麥當勞 (MCD) 2015 Q4 法說會逐字稿

Hello and welcome to McDonald's January 25, 2016, investor conference call.

At the request of McDonald's Corporation, this conference is being recorded.

(Operator Instructions)

I would now like to turn the conference over to Mr. Chris Stent, Vice President of Investor Relations for McDonald's Corporation.

Mr. Stent, you may begin.

Hello, everyone, thank you for joining us.

With me on the call are President and Chief Executive Officer Steve Easterbrook and Chief Financial Officer Kevin Ozan.

Today's conference call is being webcast live and recorded for replay by webcast.

Before I turn it over to Steve, I want to remind everyone that the forward-looking statements in our earnings release and 8-K filing also apply to our comments.

Both documents are available on www.investor.

McDonalds.com as are reconciliations of any non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures.

And now I'd like to turn it over to Steve.

Thank you, Chris, and good morning, everyone.

We begin 2016 in a much better place than we were 12 months ago.

Today we're more aligned as a system, franchisee cash flows in our major markets are improving, and we have a strong commitment to executing our turnaround plan.

Our near-term priorities are clear.

Our turnaround plan is the first step to fortifying the fundamentals of our business and restarting growth.

It's grounded in running great restaurants, driving operating growth, creating brand excitement, and enhancing financial value.

These actions ultimately position us to strengthen and grow as a more competitive and modern business.

We'll build on this foundation as we position McDonald's for long-term growth that will drive shareholder value in 2016 and beyond.

Different markets are in different stages of the turnaround.

The US, our largest market, is currently in the trajectory change phase.

While we are pleased with the recent positive momentum in the US, it will take at least six more months of positive comparable sales and guest count growth to progress through the sustained and prolonged growth phases of our turnaround.

I'm confident in the actions we are taking and that traction is beginning to take hold.

Most importantly, customers are noticing a difference.

Our customer feedback systems are showing improvements in many important aspects of the customer visit including food quality, order accuracy, speed, and friendliness.

In many ways, 2015 was a year of two halves.

The first half of the year, our performance fell short of expectations.

As I stepped into my role, my priority was to objectively assess our business, diagnose our opportunities, and develop a leaner organizational structure.

The second half of the year was about execution.

The new operating structure that went into effect on July 1 sharpened our focus, drove greater accountability, and removed distractions and bureaucracy to speed up decisions and increase our ability to move winning tactics quickly across markets.

As markets adjusted to how they think and operate we began to get traction, ending the year on an upwards trajectory.

Comparable sales were up 5% for the fourth quarter and 1.5% for the full year.

Operating income was up 16% in the quarter, and earnings per share increased 26%, both in constant currencies.

Various current and prior-year items outside our normal operations impacted earnings comparisons.

Kevin will share more details.

Excluding these items, earnings per share would've been up 10% for the quarter in constant currencies.

Now let's turn to segment performance.

The US remains fundamental to our turnaround, giving its significant contribution to consolidated results.

US comparable sales increased 5.7% for the fourth quarter, marking the best quarter in nearly four years.

For the full year, comparable sales grew 50 basis points, an encouraging change in trend after two years of declines.

While we've seen recent improvements in comparable guest counts, they remained negative for the full year.

We need to do even more to increase the frequency of visits from our loyal customers and win back customers we've lost.

Strong partnership with franchisees as we execute our business-building initiatives has resulted in growth in restaurant-level cash flows for both the quarter and the year.

This is just one more indication of the progress we are making.

Our formula for success in the US is consistent with many other markets: a focus on operational excellence coupled with relevant menu news, all supported by strong alignment with franchisees.

The foundational steps we took to enhance menu quality, simplify restaurant operations, and offer even more convenience to customers led to a powerful palpable shift in momentum in the third quarter.

All Day Breakfast built on this momentum in the fourth quarter, exceeding internal expectations during the launch phase.

It's driving incremental business.

Many customers who otherwise would have gone elsewhere are coming to McDonald's to enjoy some of their favorite breakfast items, like our Egg McMuffin and hashbrowns at lunch and throughout the rest of the day.

At the same time, existing customers are adding breakfast entrees to their regular orders, boosting sales and average check.

In addition to benefiting top- and bottom-line growth, All Day Breakfast positions us to regain market share we've given up in recent years.

In fact, since the launch of All Day Breakfast, we've experienced positive weekly comparable sales gaps relative to our QSR sandwich competitors, and we ended the quarter with a positive gap of 2.9%.

Another priority in the US is the establishment of a consistent national value offering.

We began testing McPick 2 earlier this month.

This value offer gives customers the flexibility to bundle their choice of two items at a compelling price point.

While still early, the offer appears to be resonating with customers.

We will continue to listen and apply what we're learning as we work towards a more permanent national platform later this year to complement the ongoing regional efforts.

I'd also be remiss if I didn't mention that the US and several of our other large markets also benefited from mild weather in the quarter.

Let's now turn to the International Lead segment, which continues to operate from a position of strength.

Fourth-quarter comparable sales increased 4.2%, and comparable sales were up 3.4% for the year.

Strong fourth-quarter comparable sales marked the UK's 39th consecutive quarter of growth, as the market outperformed both the competition and the wider retail sector.

