Chris Stent - Vice President, Investor Relations Stephen Easterbrook - President and Chief Executive Officer Kevin Ozan - Executive Vice President and Chief Financial Officer Peter Bensen - Chief Administrative Officer

Brian Bittner - Oppenheimer Andrew Charles - Cowen and Company Joe Buckley - Bank of America Merrill Lynch Jeff Bernstein - Barclays Keith Siegner - UBS Jeff Farmer - Wells Fargo John Glass - Morgan Stanley David Palmer - RBC Karen Holthouse - Goldman Sachs Sara Senatore - Sanford Bernstein Will Slabaugh - Stephens Jason West - Credit Suisse Andy Barish - Jefferies Matt DiFrisco - Guggenheim John Ivankoe - JPMorgan Nicole Miller Regan - Piper Jaffray David Tarantino - Robert W. Baird

Hello and welcome to McDonald's April 22, 2015, investor conference call. At the request of McDonald's Corporation, this conference is being recorded. Following today's presentation there will be a question-and-answer session for investors. [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, and thank you for joining us. With me on the call are President and Chief Executive Officer, Steve Easterbrook; and Chief Financial Officer, Kevin Ozan. In addition, McDonald's Chief Administrative Officer, Pete Bensen will join us for Q&A. Today's conference call is being webcast live and recorded for replay by phone, webcast and podcast. 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 our 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.

Thanks, Chris, and good morning, everyone. Since stepping into this role maybe two months ago, I've been relentlessly focused on assessing current plans, challenging our people and teams to think differently about what we're doing and how we're doing it, and working with senior leadership to determine the best path forward. As we announced this morning, we have scheduled a separate call on May 4 to share the initial details of our turnaround plan. We appreciate your patience, as we focus today on our first quarter results and the overall approach we are taking as we develop plans to reenergize the business. First quarter performance reinforces our imperative to stabilize and improve our underlying business performance. Let me start by sharing an overview of recent performance across the top nine markets that contribute most of our overall consolidated results, starting with Australia, the U.K. and Canada, which are trending positive. Australia is in the early stages of turning around its business through a multifaceted approach to enhance brand appeal for consumers. This includes meaningful enhancements to our menu, including both core and new menu items across several categories, value platforms and better restaurant operations. The U.K. continues its strong track record of positive performance with first quarter comparable sales representing the market's 36 consecutive quarter of growth. These results reflect the market's diligent execution of its customer-centric plans that span multiple initiatives, including food choice and food quality, marketing and promotions and enhancements to the service experience, such as expanding drive-through capacity during peak periods and building the overnight experience. In addition, in Canada, strong promotional performance and new menu news drove average check and positive comparable sales performance for the quarter. Next, are Germany and China, two markets that have shown recent signs of improvement. In Germany, negative comparable sales trends have moderated in the last two quarters. The market has strengthened its value platform, and at the same time promoted premium products and add-on purchases to their average check. We expect recovery in this market to remain uneven, however, as reflected in March's weak comparable sales performance. China continues to recover from last year's supplier issue. Efforts to regain brand trust are working, and the market remains on track to return to a normalized level of performance by mid-year. And finally, the U.S., France, Russia and Japan, where challenges persist. U.S. results remain disappointing. Recent actions taken by Mike and his leadership team, including implementing a more efficient operating structure, simplifying the menu and holding the U.S. Turnaround Summit with operators in March, are helping to create a renewed sense of energy and focus around better delivery of local customer needs. In both, France and Russia, consumer confidence remains low and challenging macroeconomic conditions continue to negatively impact results. Despite a declining IEO industry, France continues to maintain market share with efforts to strengthen the value platform and enhance the customer service experience on differentiating the brand in the market. Amidst the external pressures in Russia, the team remains focused on driving sales through strong product and promotional offers, growing the breakfast business and initiatives that focus on rebuilding brand trust with consumers in the market. Japan's recovery from the supply issue has not been as strong as China, and subsequent consumer perception issues have further depressed sales and profitability. As evidenced by last week's announcement of the business revitalization plan, the Japanese and APMEA teams are intensely focused on addressing the significant challenges in this market, though we expect results will continue to be negatively impacted for the foreseeable future. And Kevin will provide more details around our first quarter results in a moment. Let me shift gears now and discuss the approach I am taking to lead McDonald's into the future. My operating principles, if you will. First is a greater emphasis on personal accountability. I am honest and fair if I don't dispense forced kindness. Where we need to fix the fundamentals, we need to act now; and where we need to make an impact, I'm not looking for incremental steps. We intend to make meaningful impact with customers and how they perceive our brand and our food. I hold people accountable for tangible actions and outputs, and I can assure you that I hold myself accountable to these same high standards. My second operating principle is grounded in the customer. 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. 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'll 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. My final approach to leading is I champion simplicity. We are simplifying for greater transparency, accountability and speed. We are making the business more responsive to market conditions, while using our scale advantage more effectively. We cannot afford to carry legacy attitudes and legacy thinking, and we won't. My overall vision is for McDonald's to be seen as a modern, progressive burger company, delivering a contemporary customer experience. Modern is about getting the brand to where we need to be today, and progressive is about doing what it takes to be the McDonald's, our customers will expect tomorrow. We are already moving more assertively in this direction, with actions that delight our customers and energize our brand. For example, we recently committed to enhance the benefits to employees at company-owned restaurants in the U.S., including a wage increase and paid time off for full and part-time for employees. In March, we announced in the U.S. that we will stop using antibiotics that are important to human medicines, and are checking supply chain within the next two years. And there are plans to feature 100% sirloin burgers for a limited time in the U.S., along with a current test on all-day breakfast. We also undertook a significant effort to excite our customers and bring the world together virtually with I'm Lovin It 24. About 70,000 people participated in the event, which included 24 hours of McDonald's inspired disruptive creativity in major cities around the world. And it garnered more than 2 billion impressions across public relations stories and social media interactions. Last month, the German team opened a new 500-seat flagship restaurant in Frankfurt, showcasing our most modern digital and service amenities. And just yesterday, we announced our global commitment on deforestation, which confirms our aspiration to end deforestation throughout our supply chain. We are harvesting the power inherent in the McDonald's brand and in our network of valued franchisees, employees and supplier partners to make this great brand even greater. One of the advantages of my broad experience within McDonald's and running other restaurant chains is seeing other cultures, different structures, different models. Through this experience, I see McDonald's and its fundamental advantages, challenges and opportunities much more clearly. It is this perspective that is helping me look objectively in the business and make decision to position McDonald's to deliver enduring, profitable growth for shareholders and the system. Thank you for joining us this morning. And now, I'd like to turn it over to Kevin.

