowess that drove engagement on higher-margin core items. We have spoken before about our customers recognizing us as the value leader versus our key competitors, but our value leadership gap has shrunk. In response, we have moved with urgency in partnership with our franchisees to improve our value offerings in most of our major markets. Some examples that have launched in the quarter are the €4 Happy Meals in France, 3 for £3 in the UK, and in Canada, we're providing value to our customers through price-pointed coffee starting at just C$1. And to provide our customers with simple everyday affordability they can count on, we are employing strategies that are designed to work together to generate sustainable guest talent-led growth and increase market share. As we have said before, we view good value as including both entry-level items and meal bundles at affordable price points. This means offering Everyday Affordable Price menus, or EDAP, in our markets. At McDonald's, we define EDAP as a platform with an assortment of items all priced at compelling entry-level price points, generally including breakfast, beef and chicken sandwich options. We will pair EDAP platforms with strong meal bundles to provide our customers with entry-level meals at affordable price points. Blending EDAP and meal bundles under a branded value platform allows us to invest in and build recognition and affinity with our customers. So, when they're thinking about an affordable option for food, we're top-of-mind, which is why we've been able to capitalize on branded equities like Loose Change in Australia and the Saver platform in the UK for over 10 years. Value and affordability will remain at the forefront of our conversations with markets around the world as we continue to monitor the environment and listen to our customers. We spoke last quarter about our belief that delivering value and affordability in markets will have a positive halo effect on the business. And that's a great segue into the work we've driven across the MCD growth pillars this quarter, where we see compounding effects between our value offerings driving traffic and our full-margin promotions growing average check. Recently, we launched the Collector's Edition campaign, which brought back some of our most loved keepsakes with a twist, giving fans a memory that they can hold in their hands. Running in over 30 markets, the campaign featured core equities across all dayparts and drove high-check, full-margin traffic into our restaurants. Collector's Edition captured our fans' attention while keeping operations simple and giving customers more reason to purchase core menu items. The campaign drove customers to our restaurants, especially in the US where the promotion ran alongside the $5 Meal Deal. Collector's Edition maximized the power and scale of our global brand, while ensuring local flexibility and cultural relevance to connect fans in unexpected ways. Similarly, the UK&I market leaned into a One McDonald's Way for creative excellence by tapping into a winning formula starting in our US market. The UK's near-sellout of the Grimace Shake promotion in 48 hours is proof that when we share and scale world-class ideas across markets, we can maximize impact and have our creative work harder for us. Australia also followed suit by bringing Grimace Down Under at the beginning of October with both the world-famous Grimace Shake and the Grimace Meal. And that same formula, listening to our customers, investing in innovation, and pairing that with fresh marketing ideas is working across our core menu offerings as well. We have spoken at length regarding the potential of chicken, which is a massive category worldwide that's twice the size of beef and growing much faster. There is significant room for us to grow our share and we're working to meet the moment and take advantage of its growth. We have continued to see strong progress this quarter with the majority of our largest markets growing share. The US took an exciting step to evolve their menu offerings at the beginning of the month with a limited-time, full-margin offering that has proven successful across several markets in prior years, the Chicken Big Mac. And our plan to scale the McCrispy equity across nearly all our markets by the end of 2025 is on track with the McCrispy Chicken Sandwich that is expected to be available in over 70 markets by the end of 2024. Chicken isn't the only focus in our menu innovation efforts. The pilot of our larger burger offering, Big Arch, now in three international markets, Portugal, Germany, and Canada, shows that we're listening to consumer taste and delivering. We're encouraged by the results showing the Big Arch has universal appeal with a sizable opportunity across markets. And thanks to the success of the pilot, we're accelerating plans and will work with franchisees and partners to deploy the Big Arch faster into more international markets in 2025. Finally, as we consider our 4Ds, after a successful pilot of Ready on Arrival, or ROA, in the US, we are working with the rest of our top six markets to deploy this technology by the end of 2025. We know from the US that ROA helps not only with smoother restaurant execution as crew can better sequence in the kitchen, but also drives higher customer satisfaction scores by reducing wait times. And by building one of the largest loyalty programs in the world in just a few years, system-wide sales to loyalty members in the quarter totaled nearly $8 billion globally, with our aim to reach 250 million active users by the end of 2027, well within our reach. We continue to demonstrate how markets are getting smarter and closer to the customer by employing a multichannel strategy. We know as we drive loyalty adoption, we increase the frequency of visits and the spend from these customers over time. Despite the external challenges we are facing, the bright spots we see in execution and performance are clear indications that Accelerating the Arches is the right strategy to grow our business over the long term. We know we have more work to do to sustain guest count-led growth and continued market share gains, but I am very confident in our growth strategy and our ability to deliver outstanding execution for our customers. Now, I'll turn it over to Ian.