Performance was driven by a number of customer-oriented offers: successful promotions featuring premium products like the new Big Flavour Wraps and the Chicken Legend drove growth in average check.

A strong focus on our core menu items continued to elevate customer perceptions around quality, and steady progress towards our Experience of the Future continues.

About a quarter of the UK's restaurants have been converted and plans are in place to do more throughout 2016.

These restaurants offer modern in-store service platform such as self-order kiosks, digital merchandising, and customized order pickup points.

We recently tested table service; and based on customers' favorable reaction, we plan to roll it out across nearly all converted restaurants in 2016.

Australia also delivered a strong quarter of comparable sales despite lapping its best quarter in 2014.

The market-wide deployment of Experience of the Future is driving incremental visits.

Customers are enjoying conveniences such as self-order kiosks and table service, and taking advantage of the opportunity to customize their entrees to satisfy individual tastes.

Australia continues to fuel future growth by capitalizing on wins in other markets.

Most recently it's taken a chapter out of the US playbook, testing All Day Breakfast in 300 restaurants; it plans to go national later this quarter.

Australia's ability to quickly scale this successful initiative from the US highlights one of the many ways our new segment operating structure is creating a more nimble McDonald's.

In Canada, balanced growth across all dayparts drove another quarter of strong comparable sales.

Engaging marketing campaign, including Monopoly, festive food events, and a successful free coffee promotion resonated strongly with customers.

At the same time the market continues to make progress towards its version of Experience of the Future.

More than 175 restaurants have been converted, with a significant number of additional conversions planned in 2016.

In Germany and France, fourth-quarter comparable sales were relatively flat.

Germany's successful Monopoly promotion featuring premium products along with a focus on add-on items helped drive average check in a highly competitive environment.

Value remains a critical priority in Germany.

In the coming weeks we'll launch an integrated value strategy across our menu to strengthen our appeal to value-conscious consumers.

In France, the macro environment remains challenging.

The informally eating-out market recorded its fifth consecutive year of decline.

On top of the lagging economy and dampened consumer purchasing power, the November terrorist attack negatively impacted the entire eating-out industry.

We have seen this in Paris and in other cities throughout Europe.

Despite these headwinds, our brand remains strong in France.

Successful Monopoly promotion along with the introduction of new premium products are increasing average check.

At the same time we're giving customers more options across lower tiers of our menu, with new items added to our P'tit Plaisir line and the extension of McFirst into other proteins including fish.

We are working to become even more accessible to customers as we continue to open new restaurants, including five new airport sites that were part of a deal we recently closed with Aeroport de Paris.

Turning to the High Growth segment, fourth-quarter comparable sales increased 3% and the comparable sales were up 1.8% for the year.

China's fourth-quarter comparable sales increased 4%.

Successful execution of key initiatives around value, convenience, and breakfast are driving market share increases in a flat IEO environment.

Despite recent external challenges we remain confident in the potential of this important market and in the strategies we have in place to expand the brand even further.

In fact, we plan to open more than 250 restaurants in China in 2016, the highest of any of our markets.

In Russia, strong comparable sales in the fourth quarter reflected ongoing recovery of brand trust.

However, results may be volatile moving forward, given continuing macroeconomic uncertainties and decreased consumer purchasing power.

One additional market I'd like to highlight is Japan, where comparable sales increased 1.6% in the fourth quarter.

Results were partly driven by comparisons to last year's supplier issue; even so, this marks Japan's best quarterly performance in nearly four years.

The team is diligently executing its revitalization plan, as they work to strengthen the brand's appeal to customers.

Our consolidated performance reflects the meaningful progress we've made to return critical markets to sustainable revenue and income growth.

Although some of our larger markets face challenging headwinds as we enter 2016, we expect continued positive top-line momentum across all segments.

We're focused on what we can control and committed to elevating every aspect of the customer experience.

This is about running great restaurants, and our entire system is rallying around this essential imperative every day.

The steps we've taken have driven notable improvements in many larger markets, but there's more work to be done.

2016 will be about continuing to execute our turnaround plans.

We'll concentrate on fortifying the fundamentals of our business as we deliver what people want and expect from McDonald's today while establishing the foundation for future growth.

Thanks, everyone, and now I'll turn it over to Kevin.

Thanks, Steve, and hello, everyone.

As Steve mentioned, the strategic actions we took in 2015 were critical to restoring momentum in our business and charting our path forward.

Fourth quarter played a key role in both areas.

Today I'd like to discuss the drivers of our fourth-quarter results, review our outlook for 2016, and provide an update on progress we've made on financial decisions announced in November.

Let's start with a look at fourth-quarter results.

As Steve indicated we delivered solid comparable sales and operating income growth for the quarter.

The increase in fourth-quarter operating income reflects the benefit of positive comparable sales across all segments, a testament to the early impact of our turnaround efforts.

Fourth-quarter results also reflected various current and prior-year items outside of our normal operations.

Relative to the prior year, these items included a comparison against results which were negatively impacted by the China supplier issue and an increase in our tax reserves.

In the current year, these items included a gain of $135 million from the sale of a US restaurant property and asset impairment charges of about $70 million in conjunction with our global refranchising efforts.

Excluding the impact of these current and prior year items, fourth-quarter earnings per share would've increased $0.13 or 10% in constant currencies.