Thanks, Steve, and hello, everyone. We begin 2015 taking action, to lay the foundation for McDonald's turnaround, as we work to address the significant internal and external headwinds that are impacting our business. Today I'd like to begin by discussing the performance factors that impacted our first quarter results, including the strategic charges taken in the quarter. Then I'll provide updates on key financial metrics and close with some final thoughts about our path to realizing our long-term potential. Our financial model, and therefore my remarks, start with topline sales. 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. Sales trends in China continue to show sequential improvement, as we moved through the quarter. And Australia remains a bright spot, posting its third consecutive quarter of positive comparable sales. In the U.S., comparable sales were down 2.6% for the quarter, as the segment's slightly positive breakfast dayparts was offset by weakness across all other dayparts. We are working to enhance the customer experience with locally relevant taste, a simplified menu and compelling value offerings. Europe comparable sales ended the quarter down 0.6%, with positive performance in the UK more than offset by weak results in France and Russia. Looking ahead to April, global comparable sales are expected to be negative. This weak topline performance accounted for about half of the constant currency decline in operating income for the first quarter. The other half of the decline in operating income is attributable to the $195 million of strategic charges taken in the quarter to optimize the business. The first component of the charges, totaling $85 million, includes asset write-offs related to our refranchising initiative, as we made decisions to sell certain restaurants to developmental licensees. The next component of these charges is related to the strategic decisions to close about 350 underperforming restaurants, primarily in Japan, the U.S. and China. These restaurant closings are in addition to the 350 global restaurant closings originally planned for 2015. The total charge for asset write-offs related to these incremental closings was approximately $72 million. Most of these restaurants were not contributing to our overall profitability or cash flow, and we will continue to review our restaurant portfolio with the intent of optimizing our asset base around the world. The final component of the charges was $38 million related to restructuring costs for our U.S. business. This amount consist primarily of employee severance and other related costs. Earnings per share for the quarter was down $0.37, which include $0.17 related to the strategic charges and $0.09 in negative foreign currency impact. Excluding the impact of the charges and foreign currency translation, earnings per share for the quarter was down $0.11 or 9%. From an operating perspective, with 81% of our global restaurants franchised, the largest driver of operating income continues to be our franchise margins, which declined $152 million to $1.6 billion, a 1% decrease in constant currencies. Global company-operated margin dollars declined $164 million to $560 million for the quarter, a 13% decrease in constant currencies. The company-operated margin percent decreased 180 basis points to 14.3%, reflecting negative comparable guest counts across all segments as well as higher commodity and labor costs. Next, I want to provide an update on our commodities, pricing, foreign currency impact and cash returned to shareholders. I'll start with commodity cost for the U.S. and Europe. For the first quarter, U.S. commodity cost rose approximately 2%, primarily due to higher beef prices. To help offset this pressure, we took some price increases. Our first quarter pricing in the U.S. year-over-year was up roughly 2%, which was below food-away-from-home inflation of around 3%. The current projected increase in food-away-from-home inflation for the full year is 2% to 3%. Excluding currency, Europe's commodity cost were relatively flat in the first quarter. Our pricing increases in Europe, varied by market with the overall segment, excluding Russia, averaging about 2% year-over-year. Now, turning to foreign currency impact. The U.S. dollar has strengthened dramatically against nearly all of the world's other major currencies. During the last eight months, the dollar has experienced its fastest rise in 40 years. At these levels, foreign currency translation is having a significant impact on our reported results, as evidenced by the $700 million impact to our first quarter reported revenues and the $0.09 impact to our first quarter reported EPS. Based on current exchange rates, we now expect foreign currency translation to negatively impact our results by $0.13 to $0.14 in the second quarter and $0.40 to $0.45 for the full year. As usual, take this as directional guidance only, because rates will change, as we move throughout the year. And keep in mind, this is an accounting translation impact more than a cash impact. Despite our topline and margin pressures, our business continues to generate significant cash flow. In addition to reinvesting in the business to drive future growth, we returned $1.4 billion to our shareholders in dividends and share repurchases in the first quarter. As Steve mentioned, we're taking a close look at our organization, challenging ourselves and the status quo. Our goal is to position the company for enduring profitable growth. We must get back to better leveraging the benefits of our business model, including the entrepreneurial spirit of our franchisees. We must utilize our considerable resources more efficiently, and we must meet our customers' evolving needs more consistently. I am energized by the challenges before us, and I look forward to working with Steve, Pete and the broader McDonald's system to bring our vision to reality. Thank you. Now, I'll turn it back to Chris to begin our Q&A.

