“Business
continues to grow, as demonstrated by third quarter performance. While global
comparable sales of 0.9% were not as high as we’d like, operating income grew
6% in constant currencies and earnings per share was $1.52, a 7% increase in
constant currencies” Don Thompson, President and Chief Executive Officer.
Looking
at the Business across the Globe
U.S.:
Comparable sales were up 0.7% for the
quarter, and operating income increased 5%. We accelerated the timing of our
Monopoly promotion in an effort to further increase awareness and encourage
trial of recent new product introductions like Quarter Pounder line sandwiches
and the new McWraps. Monopoly also reminds customers about our core menu
classics. It drives traffic and builds average check while also engaging
customers in a fun and familiar game experience that’s only available at
McDonald’s.
We also introduced Mighty Wings in the
third quarter as a limited time offer. This bold new flavor addition to our
U.S. menu originated in China and Hong Kong and has encouraged trade up to
increase average check. While overall performance of Monopoly and Mighty Wings
met our internal targets, it was not strong enough to offset current guest
count trends.
Our promotions and new products are
complemented by our consistent value approach to offer affordable variety and
choice across the menu. The Dollar Menu remains core to our high-low strategy,
with products like the Grilled Onion Cheddar Burger and the popular McChicken
are continuing to generate strong demand at the $1 price point.
As we celebrate the 10-year anniversary
of the Dollar Menu, we’re leveraging the equity we’ve built to ensure we
continue to satisfy our customers’ expectations for affordability. The new
Dollar Menu and More platform is designed to provide every day, predictable
value beyond the $1 price point and will be supported with the weight of our
national advertising. The sandwich lineup which ranges from $1 to $2 adds new
flavors and tastes to complement our existing favorites and provide additional
pricing flexibility for the McDouble.
Europe:
Europe, where comparable sales were up
20 basis points for the quarter and operating income grew 8% in constant
currencies. These results reflect strong performance in the U.K. and Russia and
solid performance in France. Negative trends in Germany continue amid the
highly competitive environment.
U.K.:
The U.K.’s business momentum remains
strong, and we continue to grow market share. This growth has been supported by
our expanded beverage lineup and an ongoing breakfast focus. This month, we’re
launching Mocha in the U.K. and using this opportunity to introduce the McCafe
brand across our entire range of espresso-based coffees. Following the
successful launch of McCafe iced smoothies and frappes over the summer, this
represents a significant step in our journey to become a beverage destination
in the U.K.
Russia:
Russia delivered positive performance in
the third quarter despite the lower inflationary environment that continues to
limit our ability to take price. Successful food offers such as tastes of the
season and the Ciabatta Beef Burger helped boost results for the quarter.
France:
France also delivered positive results
for the quarter, marking its first positive quarter of comparable sales since
the third quarter of 2012. The market continues to grow share in contracting industry. A core menu focus, supported by strong marketing
execution and an ongoing emphasis on affordability helped to drive our
performance.
Germany:
Germany’s performance remains weak, as
negative comparable sales and traffic trends continued through the third
quarter. Competitive activity remains aggressive, and a decline in the IEO
category persist as the industry grapples with price-sensitive consumers.
Today, affordability, and specifically price value, is key in Germany. We
continue to evolve the balance between our base value and premium offers across
the menu to address the near term needs of the marketplace.
Asia
Pacific, the Middle East, and Africa, or APMEA:
Comparable sales were down 1.4% for the
quarter, and operating income decreased 4% in constant currencies. Performance
across our big three markets remains challenging, this reflects tough
macroeconomic conditions along with the performance of recent new products and
promotions that were unable to overcome our current negative guest count
momentum.
Across APMEA, we remain focused on
driving performance through consistent price value offers, accelerating growth
of key day parts, particularly breakfast and overnight, and by leveraging brand
extension to enhance the service and convenience of the McDonald’s experience.
Australia continues to balance new
product news and strong promotional activity to appeal to customers in a highly
competitive environment. Looking ahead, Australia is targeting opportunities in
chicken and the family business to broaden customer appeal.
Japan’s negative comparable sales and
traffic trends persist. We’re committed to making improvements to our value
platform in the near term in an effort to appeal to consumers who remain
extremely price sensitive in this deflationary environment. At the same time,
we’re introducing new products and promotions to create excitement and attract
customers into our restaurants.
In China, comparable sales were down
3.2% for the quarter. As a key emerging market, China has significant long term
opportunities across all three of our growth priorities. We’re also evolving
our value platform to give it greater reach across day parts and meal
occasions. At the same time, we’re using limited time offers and promotions to
create energy around new menu news. And, we’re leveraging brand extensions like
kiosks and McCafes to reach our customers when, where, and how they want the
McDonald’s experience the most.
Expectations
for the remainder of this year:
On the first quarter call in April, I
said that we expected company operated margins to be pressured throughout 2013,
though the margin decline should be less pronounced than in the first quarter,
as sales comparisons ease in upcoming quarters.
Though sales comparisons have eased and
will continue to do so, our current sales trends are a stronger predictor of
future performance than prior year comparisons. As a result, based on what we
know today, we expect fourth quarter global comparable sales performance to be
in line with recent quarterly trends and restaurant margin percentage declines,
both McOpCo and franchised, to be at a level relatively similar to first
quarter declines.
We’re wrapping up our planning cycle
over the next few weeks, and we look forward to sharing some of our 2014
outlook with you at our November investor meeting next month
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