Thanks, Chris, and good morning, everyone. We acknowledge that our performance so far this year has fallen short of expectations, with negative global comp sales for the quarter amid a challenging industry environment. However, US comp sales were positive for the third quarter, which was driven by taking action on what we can control, providing compelling value, generating menu excitement, and using the full power of our marketing. As a result, the US outperformed the QSR industry comp sales and comp guest counts for the quarter. In fact, this quarter's comp guest count gap to most near-end competitors was the highest since the first quarter of 2023. This was achieved through a combination of more compelling value through the $5 Meal Deal, alongside great marketing such as the Collector's Edition campaign, which delivered a significant increase in average check for its two-week run before selling out. Consistent with what Joe said last quarter, we wanted to see three things from the $5 Meal Deal: first, improve brand perceptions around value and affordability; second, make sure it connected with the single user, especially the lower-income consumer; and third, a shift in guest counts to drive both the short- and long-term health of our business. The $5 Meal Deal has done just that and continued drawing customers back into our restaurants throughout the quarter, maintaining an average check north of $10 and being profitable for our franchisees. We saw increased traction, particularly with low-income consumers successfully growing traffic share with this group for the first time in over a year. That is why, together with our US franchisees, we've committed to extending the $5 Meal Deal into December as we work towards sustainable guest count-led growth. Looking forward, our US leadership team is solidifying the details behind the future US value platform, working together with our franchisees to get it right for our customers by blending the best thinking from around the world as well as our own history in the US. We have plans to introduce the more holistic US value platform in quarter one next year. While value has been at the forefront of conversations, we have remained laser-focused on running great restaurants. We ignited our restaurant crew's competitive spirit in the US by running competitions aimed to increase guest counts, improve the speed of service, and refine our digital execution, and it worked. The US customer satisfaction scores reached an all-time high and service times at the drive-thru have dropped by double-digits compared to last year. This focus on operational excellence was also true internationally, where across all big five IOM markets, we increased customer satisfaction scores compared to last year. And while we will continue to focus on ensuring we have the right price points for our customers, we will not forget about all of the intangibles that create great value, knowing that providing a great experience, particularly now is fundamental. Turning to our international business, our internationally operated market comp sales were negative for the quarter, reflective of the contracting QSR industry where customers continue to be more intentional with the dollars they spend, mostly driven by France and the UK. While we continue to have opportunity on value and affordability in France, we have started to see signs of improvement in market trends since the launch of the McSmart menu. We also know that we have an opportunity with families and the €4 Happy Meal, which commenced in late August, is providing an uplift to that category. We are working at pace with our franchisees in IOM markets to offer everyday affordable price menus coupled with entry-level meal bundles as we are not consistently delivering both in all markets today. We will continue to take a forensic approach to evaluating our offerings, acting with agility to ensure we are delivering against the expectations of our customers. We are beginning to see progress. For example, in the UK and Germany, we have grown traffic share in environments that have further deteriorated since Q2. The UK drove excitement amongst customers by providing compelling value propositions across all occasions with the return of the 3 for £3 menu by providing a £2.79 breakfast bundle and by capitalizing on consumer excitement through the launch of the Grimace Shake discussed earlier. And being further inspired by the success seen in the US, the UK recently launched a £5 meal bundle to further strengthen value positioning. And in Germany, we saw another great example of layering on a full-margin item with the Big Arch pilot on top of an already successful McSmart platform providing halo effects to the business. And building upon McSmart's success, Germany enhanced this platform with the launch of an expanded McSmart menu at the end of September. This extended the range of affordable meal bundle options at different price points to meet our customers where they are and we are seeing a strong initial consumer response and positive incrementality. And in our IDL segment, positive comp sales in Latin America were offset by the impact from the ongoing war in the Middle East, as well as performance in China continuing to be negatively impacted by weaker consumer sentiment and spending. As we have stated before, as long as the war in the Middle East continues, we expect our business to continue to be impacted. Turning to the P&L, adjusted earnings per share was $3.23 for the quarter, an increase compared to the prior year of about 1% in constant currencies. Despite the pressured consumer spending environment we've discussed this morning, top-line results generated over $3.8 billion in restaurant margin for the quarter. And our year-to-date adjusted operating margin of nearly 47% highlights the durability of our business model. Results for the quarter reflected lower G&A spend, primarily due to lower incentive-based costs and continued prioritization around current year run the business spend. We continue to invest in our strategic transformation efforts, focused on forward-looking investments that will drive long-term growth and efficiency. As expected, results also reflected higher interest expense. And we now expect the company's interest expense to increase by approximately 11% for the full year. And our adjusted effective tax rate for the quarter was about 21%. With respect to the remainder of the year, we are reaffirming the other aspects of our financial outlook for 2024 under the assumption that the public health situation that Chris spoke to upfront will not have a material impact on our business. And finally, in September, our Board of Directors approved a 6% dividend increase to the equivalent of $7.08 per share annually. This marked the 48th consecutive dividend increase, reinforcing our continued confidence in the Accelerating the Arches growth strategy and our ability to continue to drive long-term profitable growth for all stakeholders. We remain consistent in our commitment to our capital allocation priorities: first, to invest in opportunities to grow the business and drive strong returns; and second, returning remaining free cash flow to shareholders over time through our dividend and share repurchases. And with that, let me turn it back over to Chris.