Thanks, Kevin. Before we begin Q&A, I want to make a comment about our financial outlook for the full year 2015. As you know, each quarter we provide details around our expectations for several key components influencing annual earnings per share. In light of the upcoming announcement of McDonald's turnaround plan, it was not appropriate to update our outlook in management's prepared remarks or as part of today's 8-K filing. An update on our outlook will be provided in conjunction with the announcement of our plans on May 4, 2015. A - Chris Stent: We will now open the call for analyst and investor questions. [Operator Instructions] To give as many people as possible the opportunity to ask questions, please limit yourself to one question. We'll come back to you for follow-up questions as time allows. The first question is from Brian Bittner of Oppenheimer.

A question on the U.S. business. In the U.S., I've heard a lot over the last few months about the need for more simplicity, needing to improve speed, which I think suggests a diagnosis of a throughput problem. But when you look at the underperformance in the comps versus the industry and on an absolute basis, it does suggest a bigger, more pure demand issue. And so the question is, what's going to be going on over the next couple months to really drive a resurgence in guest counts that maybe more dramatic than simplification? I guess like, are the extended breakfast tests going well? What's the plan there? As far as new products being rolled out more rapidly, like you guys just did the chicken sandwich, is that something we're going to see more of? If you could just kind of talk about that altogether, that will be great.

You're absolutely right. There is no one single solution to getting any of our businesses moving. We have strong plans in place. And I guess if I can dissect that question of yours; one is, how we're going to drive demand? And then secondly, how we're going to manage that demand? The driving demand is going to be driven through both national and local menu news. So we have some strong and some exciting product pipelines ahead. So most recently we've announced the sirloin burger, which we believe will be a favorite with customers and have broad resonance. But also we are liberating the creativity, and I guess the insights of our local markets to develop local food menu items that better resonate with the local customer base. So the demand driving, I believe, can operate at two levels. That said and done, we've still got to make the entire McDonald's experience just a little easier for our customers and a little easier for our crew, and that's where the simplification piece comes in. And it's not simply the menu simplification, it's what else can we take off the workload of our teams in the restaurants to enable them to focus on what really matters, which is taking care of customers. So menu simplification will certainly help. There has been the initial phase of that from January, where we have not seen a significant sales uplift from it, but we have seen it provide us with easing of operational complexity. There will be further moves on menu simplification coming up now, because we have a number of tests in place, and we can share those with you as the results become clearer. But also there is other things we can do to take workload out of the restaurant and just simplify the job of our managers and crews, so they can focus on their frontline role, which is taking care of customers. So two things, driving demand and then meeting demand, and we've got actions on both.

Next question is from Andrew Charles of Cowen and Company.

