Wisdom Financial APP learned that recently, McDonald's (MCD.US) held the 2024Q3 earnings conference. McDonald's stated that the public health event had an impact on the USA business, but the company has seen positive sales momentum, with comparable sales close to single-digit positive growth, successful $5 dining trades attracting low-income consumers and increasing their visit frequency. McDonald's mentioned that although the average check for $5 dining trades is slightly lower than the overall average, considering the price point, this is a very strong number. The core profit margin for the third quarter was slightly lower, partly due to sluggish top-line growth and cost pressures, including wage and commodity pressures. Nevertheless, we are satisfied with the performance of the $5 dining trades and confident in the ability to grow profit percentages in the medium to long term.

At the end of the third quarter, the company saw an upward trend in its USA business, and then launched the chicken Big Mac on October 10th. Based on the first three weeks of October, comparable sales for the USA business showed close to single-digit positive growth, with slightly lower comparable customer numbers. So, the fourth quarter is coming in good shape.

The profit margin was slightly lower in the third quarter, mainly due to cost pressures and sluggish sales growth. However, the company believes that by increasing volume, it can improve profit margins in the medium to long term. The company is optimistic about profit margin growth in 2025, although it may adopt a more conservative pricing strategy until each market regains the proper momentum. The company has the capability to achieve effective pricing through marketing and menu innovations, not just through price increases.

Q&A

How do you plan to adjust your marketing strategy to restore customer confidence after recent food safety issues?

We deeply apologize to customers affected by food safety issues and have taken measures to ensure the problem is under control. We will continue to promote $5 dining trades and are prepared to take additional measures to attract customers. We believe that through transparent and swift action, we can restore customer trust and return to a growth trajectory.

How do you view the shift in global value communication and the role of applications in it?

Value decisions are mainly made at the market level, and we will not implement global value solutions from top to bottom. We have a global framework for thinking about value, and there are multiple ways to deliver value, such as the $5 dining trade in the USA. The application can stack discounts and promotions, but front-end value remains important. We will continue to drive value at the market level.

How has the public health event impacted the business, and what are your expectations for the future?

The public health event has affected the business in the USA, but we have seen positive sales momentum. Our comparable sales are approaching mid-single-digit positive growth, and the $5 dining trade has successfully attracted low-income consumers and increased their visit frequency. We believe the most serious events are behind us, and the focus now is on restoring consumer confidence. We are very confident in restoring business momentum. We saw an uptrend in the US business at the end of the third quarter. Then we launched the Chicken Big Mac on October 10th. Looking at the first three weeks of October in the US business, our comparable sales are approaching mid-single-digit positive growth, with a slightly lower number of comparable customers. So, the fourth quarter is starting in a good position.

Considering recent performance, will you reallocate advertising funds to restore confidence in the brand fundamentals, rather than just focusing on value and products?

We will take necessary measures to restore business growth, including reassuring the public. We have the ability to drive both value and brand messaging simultaneously because we have sufficient resources to address any business opportunities. The US team is collaborating with franchisees to develop plans to ensure we can recover business momentum.

For the fourth quarter, do you see positive signs for IOM and IDL, and what are the prospects for SG&A?

The industry environment is full of challenges, and consumers are under pressure, especially in some of our largest IOM markets. We focus on value and affordability, ensuring we offer the right products for each market. The performance in the US market is strong, but we aim to achieve this momentum in all key international markets. We expect to meet this year's guidance and are working hard to ensure our performance is not affected by the environment.

How do you view brand growth during the current challenges?

Despite the industry's challenges, we have seen growth or improvement in some markets, which is encouraging. However, we still need to accelerate, especially in terms of value plans and marketing efforts. Our goal is to ensure a fast start at the beginning of 2025.

The average check for $5 dining transactions appears to be lower than the overall average check. Given this, should we expect some mixed negative marketing for next year? Additionally, the profit margins seem lower than expected, will this impact franchisees' decisions to add new units?

While the average check for $5 dining transactions is slightly lower than our overall average, considering the price points, we see this as a very strong figure. We increase traffic and customer count by driving value and affordability and enhancing checks and profitability through activities like Collector's Edition or Chicken Big Mac LTO. The core profit margin in the third quarter is indeed a bit low, partly due to sluggish top-line growth and cost pressures, including wage and commodity pressures. Nevertheless, we are satisfied with the performance of $5 dining transactions and are confident in the ability to grow profit percentage in the medium to long term.

What is the impact on sales and traffic after the food safety incident? Is the impact concentrated in specific regions or more widespread?

The impact is more significant in regions with high news coverage but there is also a more widespread impact. We are focused on regaining business momentum and working to restore consumer confidence. We ended the third quarter with strong momentum and had a strong start to the fourth quarter. $5 dining transactions continue to perform well, with a significant check uplift at the end of the quarter and entering the fourth quarter.

How has the response been to the $5 value offer? Can you share key indicators such as mixed sales, menu performance, or share growth? Is this the first time in over a year that there has been growth in market share among low-income consumers?

The $5 dining transactions have successfully enhanced consumers' perception of value, especially among low-income consumers. We have seen growth in customer count and positive comparable sales uplift, faster than the overall growth rate. This trend is a first in over a year. We are discussing long-term value plans with franchisees and expect to launch a more comprehensive value platform in the first quarter of next year, similar to our McSmart or Saver platforms in other markets.

The profit margins seem lower than expected, will this impact decisions to add new units? In the current market dynamics, what are your views on profit margins and pricing power in 2025?

The profit margin in the third quarter was slightly lower, mainly due to cost pressures and sluggish sales growth. However, we believe that by increasing volume, we can improve the profit margin in the medium to long term. We are optimistic about the profit margin growth in 2025, although we may adopt a more conservative pricing strategy until each market regains the correct momentum. We have the ability to achieve effective pricing through marketing and menu innovation, rather than just through price increases.