Executive Summary / Key Takeaways

• McDonald's operates a highly resilient, predominantly franchised global business model, leveraging its immense scale, iconic brand, and efficient supply chain to generate stable revenue and robust cash flow, even in challenging economic environments.
• The company's Accelerating the Arches strategy, focused on Maximizing Marketing, Committing to the Core menu, and Doubling Down on Digital, Delivery, Drive Thru, and Development (MCD), is the blueprint for driving guest count-led growth and market share gains despite recent industry headwinds.
• First quarter 2025 performance reflected broader QSR industry softness, particularly impacting low- and middle-income consumers, resulting in comparable sales declines in the U.S. and International Operated Markets, though International Developmental Licensed Markets saw growth.
• Significant investment in technology platforms (Consumer, Restaurant, Company) and strategic initiatives like enhanced value offerings, core menu innovation (Best Burger, McCrispy expansion), and accelerated unit development are expected to drive performance improvement from the Q1 2025 low point.
• Management reaffirmed full-year 2025 financial targets, including operating margin in the mid-to-high 40s and significant capital expenditures for expansion, signaling confidence in the strategy's ability to deliver long-term profitable growth and shareholder value despite ongoing macroeconomic and geopolitical risks.

The Golden Arches' Enduring Foundation

McDonald's Corporation stands as a titan in the global quick-service restaurant (QSR) industry, a position forged over decades since its founding in 1940. The company's enduring strength lies in its predominantly franchised business model, which accounted for approximately 95% of its over 43,700 restaurants worldwide as of March 31, 2025. This model, where McDonald's often owns the real estate and franchisees operate the restaurants, provides a stable and predictable revenue stream derived from rent and royalties based on a percentage of franchisee sales. It also fosters a powerful "three-legged stool" system involving the company, franchisees, and suppliers, enabling local relevance and operational efficiency at scale.

The company competes fiercely within the informal eating out (IEO) segment against a diverse array of players, from traditional QSR rivals like Restaurant Brands International (QSR), Yum! Brands (YUM), and Wendy's (WEN) to fast-casual concepts like Chipotle (CMG) and even non-traditional food service providers. Competition centers on product choice, quality, affordability, service, and location. McDonald's leverages its unparalleled brand recognition, vast global footprint, and sophisticated supply chain to maintain a competitive edge, often allowing it to achieve lower operating costs per unit compared to many rivals.

At the heart of McDonald's strategic response to this dynamic landscape is its Accelerating the Arches growth strategy. This framework builds on the company's historical strengths while focusing on key areas for future growth: Maximizing Marketing, Committing to the Core menu, and Doubling Down on Digital, Delivery, Drive Thru, and Development (MCD). This strategy is underpinned by a commitment to its purpose of feeding and fostering communities and its mission to make delicious feel-good moments easy for everyone.

Technological Edge: Powering the Experience and Operations

Fundamental to the Accelerating the Arches strategy and a critical differentiator in the competitive QSR space is McDonald's investment in technology. The company is actively developing and implementing three technology-enabled platforms designed to enhance competitive advantages, deepen cultural relevance, and anticipate customer expectations.

The Consumer Platform aims to build one of the world's largest consumer engagement engines. This platform integrates the best of the brand's physical and digital presence to accelerate growth in the loyalty program and drive visit frequency among high-value loyalty customers. Digital tools provide personalized offers and facilitate mobile ordering and payment. A key initiative is the deployment of "Ready on Arrival," a digital enhancement enabling crew to begin preparing mobile orders before the customer arrives, aiming to expedite service and elevate customer satisfaction, with plans to roll this out in the top six markets by the end of 2025. By the end of 2024, the loyalty program had over 170 million 90-day active users, contributing approximately $30 billion in Systemwide sales, with targets to reach 250 million active users and $45 billion in annual Systemwide sales by the end of 2027.

The Restaurant Platform is focused on creating the easiest and most efficient operating environment for restaurant crew. This involves utilizing the latest cloud-based technology to streamline operations and improve customer service. The company intends to deploy new, universal software across all McDonald's restaurants, designed to enable faster innovation rollout with less complexity and more stability, ultimately providing customers with a more familiar and consistent experience globally.

Finally, the Company Platform, primarily driven by the Global Business Services (GBS) organization, is designed to modernize ways of working, unlocking speed and innovation throughout the organization. This internal transformation effort, known as "Accelerating the Organization," aims to make the company faster, more innovative, and more efficient. While involving significant restructuring charges (expected to continue through 2027, with approximately $300 million projected in 2025), this initiative is intended to drive long-term efficiencies and free up resources for strategic growth investments.

These technological advancements are not merely supporting functions; they are integral to McDonald's competitive moat. They enhance operational efficiency, improve the customer experience, enable personalized marketing, and support the rapid scaling of new initiatives, providing a tangible edge in a market where speed, convenience, and value are paramount.

Navigating Near-Term Headwinds: Q1 2025 Performance

Despite the foundational strengths and strategic focus, McDonald's performance in the first quarter of 2025 reflected the challenging external environment. Global comparable sales decreased by 1.0% (essentially flat excluding the prior year's Leap Day), a result management anticipated would mark the low point for the year. This softness was primarily driven by broad-based consumer pressures, particularly impacting lower and middle-income cohorts in several major markets, leading to a decline in QSR industry traffic.

Consolidated revenues decreased 3.0% (2.0% in constant currencies) to $5,956.0 million, while consolidated operating income decreased 3.0% (1.0% in constant currencies) to $2,648.0 million. These results included pre-tax restructuring charges of $66.0 million related to the Accelerating the Organization initiative. Excluding these charges, operating income was flat in constant currencies, primarily reflecting lower sales-driven restaurant margins in the U.S. and International Operated Markets.

