McDonald's (MCD 0.37%) released its first-quarter earnings report on April 22. Sales were down 2.3% across combined geographic segments, owing to decreasing customer traffic. However, the company's stock price has changed little following the quarterly report and conference call.
Here are five key takeaways from the call, in which CEO Steve Easterbrook, CFO Kevin Ozan, Chief Administrative Officer Pete Bensen, and Vice President for Investor Relations Chris Stent discussed the latest results and the future of the business.
Easterbrook's business philosophy and vision for McDonald's
Just months into Easterbrook's tenure as head of McDonald's, there are still many questions about his management style and vision for the company. This was Easterbrook's first conference call as CEO, and he spoke early on about his goals and operating principles for the company:
As a retail business, we must be even more customer-centric. This means deeper understanding, better listening, better segmentation, genuine sharp insights regarding what our customers want and need and when they want it, as determined from the smart use of data and analytics. We need to be the best at knowing what matters most to consumers, and we will focus our best talent and prioritize spending where it will optimally support our turnaround.
Easterbrook also indicated he would seek simplicity, a more efficient use of the company's scale advantage, and better responses to market conditions, then asserted the company's direction would not be confined by "legacy attitudes and legacy thinking." The CEO gave a bit more insight into his "modern, progressive burger company" philosophy, stating that it entails modernizing the brand and adapting to serve the customer base of the future.
McDonald's plans to make changes quickly
In response to turbulent store performance over the last year, McDonald's is emphasizing its willingness to move in new directions at a brisk pace. The company posted same-store sales declines across all of its major geographic segments in its first quarter, with sales falling 2.3% globally and 2.6% in the U.S. Declining customer traffic, failed promotions, and high renovation costs have also created a tense dynamic with franchisees. Easterbrook addressed the necessity of experimentation and quick action:
My third philosophy is progress over perfection. We will try new things, move fast with what works and even faster from what doesn't. And when we find winning plays, we will be more nimble, much like we did with the rollout of Apple Pay this last fall, from first contact to going live to 12 weeks. We can make meaningful changes for customers in weeks. We just have to do it more often.
Easterbrook said the company is targeting a growth-led turnaround, rather than one achieved primarily through improving operational efficiencies.
Global performance was disappointing, but with some bright spots
While declining U.S. same-store sales remain an issue for McDonald's, performance in other territories has been responsible for a greater share of the company's recent turbulence. Ozan broke down the global sales picture and gave some color on the company's Asia-Pacific Middle East Africa segment:
First-quarter comparable sales were down 2.3%, reflecting negative guest traffic across all of our geographic segments. APMEA's first-quarter comp sales decline of 8.3% had the largest impact on our global performance, with Japan and China posting declines of 32.3% and 4.8%, respectively. While these results are partly due to the lingering impact of the APMEA supplier issue, Japan's performance reflects the broad-based consumer perception challenges that the market is working to overcome. Japan accounts for the lion's share of this segment's quarterly comparable sales decline.
The company last quarter closed 350 underperforming stores, located mostly in China, Japan, and the U.S., but also noted that China saw sequential quarterly sales improvement. Sales rose in the U.K. for the 36th consecutive quarter and were up in Australia for the third consecutive quarter.
McDonald's is working on a mobile app and new marketing strategies
During the call, Easterbrook spoke frequently about better understanding and serving the modern consumer. The CEO stressed better utilization of data and analytics, as well as increased efforts to personalize advertising strategies, as ways that McDonald's can better understand and adapt to the needs of its market. Here's Easterbrook on the shift in marketing strategy and what it means for McDonald's:
We are moving, without a doubt, from a world of mass marketing to one I describe as mass personalization. And, clearly, technology allows us to do that now, which allows us to build a much more meaningful relationship with our customers, to shift from a transactional relationship into a far more engaging and meaningful, purposeful relationship where we can understand their needs on individual basis rather than a generic basis.
Easterbrook confirmed that the company's mobile app would launch in the U.S. in the second half of the year, and said the app is intended to improve the customer experience and broader engagement with the McDonald's brand.
May 4 brought more detail
While the executives had plenty to say during the roughly one-hour conference call, Easterbrook continually pointed to May 4 as the date when the company would provide more specific details about its turnaround strategy. The company's press release from May 4 says the company is reorganizing and streamlining its system. In terms of specifics, the company says it aims to step up its refranchising plans and refranchise 3,500 restaurants by the end of 2018, increasing the global franchised percentage from 81% now to about 90%. It is looking to eventually deliver $300 million in net annual general and administrative savings and to return $8 billion to $9 billion to shareholders in 2015.