Thank you, Ian. One of the things we're known for is our ability to innovate and grow our business at an unmatched scale, while still using our influence to help have a positive impact on the communities in which we operate. Giving back has been a celebrated part of McDonald's culture since the beginning. In the wake of Hurricanes Helene and Milton, it has been incredibly challenging across the Southeast US. As a system, we will be contributing more than $2 million in direct and in-kind aid, which includes crew relief efforts and serving roughly 50,000 free hot meals to our most impacted communities across North Carolina, Georgia, and Florida. Thank you to our franchisees, suppliers, and everyone across the entire system for doing all they can to help those impacted in those areas. Furthermore, I'm extremely proud of the work the McDonald's system does on a daily basis to prioritize driving change toward a more sustainable and inclusive future. Recently, we shared that in 2023, we reduced barriers to employment for 2.2 million young people in communities around the world through training programs and job opportunities, two years ahead of schedule. And we raised $53 million in 2023 through our roundup for the Ronald McDonald House Charities program. In fact, this year we are celebrating the Charity's 50th anniversary. Whether it's charitable contributions across all three legs of the stool and from customers, volunteering at more than 250 local chapters or product promotions benefiting the charity, the impact of RMHC and McDonald's partnership over the past five decades is profound and we are proud to be its founding and forever partner. When our system works together to put our customers and communities first, there are a few things we can't achieve. McDonald's is not a stranger to adversity, but we've always risen to the challenge and come out stronger as a business. While there is still work to be done when we execute with precision, whether through a sharp focus on delivering great value or by staying culturally relevant with global campaigns like Collector's Edition, we do succeed even in tough environments. This is why I am confident that Accelerating the Arches is fit for purpose and we have the right plan in place to make our restaurants and company stronger than ever. And with that, we can transition to Q&A.

Thank you.

Our first question is from David Palmer with Evercore.

Thanks, and good morning. It should probably be said that you had done a great job in those four months leading up to this food safety issue and really stabilizing traffic with the 4 for $5, a lot of this might have seemed unlikely back in May or June. And then, it seemed like you're really reinflating the check with the Chicken Big Mac. So, obviously, a shame on many levels that this has gone down like this, but I guess the question now is, how can you adjust? How can you help the consumer move on from a marketing stance and maybe a plan going forward? I know you're not going to share your monthly plans here, but what are some of the things that you can do or have done in situations like this to help improve the trajectory in sales and help the consumer move on after these food safety headlines? Thanks.