The U.S. segment saw comparable sales decline by 3.6%, reflecting the significant pressure on consumer spending. However, the segment delivered a positive comparable guest count gap relative to most near-end competitors, a testament to the initial traction of the newly launched McValue platform. International Operated Markets experienced a 1.0% comparable sales decrease, with mixed results across markets, notably impacted by negative sales in the U.K. Conversely, the International Developmental Licensed Markets segment posted a positive comparable sales increase of 3.5%, driven by strong performance in the Middle East and Japan, although the segment's overall sales and revenue continue to be negatively impacted by the war in the Middle East.

Restaurant margins, a key indicator of profitability, reflected these sales trends. Franchised margins, which represent over 90% of total restaurant margin dollars, decreased slightly due to negative sales in the U.S. and unfavorable foreign currency translation in IOM, partly offset by positive sales in IDL. Company-owned and operated margins were impacted by negative sales in the U.S. and foreign currency translation and ongoing inflationary cost pressures in IOM. Selling, general and administrative expenses decreased, benefiting from the timing of investments and comparison to prior year convention costs.

Strategic Responses and Operational Momentum

In response to the pressured consumer environment and competitive dynamics, McDonald's is doubling down on strategic execution. Leadership in value and affordability is paramount, and the company is expanding and refining its value proposition globally. In the U.S., the McValue platform, including the $5 Meal Deal, is being emphasized and is expected to continue through the balance of 2025, demonstrating resonance with customers and driving incremental purchases (average check on the $5 Meal Deal is north of $10). International markets are embedding everyday affordable price (EDAP) menus and entry-level meal bundles, tailoring offerings like the EUR4 Happy Meal in France and McSmart in Germany to local needs.

Commitment to the core menu remains a focus, building on iconic products that are billion-dollar brands. The global rollout of "Best Burger," designed to deliver hotter, juicier, tastier burgers, is on track for nearly all markets by the end of 2026. The company is also aggressively growing its chicken portfolio, planning to offer the McCrispy sandwich in nearly all major markets by the end of 2025 and extend the brand into strips and wraps. Learnings from the CosMc's beverage test are informing plans to launch a beverage test in existing U.S. McDonald's restaurants later this year, aiming to capture growth in the attractive beverage category.

The "Double Down on the 4Ds" pillar continues to drive operational focus. Digital growth is fueled by loyalty program expansion and initiatives like Ready on Arrival. Delivery is available from nearly 90% of System restaurants, with efforts to increase mobile app orders and leverage strategic partnerships. The extensive Drive Thru network remains a competitive advantage, with most new U.S. and IOM openings including this channel. Restaurant development is accelerating, targeting approximately 2,200 gross openings in 2025 and progressing toward 50,000 restaurants by the end of 2027, representing the fastest unit growth period in company history.

Outlook and Investment Implications

McDonald's management reaffirmed its full-year 2025 financial targets, signaling confidence in the strategy's ability to drive performance improvement despite a cautious view on consumer sentiment. The outlook includes expectations for net restaurant unit expansion to contribute slightly over 2% to Systemwide sales growth in constant currencies. Selling, general and administrative expenses are projected to be about 2.2% of Systemwide sales. The operating margin percent is expected to be in the mid-to-high 40% range.

Capital expenditures for 2025 are planned between $3.0 billion and $3.2 billion, primarily directed towards new restaurant expansion in the U.S. and International Operated Markets, supporting the target of nearly 1800 net restaurant additions globally. Interest expense is expected to increase by 4% to 6% due to higher average debt balances and rates, while the effective income tax rate is projected between 20% and 22%. The company expects to achieve a free cash flow conversion rate in the low-to-mid 80% range, reflecting ongoing strategic investments in technology and GBS. A notable shift is the expected foreign currency translation impact, now projected as a tailwind of about $0.05 per share for 2025 EPS based on current rates.

Management anticipates guest count and market share performance will improve from the Q1 low point, driven by execution on value, menu innovation, and marketing. While macroeconomic uncertainty, geopolitical tensions (including the war in the Middle East), inflationary pressures, and labor challenges remain pertinent risks, McDonald's believes its scale, brand strength, operational agility, and strategic investments position it to outperform the broader industry. The company's capital allocation priorities remain focused on investing for growth, prioritizing the dividend (marking its 49th consecutive annual increase), and returning remaining free cash flow through share repurchases.

Conclusion

McDonald's faces a challenging QSR environment marked by pressured consumers and geopolitical volatility, as reflected in its first-quarter 2025 results. However, the investment thesis remains compelling, anchored in the company's highly resilient, cash-generative franchise model, unparalleled global scale, and iconic brand. The Accelerating the Arches strategy, with its focus on value leadership, core menu innovation, digital acceleration, and aggressive unit development, provides a clear roadmap for navigating these headwinds and driving future growth.

Investments in cutting-edge technology platforms are enhancing operational efficiency, improving the customer experience, and building a powerful digital ecosystem, providing a critical competitive edge. While near-term performance may remain subject to external pressures, management's reaffirmed full-year guidance and commitment to strategic investments signal confidence in a trajectory of improving guest counts and market share gains from the Q1 low point. For investors, McDonald's represents a durable, dividend-growing enterprise leveraging its inherent strengths and technological advancements to extend its leadership position in the global QSR market, offering long-term value despite the current macroeconomic uncertainty.