VALUATION HIGHLIGHTS

1. International Operated Markets constitute 50% of the Trefis price estimate for McDonald's's stock.
2. U.S. constitutes 47% of the Trefis price estimate for McDonald's's stock.

WHAT HAS CHANGED?

MCD Q1 2025 Snapshot

McDonald’s reported mixed first quarterly results as its U.S. same-store sales fell for the second straight quarter, posting their largest domestic decline since the onset of the Covid pandemic. McDonald’s U.S. same-store sales shrank 3.6% as the chain faced bad weather and a more cautious consumer. Outside the U.S., McDonald’s saw same-store sales fall 1% in its international-operated markets, which include Australia and France. The segment includes McDonald’s largest international markets and accounts for roughly half of its revenue. The company’s international development licensed markets division reported same-store sales growth of 3.5%. This segment includes Japan, China, and Brazil.

Across all of its markets, McDonald’s same-store sales fell 1% during the quarter, hurt by comparisons to last year’s leap day. The company's revenues fell 3% y-o-y to $5.96 billion in Q1. The fast-food giant reported first-quarter net income of $1.87 billion, or $2.60 per share, down from $1.93 billion, or $2.66 per share, a year earlier.

Outlook

McDonald's is poised to focus on value and affordability in 2025, aiming to recapture market share among low-income consumers through menu innovation and strategic marketing initiatives. To drive growth, the company introduced its McValue menu platform, featuring new offerings such as chicken tenders and snack wraps, and bringing back the Chicken Big Mac for limited-time offers. New McCrispy Chicken Strips have been selling well even before the chain began advertising the menu item. Plus, tie-in meals with video game franchise Minecraft, timed for the release of the blockbuster movie, sold out of collectibles in roughly two weeks. McDonald’s also plans to keep its $5 meal deal for the rest of 2025.

Although the company anticipates a gradual recovery, with a full business rebound only expected to begin in the second quarter of 2025, it remains committed to expanding its global footprint with approximately 2,200 new restaurant openings, including 25% in mature markets of the U.S. The company also aims to reach 50,000 restaurants by the end of 2027 and increase its active digital users to 250 million. Looking ahead, McDonald's is targeting an operating margin in the mid-to-high 40% range for 2025. For context, the company's operating margins fell to 45.2% in FY 2024 compared to 45.7% in FY 2023.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of McDonald's value that present opportunities for upside or downside to the current Trefis price estimate:

• Average Revenue Per U.S. Restaurant: Historically, the Average Revenue per restaurant (both company-owned and franchised) has increased, and as the company focuses on a combination of value and gourmet products, revenue per restaurant is likely to increase with the higher ticket price. Further, increasing guest count with higher comparable sales is likely to drive this metric over our forecast period.

BUSINESS SUMMARY

The company franchises and operates McDonald’s restaurants, which serve a locally relevant menu of quality food and beverages in communities across more than 100 countries. Approximately 95% of the restaurants at year-end 2024 were franchised, including 95% in the U.S., 89% in the International Operated Markets segment and 99% in the International Developmental Licensed Markets segment.

McDonald's essentially offers a uniform menu, though with minor variations to suit the local taste. A typical McDonald's menu includes burgers, sandwiches, salads, snacks, breakfast sandwiches (McMuffins), beverages (soft drinks, coffee, milkshakes, juices), and desserts (ice cream, pies, smoothies).

McDonald's competes primarily with Wendy's and Burger King in the hamburger fast food category. It competes with Starbucks through McCafe.

KEY TRENDS

McCafe gives McDonald's a strong presence in the specialty coffee segment

McCafe represents McDonald's foray into the high-margin caffeinated beverages market dominated by premium coffee chain Starbucks. McDonald's has been able to keep the prices competitive and margins healthy due to its excellent store network, marketing muscle, and highly efficient supply chain. McCafe's menu has been extended to more than coffee and now includes fruit smoothies, mocha, and chocolate shakes.

Competition among the top fast-food chains to intensify in the breakfast segment

The breakfast market is proving to be a profitable segment, especially in the U.S. McDonald's is the dominant player in the breakfast segment with a market share of over 40%. McDonald's ensures new items are added to the breakfast menu regularly. However, it now faces serious competition as a number of rivals such as Dunkin' Brands, Restaurant Brands International, Taco Bell, and Starbucks have stepped up their game in the breakfast segment. Starbucks is in the process of reinvigorating its breakfast menu with the help of baked goodies launched under the La Boulange brand. Restaurant Brands International houses two well-renowned brands: Burger King and Tim Hortons, both of which already have a strong presence in the breakfast market. Dunkin' Donuts has also revamped its breakfast menu to cater to the needs of its customers.

Store Redesign, Value Meals To Drive Growth

McDonald's is in the process of converting its stores into "Experience Of The Future" restaurants, providing technological convenience to its customers. The company's focus on balancing its innovative gourmet offerings to attract millennials with its value focus to retain existing customers is likely to drive growth in the future.