Top-line performance continues to have the biggest impact on our margins, and it's one of the best indicators of the strength of our underlying business.

With more than 80% of our global restaurants franchised, the largest driver of operating income continues to be our franchise margins, which totaled $1.9 billion, a 9% increase in constant currencies for the quarter.

The franchise margin percent increased 50 basis points to 82%, driven primarily by the solid comparable sales in the US and International Lead markets.

Global Company-operated margin dollars increased 8% in constant currencies to $612 million for the quarter, while the Company-operated margin percent increased 80 basis points to 15.2%.

Comparison against challenging prior-year results in the high growth and foundational segments accounted for the majority of the margin improvement for the quarter.

Partly offsetting these margin gains were higher incremental labor costs in the US, reflecting the ongoing impact from our decision earlier in the year to increase crew wages and benefits.

These costs, along with minimum-wage increases mandated by several states during the year, negatively impacted fourth-quarter US margins by about 350 basis points, consistent with our expectations.

Solid comparable sales growth and favorable commodity costs helped minimize the impact of this labor pressure.

For the quarter, US commodity costs decreased about 1%, primarily due to lower beef costs.

Looking ahead, US Company-operated margins for the first half of 2016 will continue to be impacted by labor pressures of a similar magnitude in both first and second quarters.

To offset some of this inflationary pressure our US fourth-quarter pricing year-over-year was up over 2%, placing our full-year pricing below food away from home inflation of around 2.5%.

2016 food away from home inflation is projected to be between 2.5% and 3.5%.

Commodity costs for the International Lead segment were up about 1% in the quarter.

While price increases vary by market, year-over-year increases for these markets averaged 1% to 3%.

Looking ahead to full-year 2016, commodity costs for the International Lead segment are expected to be relatively flat while US commodities are expected to decline 1% to 2%.

G&A for the fourth quarter totaled $675 million, up 7% in constant currencies due to higher incentive-based compensation versus the prior year.

Excluding incentive-based compensation, G&A for the quarter decreased as expected.

For the full year 2016, G&A is expected to decrease about 1% to 2% in constant currencies.

We expect G&A increases in the second and third quarters due to our worldwide convention in April and the Summer Olympics in August.

Foreign currencies negatively impacted fourth-quarter EPS by $0.11 and the full year by $0.50.

At current exchange rates, there would be less pressure in 2016, with an expected negative impact on first quarter of $0.04 to $0.06 and full year of $0.18 to $0.20.

As always, please take this as directional guidance only, because rates will change as we move throughout the year.

Now I'd like to provide an update on the progress we made in 2015 on our financial decisions announced in November around G&A, refranchising, and our capital structure.

Starting with our G&A spend, in November we disclosed our net annual G&A savings target of $500 million from our G&A base of $2.6 billion at the beginning of 2015.

This target excludes the impact of foreign currency changes.

We expect to realize $150 million in savings by the end of 2016, with about half of these savings already achieved in 2015.

We anticipate completing the vast majority of the remaining $350 million in savings by the end of 2017.

Developing our ownership strategy is also a fundamental component of our turnaround efforts and the catalyst for our decision to re-franchise about 4,000 restaurants by the end of 2018.

While our refranchising target implies approximately 1,000 restaurants per year, we expect variability around this average within a given year, as we work to balance the necessary time needed to select the best franchisees with our desire to execute our refranchising plans in an expedient manner.

During 2015 we refranchised about 470 restaurants, and we're currently making progress toward completing the sale of two international markets to developmental licensees that will include the refranchising of over 400 restaurants.

As part of our evaluation of ownership strategies around the world, we have been reviewing our ownership levels in all markets.

In conjunction with this effort, we're exploring the sale of a portion of our ownership in McDonald's Japan, if we identify a strategic investor who could help advance Japan's turnaround efforts and unlock our growth potential with a view of enhancing value for all stakeholders.

We're in the early stages of the process and taking a thoughtful approach.

We have an experienced and talented management team and a strong group of franchisees, all of whom are committed to enhancing our brand and supporting our turnaround in Japan with the Japanese consumer in mind.

Right now we're focused on exploring the viability of finding the appropriate strategic investor.

We are confident that whatever may transpire with our ownership, McDonald's Corporation and McDonald's Japan will continue to have a franchisor/franchisee relationship intended to promote McDonald's brand and business in Japan.

We remain confident in the McDonald's Japan business for the long term and their commitment to revitalizing the brand in Japan.

In connection with executing against our refranchising and G&A targets, during 2016 we may incur incremental strategic charges associated with asset dispositions and restructuring.

In November we also committed to optimizing our capital structure.

One month later we added $6 billion of debt to our balance sheet with an average tenor of over 15 years and an average coupon of 3.8%.

We will likely have further debt additions during 2016 as we expect to return a total of about $30 billion to shareholders for the three-year period ending 2016.

For the three years ended 2015, we returned $15.8 billion to shareholders, leaving about $14 billion in combined dividends and share repurchases to be completed in 2016.

Collectively, our refranchising efforts, G&A management, and capital structure optimization will contribute to our goal of enhancing long-term financial value for our system and our shareholders.

In addition to moving forward on these financial decisions, we're maintaining a balanced and measured approach of investing in our business to drive future growth.

