McDonald's Corporation

McDonald's first quarter 2025 results reflected a challenging operating environment, with total revenue decreasing 3% to $5.96 billion. On a constant currency basis, revenue would have declined only 2%, indicating the impact of currency translation on reported figures. The revenue decline was primarily driven by lower sales across both company-owned restaurants and franchised locations.

Operating income decreased by 3% to $2.65 billion, or 1% in constant currency terms. Results included pre-tax charges of $66 million related to restructuring activities associated with the company's "Accelerating the Organization" initiative. Excluding these charges, operating income would have decreased by 2% (flat in constant currency), demonstrating the underlying pressure on margins across the business.

Net income for the quarter was $1.87 billion, down 3% year-over-year. The decline translated to diluted earnings per share of $2.60, a 2% decrease from the prior year period. When adjusting for currency impacts, earnings per share decreased by only 1%, helped somewhat by the lower effective tax rate.

The company's comparable sales were significantly impacted by the calendar effect, with the absence of Leap Day in 2025 creating a difficult comparison against 2024. Excluding this calendar effect, global comparable sales were essentially flat. This indicates that underlying business performance remained resilient despite broader economic challenges affecting consumer spending.

Systemwide sales showed modest performance, declining 1% on a reported basis but increasing 1% in constant currency terms. The loyalty program remained a bright spot, with systemwide sales to loyalty members across 60 markets exceeding $31 billion for the trailing twelve months and approximately $8 billion for the quarter alone.

U.S. segment experienced a 3.6% decline in comparable sales, primarily driven by negative guest counts. The domestic business faced significant pressure as value-conscious consumers continued to moderate their dining out spending. Efforts to drive traffic through promotional activities and menu innovations showed mixed results in this challenging environment.

International Operated Markets posted a 1.0% decrease in comparable sales, with mixed results across regions. The U.K. market was particularly weak, largely offsetting positive performance in other international operated markets. Currency fluctuations continued to impact reported revenues in this segment, with constant currency results showing relatively stronger performance than the reported figures suggest.

International Developmental Licensed Markets was the bright spot with a 3.5% increase in comparable sales. This positive performance was primarily driven by strength in the Middle East and Japan, where strong local economic conditions and effective menu customization strategies resonated well with consumers.

From a revenue perspective, franchised restaurants generated $3.66 billion, down 2% year-over-year. Company-owned and operated restaurants revenue declined more significantly by 9% to $2.13 billion, reflecting both lower comparable sales and the impact of ongoing refranchising efforts. Notably, "Other Revenues" increased sharply by 78% to $162 million, driven primarily by increased strategic partnerships and expanded brand licensing activities.

The operating segment performance reflected challenging market conditions, with lower margins across both franchised and company-owned restaurant segments. The company continued to navigate inflationary pressures on food, labor, and operational costs while attempting to maintain value offerings for consumers.

McDonald's loyalty program continued to demonstrate strong performance despite the overall sales headwinds, with significant achievements in customer engagement and digital transformation:

Key Loyalty Metrics

• Trailing Twelve-Month Sales: Systemwide sales to loyalty members exceeded $31 billion across 60 loyalty markets
• Quarterly Performance: Loyalty members generated approximately $8 billion in sales during Q1 2025
• Program Reach: Loyalty programs now operate in 60 markets globally
• Active Members: The program tracked all sales to customers who self-identify as loyalty members when transacting

The loyalty program's success demonstrates McDonald's ability to drive customer engagement and repeat visits through personalized offers and rewards. The program has become a critical tool for understanding customer preferences and driving incremental sales, despite the challenging comparable sales environment.

Digital engagement continued to be a key focus area, with the MyMcDonald's Rewards platform driving increased customer frequency and average check. The company's mobile app and digital ordering channels showed continued growth, helping to offset some of the pressure on in-store traffic.

Management noted that the loyalty program is not only driving sales but also providing valuable customer data that helps optimize menu offerings, pricing strategies, and promotional activities. This data-driven approach is expected to become increasingly important as McDonald's continues to navigate the evolving quick-service restaurant landscape.

The strong performance of the loyalty program across 60 markets demonstrates the global scalability of McDonald's digital initiatives. As the program continues to mature, it is expected to play an even larger role in driving customer retention and sales growth, particularly in markets where digital adoption is expanding rapidly.

McDonald's continued to face margin pressure in Q1 2025, with operating income declining in line with revenue decreases. The company's focus on cost management and operational efficiency remained critical in navigating the current environment:

Margin performance was affected by several key factors:

• Labor Costs: Continued wage inflation pressures across major markets impacted restaurant operating margins
• Food & Paper Costs: Higher input costs, particularly for key ingredients, compressed margins
• Pricing Actions: Limited ability to fully offset cost inflation through price increases given consumer sensitivity
• Franchised Margin: Franchised restaurant margins declined due to lower sales volumes despite cost management efforts

The company incurred $66 million in pre-tax restructuring charges in Q1 2025, primarily related to its "Accelerating the Organization" initiative. These charges represented ongoing efforts to modernize operations, streamline decision-making, and improve overall efficiency across the organization. Despite these costs, the initiative is expected to deliver significant operational benefits and cost savings in future periods.

Operating income performance varied by segment:

• Company-owned restaurant margins were particularly pressured, declining 9% year-over-year
• Franchised restaurant margins showed more resilience but still experienced pressure from declining sales
• Selling, general, and administrative expenses improved, down 7% year-over-year

Management emphasized its continued focus on cost management through supply chain optimization, workforce efficiency improvements, and implementation of new technologies to enhance operational productivity. The company's global scale and purchasing power remained advantages in managing input cost inflation.

Despite the challenging first quarter results, McDonald's highlighted several strategic initiatives and areas of focus that position the company for future growth:

Growth Initiatives

• Value Leadership: Continued focus on providing exceptional value to customers through targeted promotions and affordable menu options
• Digital Enhancement: Expansion of digital ordering capabilities and mobile app functionality to drive customer convenience and engagement
• Menu Innovation: Introduction of new menu items and limited-time offers to drive trial and repeat visits
• Market Expansion: Continued growth in international markets through both company-owned and franchised locations

Chairman and CEO Chris Kempczinski emphasized McDonald's resilience and adaptability: "McDonald's has a 70-year legacy of innovation, leadership, and proven agility, all of which give us confidence in our ability to navigate even the toughest of market conditions and gain market share."

The company's strategic priorities include:

• Strengthening the core menu while introducing seasonal and limited-time offerings
• Enhancing the digital experience across all customer touchpoints
• Expanding delivery and drive-thru capabilities to meet changing consumer preferences
• Investing in restaurant modernization to improve customer experience and operational efficiency

While specific forward guidance was not provided, management indicated confidence in the company's ability to navigate current market challenges and emerge stronger. The combination of the global McDonald's brand, extensive franchise network, and digital capabilities positions the company well for long-term success despite near-term headwinds.