Hi, David, it's Chris. Thanks for the question. And let me just say again that we are certainly very sorry if someone got sick at our restaurant from eating an onion that we used on our QPC. And I am relieved that I think we are now past this and on the road to getting back to serving our customers as we are used to doing. I think you raised an important point, which is how do we make sure that we are reinforcing the trust that we've earned over the years with our customers on food safety. And I'd say it starts with how we've handled this issue. And I think as you've seen, we have tried to be very transparent on this issue. We worked very collaboratively with the health authorities and we took very swift and decisive action. So, I think the first thing is just how we've handled the issue. Now that we're moving and we view it as being behind us, you're bringing up the second point, which is how do we get the momentum back in the business that we clearly saw leading up to this very unfortunate event. And I think there's a variety of things there. I think certainly, we're seeing success with the $5 Meal Deal. We're going to have food innovation as well in Q4. We're going to continue to be driving digital. And I think we stand ready to do more if we need to in order to make sure that we are bringing the full resources of McDonald's to bear to reengage that customer. So you saw, out of COVID, we made some moves and we did some things to ensure that we could reengage the customer. And if we have to make some of those same moves in the US, we're prepared to do that. So, I think it's going to be a combination of getting back to what was working prior to this very unfortunate event and then supplementing it as needed with additional activity to ensure we get that customer back into the restaurants.

Our next question is from John Ivankoe with JPMorgan.

Hi, the question is on value, and I want to position it in a way that, in certain cases, McDonald's has talked about kind of one global solution to certain platforms. I mean, I think about the McCrispy, which is a global product, but value was something that was expressed within countries and even within a country, in a lot of cases, actually dependent on the app to communicate value on a personalized level to customers. Now, tell me if I'm wrong, but I do sense a shift that value will kind of be communicated more on a global basis with items under a certain price point and combos, what have you, and that does seem to be a fairly significant shift back to what we were talking about in the past one to two years ago. So, I guess just relative to your expectations, what really did change from a value perspective that we're kind of thinking about more global solutions at this point? And can we get to a point when the app is really the driver of the value in the future, or is that something that is just going to take a little bit more time to come? Thank you.

Hi John, it's Chris. Thanks for the question. I appreciate the chance to clarify. I can confirm that value is determined at the market level. We do not create global value solutions that are then imposed on the market. Value, as you mentioned, is fundamentally a local decision influenced by the competitive landscape and circumstances in that country. This has always been and will continue to be driven at the market level. What you may be noticing is that we are improving our ability to share effective frameworks and strategies. When we identify successful approaches in one market, it's important for us to share those insights and opportunities with other markets. That's where initiatives like McSmart come in, which have been adopted by several markets, albeit with varying execution. Thus, we maintain a global framework for understanding value and recognize that there are many ways to deliver it. For example, we believe a strong EDAP platform is essential, which includes entry-level price points to attract consumers to our restaurants. Additionally, meal deal programs, like the $5 Meal Deal currently in the US, are important, along with in-app offers, promotions, and similar strategies. This outlines our general framework for value based on our experiences, but the application remains the responsibility of each market.

And maybe just to build on John's point, which I think just because you talked about digital, I mean, digital certainly continues to grow in importance, but it's still a minority of our customers. And obviously, over the mid- to long-term, digital will become a much bigger part and then we'll obviously bring value to life at an individual level with a lot of data and insights, which allow us to really effectively target value that's most relevant for that individual consumer. But I think it's still going to be quite a while where front counter value, so to speak, is going to continue to be important. And obviously, right now, that's the area of greatest opportunity and why we're focused on getting that right, as Chris talked to.

Our next question is from Dennis Geiger with UBS.

Great, thanks, guys. I just wanted to come back to any additional insights on the public health situation. I know you mentioned that you're not expecting it to have a material impact on the business. Just if anything, either kind of on latest trajectory, anything on expectations going forward, if I interpreted that comment correctly, or any other financial implications to call out here? Thank you.