For 2016, we expect capital expenditures of approximately $2 billion, split fairly evenly between opening about 1,000 new restaurants and reinvesting in existing restaurants.

The majority of our new store capital is earmarked for the International Lead and High Growth markets, while roughly half of our reinvestment capital will be devoted to US restaurants.

As we begin the new year we're encouraged by our recent results; however, our financial performance in the coming year is not likely to be linear.

As we move through 2016, we expect some variability in our quarterly results due to uneven prior-year comparisons and some headwinds that exist, including macroeconomic issues in some of our High Growth markets and challenging guest counts in the US, Germany, and France.

Generating sustained positive guest traffic in these markets and around the world remains a top priority for 2016.

We also anticipate limited pricing power in several of our markets as a relatively benign commodity outlook and low inflation could impact our ability to influence increase menu board prices.

In closing, we begin 2016 in a stronger position, positive top- and bottom-line momentum across all segments, and greater alignment with franchisees around our near-term path forward.

We are committed to executing our turnaround plan, which starts with the diligent execution of operating great restaurants on a daily basis.

At the same time, we remain confident in our ability to execute against our financial decisions and evolve to a leaner, more heavily franchised business that generates long-term value for our shareholders.

Thanks.

Now I'll turn it over to Chris to begin our Q&A.

Thanks, Kevin.

We will now open the call for analyst and investor questions.

(Operator Instructions)

Andrew Charles, Cowen and Company.

Great.

Thanks.

Mike, or if you're on the line, Steve as well, could you talk about the decision to run the January and February value platform at $2, as it seemed most quick-service sandwich operators are running promos in the $4 to $6 range prior to the introduction?

As well as the margin profile of what McPick 2 looks like as well.

Yes, there is no Mike here at the moment, so Steve here, so I'll try and answer this one for you, Andrew.

Yes, we launched on January 4. We know that around 25% of our customers are value conscious, and that's value at a number of price points but certainly at the entry level.

We like the construct of McPick 2. It's very early days.

There's not a trading information that we can particularly share right now, but we know that the choice and the flexibility that we offer with two items at that compelling price point is attractive.

As you say, others have chosen a different price point to go in and bundle more items into it.

We think that choosing two out of the four items we have on that menu gives that right balance we're seeking.

It's simple; it's easy for the customer; it gives them the choice and the flexibility.

Through the course of a handful of weeks, we'll certainly read the consumer response to it.

We'll analyze the business results for it and continue to work on developing the right value platform for us on an ongoing basis.

The lead item on it is the double cheeseburger.

That's sold well; but also the mozzarella sticks are going down really, really well.

And it's a great add-on item, so it's an incremental profit driver, if you'd like, both within the McPick 2 but also as an add-on item on its own.

Brian Bittner, Oppenheimer.

Thank you very much.

As you think about the outperformance that you saw against the industry in the fourth quarter of almost 300 basis points, did you see this trend as a pop in the fourth quarter, maybe driven by the euphoria of All Day Breakfast and maybe expect it to settle in at a more moderate performance trend?

Or do you see this as something, in collaboration with all your initiatives, as something that is somewhat sustainable against your peers?

Well, certainly the idea of outperforming is something we want to maintain.

We entered the quarter with good momentum in our business.

Clearly that was accelerated through the fourth quarter.

As we've said, All Day Breakfast was a primary driver of that, but not the sole driver.

So it exceeded our launch expectations; the period of time for which it exceeded our launch expectations was also a little longer than we had projected, but we do expect it to settle down.

And that's why we're working on a number of other initiatives in the business, to follow that up.

So this is not a -- we don't want this to be a single-initiative turnaround plan.

So the continued investment in food quality, the development of this value platform, and as we continue to reinvest in the fabric of our restaurants, we're confident the in-store experience will continue to improve.

The operational improvements we're seeing for the drive-thru around order accuracy in particular we see as paying dividends.

Early days after launching a number of initiatives around people; we're beginning to see our staff turnover decrease quite noticeably as well, which we believe helps us deliver a better [day's] experience.

So there's a number of dimensions to it.

All Day Breakfast is understandably more of a headline grabber; it will settle down a little from its launch phase.

But we believe that building these other platforms of growth on top of that will keep us competitive in the marketplace and taking share.

Karen Short, Deutsche Bank.

Hi, just following on that question, I was just curious in terms of the layers of momentum.

You didn't -- you haven't really given an update on the app.

Then also wondering if you could give an update on the US, I guess, Experience of the Future.

I think you were at 130 units in November.

Thanks.

Yes, hi, Karen.

So on the app, it's still early days for us, but for us, it's -- what we can offer in the future is exciting.

What we're actually delivering now is really just the start.

We only really launched the app here in the US at the end of the third quarter last year.

But within three months we've had over 7 million downloads, which I think just starts to signal the magnitude that we can build to as we develop offers and functionality way beyond the basic.

At the moment, it's largely offer-based, and we're seeing those downloads being activated by customers and redeeming the offers in the restaurant, so we believe it's driving behavior.

We're able to follow consumers' behavior easier, because we can read the data from it.

But certainly as we build the capability of the app, we think it's going to get increasingly compelling and be a growth engine.

I would say that for the first time here at McDonald's we have built in a trading increase, an incremental sales expectation based on our digital platform.

