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McDonald’s Looks to Save $1 Billion by Slowing Pace of Remodels

By Rich Duprey – Apr 9, 2020 at 12:27PM

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The upgrade program has been the cornerstone of the restaurant operator's growth.

McDonald's (MCD -0.42%) first-quarter results weren't nearly as bad as one might expect, because the downdraft experienced in March when the coronavirus pandemic set in was offset by better the better results from January and February.

Yet President and CEO Chris Kempczinski is ensuring the company has plenty of liquidity to survive the crisis by announcing a series of moves to preserve its financial flexibility, including raising $6.5 billion in the debt markets and putting the brakes on McDonald's restaurant remodeling program.

The exterior of McDonald's.

Image source: McDonald's.

Upgrades put on hold

The Experience of the Future (EOF) program has been a key component of McDonald's Velocity Growth Plan, which launched in 2017 to retain the customers it has and bring back those who left over the years.

The EOF remodels result in new interiors, self-ordering kiosks, curbside pick-up, and AI-powered menu ordering boards at its drive-through lanes. Yet the upgrades are expensive, even though nearly 10,000 of McDonald's 14,000 restaurants have already been converted.

Kempczinski said in a statement, "While the disruption means our business is faced with immediate challenges, we believe our agility has positioned us well to adapt and continue to serve customers where it is safe to do so."

In addition to slowing restaurant upgrades, McDonald's is also reducing the pace of new restaurant openings in most markets.

The restaurant operator says around 75% of its restaurants globally are operational, and 99% of them in the U.S. are as well. Its domestic locations are also the most developed for enduring through the pandemic as they have a broad range of drive-through, pickup, and delivery options. Many of its restaurants in international markets have limited options, and all restaurants in France, the U.K., Spain, and Italy have been closed.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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