Good morning, Dennis. It's Ian. I appreciate your question, and it's an important one to address. Please allow me a moment to provide some context before I answer your specific inquiry. Our US business has effectively responded to the increasing customer expectations around value and affordability with the introduction of the $5 meal. Along with great marketing initiatives like the Collector's Edition and limited-time offerings such as the Chicken Big Mac, we've seen a positive outcome that drives more customers to visit us and encourages them to spend more during those visits, which ultimately enhances profitability. As we mentioned earlier, the US has significantly outperformed the QSR industry, with the best comp, guest count, and traffic metrics observed since early 2023. Moreover, the $5 meal has met its intended goals. Notably, we gained market share with lower-income consumers for the first time in over a year, and customers opting for the $5 meal have increased their frequency of visits. This points to a resurgence in guest count-led growth. We wrapped up the third quarter positively in the US, and following the launch of our Chicken Big Mac limited-time offer on October 10, we've seen comp sales in the initial three weeks of October showing a mid-single-digit increase, along with a slightly lower positive trend in guest counts. This indicates a solid conclusion to the third quarter and a robust beginning to the fourth quarter, especially given the challenging conditions in the broader industry. However, we have faced challenges in the US due to the recent food safety incident, which shifted our positive trends to daily negative results in sales and guest counts since the incident began. As Chris mentioned, we have acted swiftly and decisively, collaborating with health authorities to ensure consumer safety, identifying the root cause, and providing clarity as fast as possible. Now that this issue is resolved, we are focused on reintroducing Quarter Pounders to the affected locations. We believe that the most critical challenges are behind us, and our current work is directed at rebuilding consumer confidence to restore the momentum in our US business, and we are optimistic about our ability to achieve that.

Our next question is from David Tarantino with Baird.

Hi, good morning. Just maybe to follow-on the last comments, Ian, and maybe Chris can comment on this. With respect to the advertising message that you're thinking about over the next three to six months, a lot of it's been focused on value and you've had success there and some great initiatives, but I'm wondering if you think some of those dollars are going to need to be allocated towards a message about the brand and restoring sort of the confidence in the brand fundamentals as opposed to being so focused on value and product initiatives, at least in the near term?

Yeah, thanks, David. We're going to do what we need to do to get the growth back into the business. And certainly, if there's an aspect of that, which is around reassuring the public, we're prepared to do that. I think I don't view it as or, I view it as and. I think we can do both. I think we can make sure that we're communicating the steps that we've taken and if there is lingering unease out there to be able to address that. At the same time, I think we can also continue to be driving value and I think we can be driving marketing news. And so, one of the things about McDonald's is we have, I think, ample resources to address whatever the business opportunity is, and we're prepared to do that. I know the US team right now is actually, over the next couple of days, engaging with our franchisees, thinking about what our plans need to look like, and I'm sure this will be a topic of conversation. But we're going to do what we need to do to make sure we've got to get the momentum back in the business.

Our next question is from Brian Harbour with Morgan Stanley.

Thank you. Good morning, everyone. Ian, I appreciate your comments regarding the US recently. Considering some other aspects in Q4, I understand you're maintaining the overall annual guidance for the most part. Should we assume that you're seeing some traction in IOM and IDL, and do you believe there will be sales momentum as we move into the fourth quarter? Do you think SG&A conditions remain as favorable as we observed in Q3? Additionally, are there any other key factors we should consider as we approach the last quarter of the year?