It's a little modest in 2016, but we see it actually contributing to the business growth and being a platform that's going to deliver for many years to come as we can understand our consumer behavior and be more rewarding to them.

With regards to the second piece, the Experience of the Future, we have around five markets up and running, as you say, with about 130 restaurants.

We're certainly looking to expand not necessarily those markets, but into new markets at a larger scale.

The US will again pick some lead regions.

This is where the regional strength of the US really comes to the fore.

We've got 23 regions here in the US; we'll be picking two or three of those to really look to accelerate their version here in the US of the Experience of the Future through 2016 and into 2017.

But they will be adopting a slightly different approach in those three regions so we can actually learn in the market here what truly resonates with customers, what the business results are, and the future potential.

So I'd also -- given our new structure now, we're learning so rapidly from the way that the Australians have built their business, Canada building theirs, the UK, France in particular theirs that we are rich in insight, which is helping each other make smarter decisions and shorten the timeline.

So we'll certainly share more, but at the moment the majority of our growth that we're building into the US performance through 2016 is through continuing to deliver against the basics of our turnaround plan.

David Tarantino, Robert W. Baird.

Hi, good morning.

My question is on the US comps momentum you saw in the fourth quarter, which was very impressive.

I was wondering, Steve, if you could help to dissect what some of the drivers were.

In particular if you could help to quantify what you think the lift from All Day Breakfast might have been during the quarter, and also the weather impact.

And then -- that's question number one.

Then as a follow-up, perhaps if you could talk about some of the structural improvements you are seeing with the drive-thru simplification, if you are starting to see some progress on the speed of service there.

Thanks.

Yes, thanks, David.

We don't want to give specifics on the respective drivers, but the piece that I want to make sure we don't lose is that we were building momentum heading into the quarter and heading into the launch of All Day Breakfast.

I won't necessarily do a full laundry list of the work the team had done, but certainly around the fundamentals of delivering a better, high-quality food experience day in and day out.

You've heard me talk about the devil is in the detail always, around toasting of the buns and searing of the beef.

And when you ally that with investing in the types of quality investments that customers care about, such as whether it was the antibiotics move we made in the poultry supply chain, or the announcement that we are on our journey of going to cage-free eggs, that just creates a buzz.

And when customers know that you care about the same things that they care about, then they just respond with their business.

All Day Breakfast was clearly the primary driver of the quarter.

We knew it would be.

We focused the restaurants both operationally, marketing, and merchandising on that.

As I say, through the launch phase, yes, it helped contribute materially to the quarter, absolutely no doubt.

We hit peaks; we exceeded the sales contribution that we had projected.

And as I say, it lasted longer through the quarter than a typical launch period does.

But inevitably it settled down as we introduce other initiatives into the restaurants through 2016.

The weather was noticeable, but not material.

But I just thought it was appropriate and transparent to reference it because it did give us a positive contribution, not just in the US but in many of our major markets around the world.

That did provide a helpful tailwind that I thought would be fair to recognize and just acknowledge.

In terms of the drive-thru in particular, certainly the streamlined menu boards have made life easier for our customers and made life easier for our managers and crew in their restaurants.

So that experience has simplified and helped speed things up.

Alongside, the greatest barrier to the overall service experience in the drive-thru we have identified as order accuracy.

So the teams, the operational teams have been working really hard on an initiative that -- again I won't go into detail; we call it Ask, Ask, Tell.

It's just the way that we -- the ordering experience for the customer where we can just confirm twice over that we captured the order right and that we're presenting exactly the right order to the customers before they drive off.

We're finding that has noticeably improved order accuracy, which in turn improves speed and clearly customer satisfaction.

So we've got plenty more to do.

We will be working through and continue to challenge the menu and if there's further simplification areas there.

But simplification goes way beyond that.

There's been through packaging, through merchandising, through marketing, where we can help the restaurant teams by taking workload off of them so they can focus on the fundamentals of what they want, which is just serving customers.

David Palmer, RBC.

Thanks.

In your last turnaround, the one in the early 2000s, clearly there was a focus or a refocus on service execution.

You were just touching on some of that.

So if you have any numbers on customer satisfaction today or in future quarters, I think that will be really helpful for people to get their head around the sustainability of the turn that may be starting with All Day Breakfast trial and bringing back those lapsed users.

On the premium platform innovation front, do you feel like you're using this window perhaps being created by All Day Breakfast to give yourself a pace of testing that is greater and such that you're building that pipeline for 2017 and beyond?

And if so, how is that looking and what's giving you confidence there?

Thanks.

Yes, hi, David.

In terms of customer satisfaction, obviously we've got a number of different ways that we can monitor customer satisfaction; and we have one or two different systems around the world.

There's not a consistent measure as we speak.

But we've moved and transitioned to a new customer satisfaction measure here which we call the Voice, which is actually -- we're gathering a multiple number of customer feedbacks compared to where we were previously.

Sorry; I didn't explain that very well.

We're getting a lot more consumer feedback than we ever have done is a better way of saying it.

Certainly we're seeing overall satisfaction improving both in drive-thru and in-store, and we're certainly seeing order accuracy in the drive-thru.

We're around -- the actual satisfaction on speed is improving.

Our speed times haven't improved as much as satisfaction has done, so we want to work operationally to physically speed up the service experience.