Kevin, to put the U.S. and China restaurant closures in perspective, what's the base of company restaurants that are currently cash flow negative? And should we expect these closures to be the first wave and what could be future closures as well?

The restaurants that we closed, that we're announcing that we're closing right now, were all certainly underperforming, not adding significantly to profitability and cash flow. We don't expect a lot more throughout the rest of this year. So you shouldn't expect to see a lot more happen through the rest of the year related to additional closures. There may be some little charges that, I'll say, come in through the next couple of quarters, some related to incurring costs as we actually close the restaurants, and there may be a few additional restaurants. But you shouldn't expect a lot more significant closings, certainly nothing to the magnitude of the first quarter.

Next question is from Joe Buckley of Bank of America Merrill Lynch.

Maybe a couple of follow-ups on that, and if you guys defer this to May 4, I understand, but there was no mention of expansion in 2015. Are the old expansion plans kind of still in place, so net-net there would still be some increase in restaurants? And then, somewhat related question, I guess. The $85 million charge from the prior or already previously disclosed refranchising plans, is that coming because you decided to do those on a developmental licensing basis? And if so, maybe talk about that change, in thought of if in fact it was a change.

First, related to expansion. You saw we took everything out from the outlook. Obviously, we're still opening restaurants, but we'll update all the kind of outlook pieces, including expansion, on the call on May 4. Related to the charges, a couple things. So we referred to one of the pieces of the charge as cost related to write-offs, as we made decisions to sell restaurants to developmental licensees. That'd be consistent with our past practice, as we make decisions to sell, whether its restaurants or countries to somebody. We need to look and see how it's valued and what we believe we can get in return for selling those restaurants. And as we make a decision and evaluate kind of the fair value versus what we have recorded on our books, it requires us to potentially write down the net book value to get to the cost of the selling price we're going to realize. That's what those amounts relate to. It will be consistent with prior practice. We made some decisions to actually sell some restaurants to developmental licensees, and we need to now record the cost of it. It equals what we expect to realize when we sell those restaurants.

Next question is from Jeff Bernstein of Barclays.

Steve, just a question on franchise relations or maybe the health of the franchisees, however you want to look at it. But it's obviously difficult for us looking in from the outside. On one hand, it would seem like your franchisees are probably among the most successful in quick service, whether it's from sales or a profit standpoint. But at the same time, I can't imagine the recent weakness doesn't drive some frustration. So I'm just wondering, with that kind of as background backdrop, I mean, what's the greatest pushback or perhaps just maybe suggestions you hear from franchisees in terms of turning around at least the U.S. business? That would be one thing, because I'm guessing they have some pretty good insights. And secondly, do you typically discuss the initiatives and plans for the system with them ahead of time? For example, like the turnaround presentation in early May, do they get kind of advanced look or do they opine on the initiatives that you plan on putting out there?

So the overall brand relationship is absolutely fundamental to the ongoing strength. It has been for 60 years, and certainly I want to continue that and champion that. When business is a little tougher, like it is at the moment in the U.S., with cash flows being challenged, yes, frustrations do arise, as you would expect. The wonderful thing about the relationship we have with the operators is that there's a really open dialogue. Their views and our views, we share openly, as we build these plans together. And I don't think that will change. As you go through turnarounds, I'm going to tell you from my experience in the past in other markets, they are a little bumpy by nature. It isn't just a straight line growth curve. And it does require some bold and decisive decision-making, which on occasions could lead to one or two friction points. And there's one or two things we can learn from one or two decisions we've made, but it doesn't mean the decisions we are making are wrong, far from it. I am confident in the decisions that Mike's making for the U.S. and I am making at a global level. And the ultimate objective from this clearly is, as you know, with our business model, of the three-legged stool, is that our supply partners, our owner/operators in the company succeed together. And I would love that to be an operator-led success as well. Nothing would thrill me more. With regards to what we are looking towards on May 4, we have a number of measures we'll talk to, some of which clearly you won't expect me to talk to now. Some of which will be, we're going to share some broader operating plans at the markets with a broader audience. So some of the work is going on in the markets, as we speak; there will be other elements that we will save for May 4 to share with all audiences at the same time.

Next question is from Keith Siegner of UBS.

Steve, if I could circle back to some of your original points earlier about driving demand and ways to driving demand, you talked about the product. But another increasingly important area is the digital engagement tool. Just wondering if you could give us an update on the launch of a mobile app, maybe some of the details of what functionality you might include in the launch? And then is there going to be this roll of subsequent updates and increased functionality? How do we think about adding in this tool to the driving demand aspect to the equation?