Thank you, Brian. There are a few points to discuss. In the IOM markets, as mentioned earlier, the industry environment is quite challenging. Consumers are feeling pressure, and we are seeing a contraction in several of our largest IOM markets, which has actually worsened in the third quarter. As a result, consumers are being selective about their spending, with some choosing to eat out more frequently. While the overall consumer pressure is broad, lower-income consumers and families are particularly affected, which impacts disposable income and is crucial for our consumer base. Because of these factors, we are focusing heavily on value and affordability to adapt to the situation in each of our markets. The US results show that when we get this right, we can succeed even in tough conditions, and we plan to maintain this momentum. We're seeing early signs of progress in some international markets, where our guest count is improving relative to our nearest competitors, but we want to replicate this strength in all our key international markets and ensure consistency. We acknowledge there’s more work to be done, and we are working rapidly to address this moving forward. In addition, we will implement more strategies over the next quarter to position ourselves well for 2025, regardless of the external environment. We will continue to track our performance to see if we are gaining market share despite these conditions. As for G&A, it's impacted by sales pressure, which influences the metric as a percentage of sales. We're doing everything we can to manage costs effectively, and we expect to meet our guidance this year. We have seen some relief in incentive-based G&A, but we are also being disciplined with our current spending in areas such as travel, meetings, and professional services while still investing in our enterprise transformation and strategic growth opportunities in critical areas like digital and technology that are essential for our growth pipeline moving forward.

Yeah. I would just add, and maybe reiterate what Ian said, we are seeing a tough industry, UK, France, Germany, Australia, those are all markets where the industry traffic is down. That said, we are either gaining share or seeing sequential improvement in all of our major markets, which is encouraging. But I would also tell you, I'm not satisfied with the pace. And I think there's more that we need to do to step up and accelerate. There's a number of adjustments that are being made in each individual market to augment their value programs. And I think we have an opportunity to overlay on top of that some stronger marketing efforts as well. So, seeing progress, but I'm not fully satisfied with the pace on international, and that's the focus for us as we close out this year is making sure we get off to a fast start in 2025.

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

Thank you. I have a clarification and a question. The clarification is regarding your mention of the average check being $10 for those that include a $5 meal. I believe that may be lower than your overall averages. As you launch this holistic value platform, should I expect a potential negative mix headwind for the upcoming year due to a reset in ordering patterns, while acknowledging that your traffic gains are the priority? That's my clarification. My question is about McOpCo margins, which seemed lower than we anticipated. Could this be due to value strategies or perhaps deleverage? Are there any margin dynamics or sales trends among your franchisees that might influence their decisions on adding new units as you aim to accelerate unit growth? Thanks.

Good morning, Sara. Let me start on that and then I'll let Chris weigh in if he wants to add anything. Regarding the $5 meal, while you noted a check above $10, this is slightly below our overall average check in the US. However, we see this as a strong check in light of the $5 price point. Our aim with enhanced value and affordability is to generate greater traffic and increase guest counts. As we attract more customers, we are pairing that with promotions like the Collector's Edition or the limited-time Chicken Big Mac offering, which will contribute to both check growth and profit growth. We're not concerned about the value component because having it is essential for competitiveness and market share advancement. We believe that if we execute effective marketing and introduce appealing menu items, consumers will increase their spending, which will enhance check amounts and profitability, as we observed towards the end of the third quarter and at the beginning of the fourth quarter. Now, regarding McOpCo margin, you are correct that it came in lower on a percentage basis in the third quarter. This is due to several factors. We are experiencing muted top-line growth, which pressures margins because of ongoing cost impacts on the business. Specifically, in the US, we are facing mid-single-digit wage pressures significantly influenced by substantial wage increases in California earlier this year, in addition to overall wage escalations. Commodity pressures persist, although we anticipate commodity increases in 2024 to be low single-digit. We also have lingering impacts from higher inflation rates in 2023. So, cost pressures and subdued sales growth are affecting margins. Additionally, the affordability strategy does impact margins, but we consider this a necessary short-term investment. Historically, we grow margins and profitability by boosting volume, and we want to ensure we're positioned to achieve this. The $5 meal initiative is aligning with our goals, and we feel confident in our ability to improve margin percentages in the mid- to long-term as we enhance traffic and volume growth in our business.

Maybe I'll just clean up the one other thing that you asked about, Sara, which was around development. And right now, we're seeing good returns on our new units. As we look at the US, we're on pace to hit our development goals in the US. It's certainly something that we pay very close attention to, but right now, from our vantage point, we don't see any impact to our development goals. And as you know, as we've talked about on prior calls, this is something that we spent a fair bit of time looking at it and being pretty detailed in our assessment of the opportunity, and we make these decisions over a longer time period. There will be ups and downs with the business, but from our vantage point, the long-term development opportunity that we saw in the US that stays intact.