But at the same time, customers are reporting a greater satisfaction with the speed, which is very encouraging, so it means the overall experience is working for them.

In terms on the premium side, yes, absolutely.

As you gather momentum and you start to get these growth drivers that you can layer upon each other, it means you can raise your head and look a little further out in the way that you plan and develop the business.

So on the premium side -- and by the way, each market doesn't have to work in isolation, so we have a number of initiatives around the world, whether it's Create Your Taste in Australia, a new premium range of signature burgers in the UK, a similar version of that within France, for example, and we have these sophisticated, well-executed rollouts across those markets, all of which is helping to inform us of where we head with Experience of the Future.

What we do now is customization is important.

We don't know quite how much customization customers truly wish.

They like a little bit of flexibility, but they don't want you to overcomplicate it; so we're working on that, for example.

We're working on the manner in which customers can order those premium burgers, away from the traditional just through the drive-thru or at the front counter.

That's where self-order kiosks and potentially even table service comes into play.

But again, we're getting a really good read on progress in some of our other mature and lead markets, and that's certainly helping shape and inform the thinking here in the US.

So more to come; I'll be using the time to work on developing that platform.

Absolutely; yes, we are.

Greg Badishkanian, Citibank.

Great.

Thanks.

Just trying to understand where you're getting your new customers from which is lifting same-store sales.

You had two big introductions: the 2 for $2, the All Day Breakfast.

Do you think you're gaining -- are you getting those from burger operators, overall QSR, the broader restaurant category?

And just define each one.

I think you might be getting different customers for each of those two programs.

Yes, hi, Greg.

I think we've been pretty clear that as we go through the revitalize stage of this turnaround the market share that we're looking to recover and grow is in our more immediate competitive group, so that QSR segment.

Then as we strengthen and ultimately want to get back to leadership position that we aspire to, I think that growth will come from broader IEO.

At the moment, the initial momentum we're seeing typically around the world is coming from QSR.

Some of that is recovering share we've lost as well, so that's certainly heartening for us.

I would say potentially one slight difference from that is around All Day Breakfast which -- where we're capturing customers with really what is a different occasion now, -- and that is new to us at McDonald's.

I think the customers where the incremental business and the incremental visits we're getting are probably from the broader IEO segment.

But typically our focus on this initial stage of the turnaround is around winning near-in market share, and recovering what we've lost, and getting into a period of outperformance.

John Glass, Morgan Stanley.

Thanks very much.

Just two related -- somewhat related -- maybe actually unrelated.

But one is on the pricing: you talked about being cautious on pricing overall.

However in the US I think you said the food away from home inflation was going to run some 2-plus-%.

So are you saying that you feel good about pricing in the US given that inflationary level and it's maybe elsewhere?

Maybe talk about how you think about US pricing specifically.

Then just to clarify the SG&A, if you take it down 1% to 2% from 2015 levels it's not going to match the $150 million you're saving; it's more like $50 million.

So is that because you're not including the operator conference and the Olympics in that calculation -- that's sort of a one-off or not factored into that $500 million?

Or how do we think about that?

Thanks, John.

Let me start with the pricing because we think about pricing relatively similarly around the world.

And that is, we look at a whole bunch of factors to influence our pricing.

That includes food inflation, GDP growth, our internal cost inflation, etc., similar to how the US would do it.

So for 2015, we said that the US increased their prices a little over 2% compared to food away from home inflation of around 2.5%; and that for 2016 food away from home inflation is expected to be 2.5% to 3.5%, so we would continue to think about pricing in a similar way as we've been, and keep an eye on that food away from home inflation -- as well as food at home inflation, just to make sure that we're not getting out of whack with that.

Related to the G&A, the way we look at it is we saved I'll say a little more than half of that $150 million in 2015, which means that we go into 2016 with our base or run rate of those savings built in.

We'll look at 2016 similarly.

So while we may not get all of those actual savings realized in 2016, we'll have it out of our base by the end of 2016, so that as we go into 2017 we're going in with a base that's $150 million less than where we started at the $2.6 billion.

And that's a net number, so that includes the Olympics, convention, all the additional costs in there also.

Nicole Miller Regan, Piper Jaffray.

Thanks; good morning.

Going back to mobile, you said 7 million downloads, I believe.

Is that since you launched?

How many have redeemed offers?

And what can you tell us about the profile?

And then just a final thought on mobile.

I believe if I understood correctly, you earlier said it's modestly in the guidance.

What is giving you that conviction to make that comment?

Is this a new customer?

Is a loyal customer that's spending more?

Just what are they doing?

Thanks.

Can you just repeat that second part of the question, Nicole?

Sorry; about something in the balance?

Why convictions were including (multiple speakers) --

Okay, okay, someone's explained it here.

Right; so two parts of that question.

There are a number of metrics that we will follow through and we follow closely on a weekly basis, daily and weekly basis on the app.

One is clearly the downloads; then you want the registration numbers; and then you want to see the activity.

So we have 7 million downloads, which gives people access to things like restaurant locator, nutritional information, and the rest.

As they start to share their information and get confident with us, clearly then they will start to register and we can then communicate.

If they notify us of their local restaurant or their preferred restaurant, then we can start to localize the offers to them; and then we start to see the behavior.