It is a great question, Keith. It's something we are excited about here, I have got to say. As you probably know in my previous role I was responsible for trying to establish our digital team and division here, and that we've built a highly skilled and capable group of managing that for us. 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. We are building, what we're calling our global mobile app. We will be launching it in the U.S. in the second half of this year. And there are two elements to our digital vision. One is the experience side and the other is the engagement side. The experience is how can we use technology just to make the day-to-day customer experience easier and more convenient. And the engagement side is really more about the fun part of the brand. So the initial app that we'll be launching will be focusing primarily on the experience, just trying to make the day-to-day customer experience smoother and more convenient. And then, future iterations, which are already building up the pipeline, I have got to say, will further enhance that experience and introduce more elements of fun to it. So I would not really be -- personally, we are not building in a sales build in relation to this for 2015, but we do see it as being a business driver as we look out.

Next question is from Jeff Farmer of Wells Fargo.

In past 10-K filings you have disclosed, it looks like that the annual cost to support a typical company-owned U.S. restaurant was about $50,000. I am curious if that number is still accurate. And just as a quick follow-up, on that May 4 date, I am just curious, how did you come to determine that that was an appropriate date to share the turnaround plan details?

Well, I can take the second one. So the date was -- clearly, this is my seventh week now in position alongside Kevin as well. And you can imagine we have been working pretty hard on this. It wasn't a standing start. We both have our histories we brought into our current positions. May 4 is an important opportunity for us, partly because -- so we are moving flat-out to build the meaningful plans that are merit sharing with you. Also, that week we have our leaders from around the world in here as well. And is a great opportunity to share it with them, at the same time we share it with the broader audiences. So that date just sits comfortably in the cadence of action that we're building here.

And then regarding your question on kind of G&A per restaurant, in the U.S., we have said it's about $45,000 per restaurant. Internationally, it varies by market, but it's generally in that $45,000 to $50,000 ballpark.

Next question is from John Glass of Morgan Stanley.

Steve, to the extent, if you're willing to talk about it today, when you think about your turnaround plan, do you think about them focusing more on the operating part of the business, or is it more of a financial restructuring, or how do you weight those two in importance in your mind? If you're not willing or less willing to talk about that now, I also wonder about how your own turnaround experiences, maybe it's the U.K. or some other business you have been involved with. What are the important elements in those turnarounds? And are those applicable to this situation or is this very different in your mind?

Absolutely, unequivocally, this is around driving operating growth in our operating business. Simply put, we want to sell more hamburgers to more customers, more often, around the world. So this is going to be a growth-led turnaround. There are things we can do to help that. And probably to your second point, and just from personal experience, back in the U.K., there were certain things we can do as management and as leaders in this business to help us run a more effective operating business. So the sort of things that I have been looking at is around our organizational structure, around our ownership mix, about how we can get that drive in the restaurants most effectively, and about how we best use our resources. And you may have heard me say before, any leader in any business, there are typically three resources that we have at our disposal. There is human resource; there is financial resource; and there is time. So we're challenging ourselves to how we can most effectively use those three resources to prioritize them behind the areas they're going to deliver the greatest return and the greatest growth in this turnaround.

Next question David Palmer from RBC.

Steve, just a question on premium and value. On the value side, particularly as you focus on the U.S., how confident are you that regional value marketing is going to be the way, going forward? And how confident are you that this will be effective enough to replace what the Dollar Menu did for McDonald's over a decade? And on the quality side, I know this is a journey which you are embarking upon and you are seeing a little bit in the second quarter, but how good is good enough? For instance, one would have no doubt that if you had a chicken sandwich as good as Chick-fil-A, that that would sell well. But I'm just trying to get a sense of your commitment and how you're benchmarking, and where your goals are on quality.

So on the value piece, I would say, regional clearly has a part to play, but they need to balance. And although that Mike and the U.S. team are working on that balance between getting national-driven value where we can use our scale and that economy of scale on a national level, along with freeing up the regions to really identify the menu items that matter most in their geography, given maybe their climates and given affordability issues. It very, very much differs, region by region. So there will be a balance to play on value. We haven't quite found that equation yet. But we have been working hard to unlock it. In terms of quality, our benchmark is ourselves. What we are working on now and what Mike and the menu team is working on is how could we deliver a better McDonald's menu? So we are very proud of our core products. What can we do to enhance the quality, both direct quality, and also the quality perception as we develop new items. Again, our benchmark is ourselves. And our customers are guiding us on that. So we believe if we can bring great quality products at the value of McDonald's that is the equation that will drive growth.

Next question is from Karen Holthouse of Goldman Sachs.