Our next question is from Eric Gonzalez with KeyBanc.

Hey, thanks for the question. Just as a follow-up to that with regards to the $5 meal, on the last earnings call, it seemed like the traffic lift was more than offset by the lower mix as the consumers trade down, but as we move through the quarter, I'm guessing those comp dynamics shifted more favorably as it was paired with the Collector's custom more recently with Chicken Big Mac. So, if you can comment on that and discuss how that experience is shaping the discussion with your franchisees around the more permanent value platform that I think you said is slated for the first quarter?

Sure. As we talked about, I think what we've seen is, it's a pretty simple formula at the end of the day on what you need to do to get that good balance of traffic and sales growth in the business. You need to, at the foundation, have a strong value proposition, and that's been the focus for us in a number of our markets, either strengthening, adding to, or adjusting our value program so that we have that good foundation. You need to then overlay on top of that food news that can excite the customer and you have to have great marketing behind it. And when you do that with news and great marketing, you can get a strong full-margin check that goes along with some of those value programs. And I think that's exactly what we saw in the US. You had the $5 Meal Deal, but you also had things that were growing margin in check getting added on top of that. So that's the focus for us in all the various markets is strong value programs, great food news and innovation paired with strong marketing. And if we execute and do that well, which by the way is the essence of our Accelerating the Arches strategy, when we do that well, the business responds.

And maybe just the only kind of build I would make on that is if you just go back to, I think what Chris talked about in his opening remarks, so if you look at food news like the Big Arch that we've had in three pilot international markets for the last several months, where we're seeing really strong results. So again, I think there's certainly demand from consumers for that exciting food news when they visit us, obviously, they still are buying and these promotions or activities when they're done well are resonating really well. I mean, you heard us talk about the Collector's Edition where we ran through that in two weeks because the demand was just so strong. We saw incredibly strong demand in the first couple of weeks of October for Chicken Big Mac. So, consumers still want that excitement, they want great ideas and great food news, but obviously, for some of our consumers, they're just really looking for that value and affordability. So, we've got to get both of those in place and get them working together, as I talked about before, where we get that one plus one kind of equal to three overall outcome.

I would like to add that a question was raised in a previous call regarding Big Arch, particularly because it’s a premium product in the current market. The inquiry focused on whether a product like this resonates with consumers. What we've observed in our three markets so far is that it is performing exceptionally well. This positive response is why we have decided to expand its reach into additional markets next year. The consumer still perceives it as a good value, even with the higher price tag, and it is clearly addressing an unmet need. When we also have strong marketing support, it serves as a valuable addition and enhancement to the overall purchase. This exemplifies that success isn't solely about having low entry prices; with effective food news and marketing, we can drive that ticket increase we've discussed.

Our next question is from Lauren Silberman with Deutsche Bank.

Thank you. Just a quick follow-up on the sales impact of the food safety incident. Are you seeing the impact more concentrated in the affected areas in the Midwest or is pressure more broad-based? And then, just on the US comp, can you just talk about the composition across traffic, price, and mix during the quarter? And any additional commentary on what you're seeing across the low-, middle-, and high-income cohorts? Thank you.

Hi, good morning, Lauren. As expected, there is a bit more impact in the concentrated areas where the news and attention have been more specific. With the broader news and initial lack of clarity, there has been a wider impact as I mentioned earlier. However, I believe the most significant events are behind us now, and we are fully focused on restoring the momentum of our US business and rebuilding consumer confidence. I won't go into too much detail about the dynamics, as we've covered that quite a bit during this call. We exited the third quarter with stronger momentum and had a robust start to the fourth quarter. The $5 meal has continued to perform well and resonated even more strongly as we progressed through the quarter. We have combined that with some menu innovations and effective marketing execution, which led to a noticeable increase in sales, particularly towards the end of the quarter and into the fourth quarter. That is some of the context I can share with you.

Our next call is from Jeff Bernstein with Barclays.