We're seeing higher registration rates than industry norm from those downloads, and we're also then tracking effectively frequency of usage.

We're trying to encourage that with things like loyalty plays, such as buy any five McCafes of any size and you get one free.

So it's a fairly basic loyalty play just to get people familiar with using it and actively using it and keeping it on their phones, basically.

The reason we have built a sales build into 2016 is because we have seen the incremental business.

We've seen the incremental average check of redemptions -- so when people redeem an offer we're actually seeing a higher average check than we had expected to see.

So we can see there's an incremental business driver; plus we've got other initiatives that will both scale the number of customers and usage but also enhance the overall experience as well, which will encourage people to return to the app more often and clearly, hopefully, return to McDonald's more often.

We have it really -- we have it week by week and month by month as a build, and we'll be able to clearly update ourselves on whether we're hitting those projections.

But it will be a helpful contributor to sales in 2016 and will help guide us around the world beyond that to actually derive that return on the investment we're making in this digital strategy as a whole.

Joe Buckley, Bank of America Merrill Lynch.

Thank you.

I'd like to ask two related questions on plans.

First, with respect to the US turnaround and the sustainability of the US turnaround, can you talk about some of the pipeline of ideas?

You mentioned platforms a couple of times.

If you could be a little bit more specific about how you're thinking about product news and innovation to sustain the US comp.

Then a little bit longer term, you've referenced in the past that you would be sharing a longer-term strategy at the worldwide owner-operator conference in April and probably sharing that with the Street sometime thereafter.

I guess I was curious if that was still the game plan and if you can put any outline or any meat around what we might hear.

Okay, Joe.

Confidence as we build through 2016 in the US, clearly we're planning for growth and we have a very robust plan that the team has build.

So that gives us confidence.

We will continue to work the breakfast platform and beverage platform hard.

[Anyways] is an important daypart for us, and then the All Day Breakfast is a further growth opportunity which we are going to continue to work hard through 2016.

Getting the value platform right will be important to us.

That's why we're taking a very serious look at it and learning from it before we then go into a national and permanent launch phase.

But we feel good about where we're at, at the moment.

You can expect to see us also focus more on our core menu.

We're very proud of the menu and we believe there is -- these are iconic and real popular assets that we believe that we could probably do a better job with and bring to life.

We'll continue to invest in the ingredients and the food quality and create some fun around that.

You can expect to see that.

To create fun around the brand you will also expect us to return to one or two of the promotional mechanics we have.

We've got opportunities throughout the year to just bring in some variety and some fun around promotional activity, shorter-term promotional activity, just to help provide that balance across the menu.

So I think -- and then with the digital platform layering on top of that, we believe we are building a platform that will continue to grow through 2016 but will also take us into 2017 and beyond.

As we develop and better articulate here in the US our Experience of the Future, that is something we know the system is excited about; we know it's creating a lot of energy and momentum elsewhere around the world.

And getting that right and the business model right and actually getting the right elements of that for the customer here in the US is going to be important to us.

We're excited about what we're going to learn in 2016, because we believe that's going to contribute to 2017 and beyond.

In terms of the long-term strategy, I guess what we would want to see is -- we've had two quarters of growth in this turnaround, so we would certainly be looking to see another quarter or two before we ourselves start to move from the turnaround plan into a longer-term growth plan.

What I can tell you is that we have a small and senior team looking at developing what that growth plan looks like, the elements of it, the brand positioning of it, and the vision behind it.

But it's a small team that's working discreetly on it, because at the moment the entire organization globally is focused on the turnaround.

So whether it's later in the second quarter or sometime into the third quarter, I would say by around the middle of the year, when we get confident that it's the right time to transition from turnaround into growth, we'll share that internally and soon after externally.

Karen Holthouse, Goldman Sachs.

Hi, thank you for taking the question.

Looking at the remodel CapEx going into US stores, can you give us a sense of where the majority of those dollars are going?

Is it more going to cleaning up longer-tailed stores that maybe haven't been reinvested in recently, or more specific initiatives around kiosks or digital menu boards or something like that?

Yes, Karen.

For 2016, we said that about half of the reinvestment around the world will be reinvested in the US.

That consists of several buckets, if you will.

It's probably 400 to 500 re-images in 2016; about 90 rebuilds where we kind of tear down the restaurant and put up a new one.

It also would include capacity enhancements, things like putting in side-by-side drive-thrus as well as our normal maintenance CapEx.

It also would include digital menu boards in substantially all the restaurants in the US.

So it consists of several of those components that would comprise the total reinvestment in the US.

Jeff Farmer, Wells Fargo.

Great; thank you.

As the US same-store sales recovery continues to build momentum, how should we be thinking about the pace of a potential restaurant-level margin recovery?

Just a little color on that.

You guys have obviously given us some color on not only cost of goods sold for 2016, some of the incremental labor pressure that you introduced midway through last year.

But is there anything preventing you from returning to the high-teens US restaurant-level margins over the next couple of years?

Again, big caveat, I understand.

But assuming you guys can continue to deliver some top-line momentum, can we see these high-teens restaurant-level margins again in the US?

Yes, thanks, Jeff.

As you know and we talk about pretty often, margins for us are a top-line game.