So looking at a number of initiatives, whether it's on the improving sort of employee benefits and wages, or improving the quality of products, theoretically there would be a cost associated with most of these. And how do we think about it from a high level versus the plan to absorb those costs versus push that onto the consumer through pricing in the company system? And then as these cost pressures on ingredient side would float to franchises and then wages, there could be some over effects for McDonald's. And then other larger players who are making similar moves, just helping them manage through that without necessarily passing all of it on.

The minimum wage cost, as well as all other costs certainly impact how we look at pricing, how we look at our margins. We have talked about with the minimum wage that it will impact our margins in the near term. But there is a lot of benefits to it, and that it will be able to enhance our competitiveness in the marketplace. Our thought is that our turnover will decrease. We'll be able to attract and retain the best employees. So while there's a near-term cost to some of those, we also look at the benefits. And the market will help dictate to us what kind of pricing we're able to get related to some of those costs. But we look at a lot of this as, what do we need to do to make sure that we have got the business set up to be able to drive top line sales. And those are some of the pieces.

Just one piece to add to that as well is, I talked about simplicity and simplification. Complexity typically adds costs, in one way, shape, or form as well. So I know Mike and the team are working hard to try and strip either the non-value-added activity out of the restaurants, or make cuts as far away from the consumer as possible, just to free up a little bit of room on the P&L, so we can mitigate one or two of the inherent inflationary costs that we face.

Next question is from Sara Senatore of Sanford Bernstein.

One little detail, and then I guess a bigger question. The detail is, I may have missed it, but could you give us the China comp? And then the bigger question is, just going back to the store closures, can you give us a sense, were they more likely to come from later cohorts as stores, as in, is there some evidence that maybe the store growth that we've seen over the last couple of years probably may have led to a point of kind of over saturation? I guess, in general, when I look at turnarounds in this industry, they usually do include a fairly significant amount of asset rationalization. So I'm just trying to get a sense of the sort of growth rate going forward that you would expect to see, and how you think about the stores? Maybe some of the more recent development decisions were not ideal?

Regarding China's comp for the quarter, it was negative 4.8%. So that's the China question. The other, regarding kind of optimizing assets, what I would tell you is we've been reviewing our restaurant portfolio around the world to ensure that we're set up to grow successfully in the future. So that review resulted in these decisions to close the 350 underperforming restaurants, primarily in Japan, U.S., and China. In China, a lot of those openings were, I'll say, between 2009 and 2012, where they have been consistently underperforming. Our sales estimation processes probably weren't as great during those years, but we now have better tools and a better processes so that our sales estimation processes have been better. Japan, they are generally heavy loss-maker restaurants that we're closing, so that will help the portfolio. And we're pretty much complete with that review. Like I said before, there may be some limited additional closures. There may be some limited additional charges. But the magnitude of any additional charges will not be anything close to what we have got in the first quarter.

Next question is from Will Slabaugh, Stephens.

Just a question around the menu globally, and maybe even more applicable here in the U.S. Can you talk about the balance of launching new items that are enticing and different enough to actually drive new people, or maybe lapsed guests into your restaurants that's been lacking a little bit in the past number of years versus your plan to simplify the menu?

So I think there is probably three elements to this, actually, Will. So one is our core menu, which is still our fundamental engine of growth. These are $1 billion brands. A handful of products are $1 billion brands, right, and are much loved, so we are working hard to reinvigorate the consumers' love and demand for that. On the new items, two elements, some is launching permanent new items, and some is just using LTOs. Again, they both play a different role. You can only absorb so many new permanent items because, then that's -- clearly they demand a permanent place on menu boards. And that does can typically add up additional complexity. LTO can provide some funds. So you're talking four, five, six-week promotional activity around themes a bit. It could be around World Cup soccer. It could be around the Olympics. It could be around the time of year and the seasonal events. That just makes yourself interesting. That rewards existing customers who may want to try something different for little while and then return to their favorites. So that's always a balance, because you're part of what we're working on with our marketing leads, certainly in the major markets, is to understand how that best balance works. If we lurch too far one way and streamline it, we don't have enough new and enticing news out there. If we go the other way, it becomes a little frenetic and customers can't follow, and the restaurants find it hard to execute. But there is not a science to this, but all very important, but primarily, core, meaningful new menu additions, and then introducing some fun on occasion through LTOs, just to spice up the market a little bit.

Next question is from Jason West of Credit Suisse.

Going back to Jeff Farmer's question about the timing of the meeting, I guess, it felt like you guys are going to spend a little bit more time, Steve, since you haven't been there very long to kind of get the plan together, based on some of your comments at the New York meeting. So I guess, can you talk about, is the meeting on May 4 meant to present the comprehensive sort of final plan that you have come up with or is this more sort of a first look at some of the things that you are working on, and that you will build from there? Can you help frame that a bit?