Great. Thank you very much. Just following up on the US value component. It seems like the $5 value offer response has been encouraging. I'm wondering whether there's any key metrics you can share, whether it's the mix of sales that you see from value more broadly or whether it's the $5 menu in particular, or any detail on that share growth? I think you said for the first time in over a year you've seen share growth with that low-income consumer. So, any support around that? And just to clarify, I think you said a more holistic value platform in the first quarter of '25, kind of reminds me of maybe the prior $1, $2, $3 menu where the consumer has options to choose among a variety of items. So, any color you can provide in terms of directionally what you're thinking about what that means for a more holistic value platform in the first quarter would be very helpful. Thank you.

Sure. Well, first on the elements of what we're seeing, I think Ian hit some of the key criteria that we're looking for, but certainly, when we launched the $5 Meal Deal, we wanted to see that it would improve value perception with the consumer and we've seen evidence of that. We wanted to see that it could engage the low-income consumer in particular. We've seen evidence of that. We wanted to see that it could drive guest counts. We were seeing strong evidence of that. And then, we were getting incremental check on top of that, that allowed us to have a positive lift, meaning that we saw comp sales growing faster than guest counts. So, all of those kind of key metrics that we had outlined at the outset of that program, we've seen that deliver. As you think about then what our longer-term value program needs to look like, we're not going to get into the specifics of that on this call. I alluded to that this is something that we're in active conversations right now with our franchisees on, but I think you can anticipate it's going to have a few components. It needs to have this EDAP component that we've talked about. It needs to have a meal deal component, whether that's a $5 meal deal or some other meal deal, that will be something that's included in it, and it needs to be able to incorporate some of the digital offers that we do. So, as you think about what this is going to look like, I think you can look to some of our other markets where we have platforms like either a McSmart or a Saver, where you've got a branded platform that can house all of these various individual value components. And I think that's what you should expect to see from us launching in Q1 of next year.

Jeff, I would like to add a bit regarding your first question. As I mentioned earlier, we had a positive comparison against the industry in both traffic and sales during the quarter. This indicates that our efforts were appealing to all consumers, not just those with lower incomes. This aligns with what we've discussed a few times today about our strong value and affordability focus, along with exciting menu updates and effective marketing. We believe the US performed well this quarter in engaging a wide range of consumers. Notably, we've recently gained share among lower-income consumers, which is a significant portion of our customer base, marking the first time in over a year. This is a crucial and meaningful indicator. Moreover, customers purchasing the $5 meal are visiting us more often, leading to an increase in visits overall. Some of these visits are for the $5 meal, but others are for various items on the menu, which reflects a trend of getting consumers back into our restaurants more regularly. We're optimistic about both the specific and broader results we've seen.

We have time for one more question with Jon Tower from Citi.

Great, thanks for taking the question. I guess maybe just following up on Sara's question earlier regarding store margins, I was hopeful that you could maybe provide some color on your thoughts into '25, given the dynamics that have played out this year in the market and some of the plans you have for value. And then, on top of that, just broadly speaking, how you're thinking about the brand's pricing power, more so in the US relative to other markets in the world, given the macro backdrop where it seems like we've got a mixed consumer with respect to demand and jobs? And just curious, do you think the brand can kind of price in line with inflation next year, or is it going to have to kind of track below?

Thanks, Jon. Regarding margins, I want to emphasize the momentum we have generated in the US business through the third quarter and into early October. This momentum is key to driving margin growth in both percentages and dollars. As we’ve mentioned today, we feel confident in restoring momentum in the US business to previous levels. This should enable us to achieve margin leverage since increased volume contributes to better margins over time. We are optimistic about our capabilities in this area as we aim to boost sales. Looking ahead to 2025, we are certainly confident about this outlook. When it comes to pricing power, we've discussed the tough environment, especially in our international markets. Consumers are showing resistance to price increases, but we have different strategies to address pricing. These include not only raising prices but also leveraging effective marketing and promotions to enhance our pricing strategy by influencing product mix. We will continue to approach pricing cautiously due to existing resistance, which is impacting our flow-through rates. While we believe we can secure some price increases, we expect these to be conservative until we restore the right momentum across all our markets. This situation will likely open more opportunities as we move forward.

Okay. That concludes our call. Thank you, Chris. Thank you, Ian. Thanks everyone for joining. Have a great day.

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