I mentioned that we'll have some pressure first and second quarter in 2016 as we round out the additional labor costs that we have from the decision we made to increase wages for our restaurant crew.

But with benign commodity costs, relatively reasonable inflation, and hopefully some pricing capability, it will come down to what kind of comps we're able to achieve to determine whether we can grow margins.

I think what fourth quarter should have shown everyone is, even with those labor pressures, when we have good comps -- again, depending on where commodities are -- we're able to offset a lot of those pressures.

So it really does come down to continuing to grow comps.

Jeff Bernstein, Barclays.

Great; thank you very much.

Just a follow-on, on that question.

Just wondering how you actually think about the interplay of commodity and labor costs, especially as you look at the offerings going forward.

Right now, obviously, it's commodity down, labor up; but I'm just wondering.

Is pricing easier this way, or would you prefer if it was the reverse?

I think you mentioned from a food standpoint that food away from home is still 2.5% to 3.5%, and you're going to be less than that.

But food at home seems like it's well below that entirely.

So I'm just wondering how you think about those two buckets, being that they're similar in size, and the concern you might have on even pricing at that 2%-plus level.

Thanks.

Yes, it's a good point in that I don't want to oversimplify how we look at pricing.

We have to look at, to your point, beyond just food away from home as one piece of information.

Food at home, exactly as you mentioned, is clearly below food away from home right now.

So we look at food inflation in total because we need to make sure that home is the competitor and people could be leaving us, if you will, to eat more at home.

But we have to look at all costs, food and labor, to determine pricing.

And it also comes into play of what our competitors are doing, the demographics where we are.

So there's a lot of things that go into determining pricing.

I don't know if I'd pick one or another as far as whether I'd rather have labor or food be high cost, if you will.

Just one point I would add to that, Jeff, as well, is whilst we will clearly build an assumption into our plans -- because that's how we set our plans -- we don't make a single pricing decision just once a year.

We make decisions across the year.

So we can always gauge the consumer, consumer confidence, where our costs are going, and where the competitive environment is and do our best clearly to make the right decision.

So we have multiple opportunities across the year to reassess and make sure that we're certainly seizing the opportunity but without taking it too far.

We have time for one more question.

Jason West, Credit Suisse.

Yes, thanks, guys.

Just on the market share number, can you give the two components of that, the McDonald's number and the equivalent calculation, and then the industry number that you saw to get to the 2.9%?

And then, Steve, just big picture on that same-store sales trajectory, we've been dealing with challenging markets around the world it feels like for several years now.

You guys are starting to see momentum despite that, but it feels like the volatility and the challenges only seem to get worse each year.

So how does that affect you guys going forward?

Do you think we're still in the environment we've been in?

Or have things externally maybe gotten a bit worse?

Thanks.

Okay.

In terms of the market share data, then, we would take across pretty much the 14-week period that our growth would be up 5.7%; and the QSR sandwich segment ex-McDonald's would be 2.8%; giving us the differential of 2.9%.

So overall growth in the market; we were outperforming that clearly.

In terms of around the world, yes, I mean we want to be careful that we don't sound too anxious and create a concern around headwinds and what have you.

Because so much of our ability to grow is in our own hands, and we're really focusing on what we can control.

We have noticed -- and we have a history of being successful in many, many countries around the world through strong economic times as well as challenging economic times, as well as long as we do the right thing by the customer.

So overall, we are confident heading into this year.

We've been through the plan in detail of our largest nine or 10 markets and I'm confident they will deliver the growth to a level that we are satisfied and we're challenging ourselves hard on it.

But I also want to be pragmatic.

In France in the moment for example, it's tough.

IEO has decreased for five years in a row.

So if you're going to grow the business you really have to take a significant amount of share in a declining market for that to translate into a top-line growth.

And to do that you don't want to throw yourself out of your longer-term strategy and the brand-building they've done.

So I think there are some realities that it's right for us just to be a little cautious about.

But if I take a look at the collective across the US, across the Lead markets and the High Growth markets, we are building plans and certainly on a consolidated basis with an expectation of growing.

But as you all know from the markets even the start of this year, volatility just creates a scrappier environment and a little bit of nervousness, whether it's across the investor community and sometimes in certain markets across customers.

So we need to be mindful and sensitive to that.

China is a good example where that kind of volatility in the marketplace just creates a little bit of anxiety.

So that's why we want to reinforce our confidence in that market, in growing our core business as well as incremental units and new store growth.

So we're mindful.

We stay close.

But we remain quietly confident.

We're at the top of the hour, so I'll turn it over to Steve, who has a few closing comments.

Thanks, Chris, and again thanks to all of you for joining us this morning.

2015 was a year of change.

We're running McDonald's differently and building on our unique advantages as we strive to become a modern and progressive burger company.

Our fourth-quarter results reflect the meaningful progress we've made.

And whilst there is more work to be done, we are on the right path.

We're focused on our customers and delivering what matters most to them: hot fresh food, fast friendly service, in a contemporary environment, all at the value of McDonald's.

I am confident in our ability to sustain our positive momentum as we continue to execute our turnaround plans into 2016.

And I'm excited about our longer-term opportunities to strengthen our business and reassert McDonald's as the global leader we know we are.

Thanks, and everyone have a great day.

This concludes McDonald's Corporation's investor conference call.