Yes. On the call, we will be sharing the initial details of the turnaround plan. Clearly, I don't want to say too much about it, because that's the reason we are having the call on May 4. We have selected that date because we believe those initial plans will be well enough baked out that it will be meaningful news to all the audiences that have an interest in what we're doing at McDonald's.

Next question is from Andy Barish of Jefferies.

Just one I guess quick follow-up, and then a financial question. On the product news, Steve, do you think the brand has in the research you're looking at or doing, do you think the brand has credibility on the premium side? I mean, there have been some efforts, obviously, with most recently reintroducing chicken tenders, in the past on premium burgers and wings that haven't really worked. So I guess, what's the current thinking on that? And then, the financial question for Kevin was, you referenced higher lease costs and the franchise margin decline. Is there something going on with rent escalations, or something above average, I just don't recall seeing that historically in your explanation.

For premium quality, I mean I often describe, because it's possibly the most democratic, with a small d brand in the world. And what customers love the world over, and none more so than here in the U.S., is how they can buy into aspirational quality products, but at a McDonald's price. They don't have to pay over the odds for it. And when we were on our game, and we have all elements of our business working well, our service experience, our digital engagement, the cost account quality, and new food news, then all those components really do add value to the customer experience, and their perception, their assessment of us. So yes, there is room for it. We have to be competitive in the marketplace, but we can bring great quality. So for example, removing the antibiotics out of our chicken supply chain across the next two years is a move that customers value, because we can bring to them quality ingredients and quality menu items at the McDonald's affordable prices. And they encourage us to do more of that. And we will continue, particularly here in the U.S., as Mike brings to life the food agenda that he has his part of his vision for the business, we will continue to make moves such as that to bring premium quality food at everyday prices. And again, the sirloin burger is a great example of that. It's a premium beef cut at McDonald's prices, and looking forward to customers' response to that.

And then, Andy, related to the lease costs, to your point, we normally have rent escalation, so it's not necessarily anything new. Some of it is escalation. But more of it really relates to sales. We've talked about before, it's a topline game, so negative comp sales clearly put pressure on our margins. And when we don't have that sales leverage that's significantly impacts margins. So that's really the bigger impact.

Next question is from Matt DiFrisco of Guggenheim.

I think what stuck out to me also was a couple of the growth year markets where you're opening a lot of stores also seem to be some of the weaker comp stories this year. I understand it's a long-term plan, some of those openings. But, is that somewhat of a foreshadowing, I guess, for 2016, perhaps the lower comp environment that we're in now? Should it be presumed that we are going to probably see a little bit more pragmatic and slower development in those markets in response, especially from the franchise community more so or the emerging franchise community in China, does that disrupt it at all?

Yes, there is really no correlation between looking at the store growth numbers in the release and the comp sales. We have acknowledged in some of the major markets, we've got some turnaround activity to undertake. And we are undertaking those obviously with the belief and the confidence that there is long-term growth potential in those markets. And restaurant development is not something that we kind of turn on and turn off with a switch, because there is a pipeline involved. There is some permitting to restaurant opening. It's a several month to multi-year process, depending on the country. So you shouldn't be drawing any correlation between those two, and as we'll be able to talk about it in a little more detail on May 4, the efforts around turning the topline in the business are of utmost focus, especially in those markets where comps are weakest.

Next question is from John Ivankoe of JPMorgan.

Just the two part question, if I may. Steve, as you've kind of seen all the research that McDonald's has had, was there maybe one or two big things that consumers were telling you about three to four years ago that you needed to change, and you could have kind of prevented the decline in the sales? And I ask this question really in the context of what were those preventable factors, if you will, and is the organization kind of in a place where it can act on some of that right research? And secondly, if I may, which I guess is a little bit unrelated, there has been at least some illusion that there could be separate expressions of the McDonald's brand through the drive-through and the in-store experience, at least in the U.S. And Create Your Taste is certainly maybe moving in that direction, but if you could give us some light in terms of how some of the drive-through optimization tests are going around the U.S.?

So looking back three to four years, rather than anything we missed through consumer insight, I think perhaps the challenge we let ourselves with, we had four or five growth initiatives working together really through the 2000s, so from '03 to about 2010, 2011, we had a number of different growth platforms that worked. And they worked around the world. Different markets sequence them in different orders, but everything from delivering great quality coffee, which then drove breakfast business, going to extended hours, the re-imaging program, for example, just to name three. Perhaps what we didn't foresee and responded as well as we could have done ourselves is to create that future pipeline and growth platforms. Now, sometimes the consumer will guide you there, but sometimes you've got to take that into your own hands. And that was probably perhaps something that, as we look back through our history, we wish we could have done a little better. The one trend I would say, we're working hard to address now is general consumer desires to be part of something big, but to be treated as an individual. And that's where the whole personalization piece comes in. Whether that's the way we engage and communicate with customers, which is, I believe, technology will help us get there, where we'd have a much more personal relationship at a level that customers are happy with. But also on the menu side and that's where the customization of food comes in. And then on to your second point on Create Your Taste, one of the beauties we have here is we have an ability to test these things out and learn. So Create Your Taste, for example, is an option within our broader McDonald's experience in the future ambition. We have a really concerted push on this in Australia, and we will have one or two markets up and running within the U.S. And we will respond, we will be able to see from consumers' response to that pretty quickly how that in-store experience builds out and plays out. And then, again, relating to your second point, how that then works through the drive-through, and time will tell, but we have a number of other ways that we can perhaps customize our menu or personalize our menu, that we're also are working on. So we have test sales going on around the country and around the world, to better learn how we can best meet that consumer need is around personalization. It is powerful. We believe we can deliver against it. And our confidence is when we start to really connect on that level and unlock the benefits of personalization to 69 million customers a day, that will have a significant impact and drive long-term, sustaining growth.

Next question is from Nicole Miller Regan of Piper Jaffray.

I just wanted to ask about the early stages of the efforts to drive results to restructuring of the field level operations. I think that's something that was done in the U.S., I don't know, a quarter or two ago. And I believe that was maybe doing it by region or better matching up the corporate with the local consumer preference. Could you just let us know what you're hearing from the field level operations, please?

Yes, so Mike made a very deliberate move at the backend of last year to announce a streamlining of the organization structure. I mean over time, the structures can build up. And really, he took a very concerted view of that. Really took out one level, one layer between corporate and then the regions, and these were 22 regions around the U.S. What that has done it is ask for a different role of performance out of our general managers and our operator leaders in the regions, and a different way of engaging and a speed of decision making in the center. So as the teams are embedding with these new accountabilities and new responsibilities, we were in that transition stage. I don't think we've got everything humming perfectly right now, but nor would I expect us to. It's a significant change for the organization. It's absolutely the right one to have made, and has my full support. And we want to shorten the time period to get superb execution of the new roles and responsibilities in that structure.

The last question is from David Tarantino of Robert W. Baird.

Steve, just a high-level question about your vision. I think you mentioned that you wanted to remove some of the legacy thinking and change the mindset of the organization. I was wondering if maybe you could share some examples of some of the legacy thinking that needs to be changed. And then, maybe secondly, based on the seven weeks or so you've been in the job, maybe talk a little bit about how ready you think the organization or the system is to embrace some of that change in thinking?

That's a nice, soft one to end with, David. Thank you. Right. So when I talk about legacy thinking and legacy attitude, I mean we have been phenomenally successful for 60 years. And there's so many good reasons for that. And there is much of that I would not ever wish to change or challenge. It's very precious to us, and will stand as in good stead for the next 60 years. However, there's a certain conservatism and incrementalism that builds into that. And again, as a company, that has not necessarily been a bad thing. But when you do need to make a step change, our organization doesn't naturally go there. It needs to be led there. And in my experience at McDonald's, whenever we've made substantial decisions and substantial changes, we are wonderfully adaptable once that has been spelled out. But we won't naturally take ourselves there as an organization. So with the team around me, we're challenging some of the conventional thinking on multiple fronts, and some of that we'll be able to share you over time. With regards to whether the seven weeks will get people into a state of readiness, I think there's a hunger and an interest in our business to embrace change. So I mean I hear it as I get into the markets, hear it from younger operators, and I think there is a pull and a hunger in the field for what are we going to stand for, where we're heading, and how are we going to get there. And I am not new to most of the McDonald's system. I am new in position. I totally recognize that. And different expectations and accountabilities come with that, but I think my track record and my history in McDonald's is relatively well known around the place. And therefore, I don't come as a complete surprise. So I look forward to sharing more on May 4 and ongoing.

We're nearing the top of the hour, so I will turn it over to Steve who has a few closing comments. End of Q&A

Thank you, Chris. Again thank you everyone for joining us this morning. In closing, I want to reemphasize our commitment to reenergizing the business on moving more quickly and assertively to meet the demands and the needs for our more than 69 million customers every day around the world. I am confident in our ability to make the right move to reset McDonald's as a modern, progressive burger company that provides a contemporary experience for our guests. We will keep driving towards this vision as we build the business and brand and deliver long-term value for customers and shareholders. I look forward to sharing the initial details of our turnaround plan with you on May 4. Thanks again to you all. And have a great day.