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McDonald's (MCD +3%) is trading nicely higher after reporting Q2 results this morning that were noticeably better than recent quarters. It reported its largest EPS beat and strongest yr/yr revenue growth since 4Q23. And perhaps most importantly, MCD bounced back from a -3.6% US comp decline in Q1, which was its worst comp number of any quarter since the pandemic, to post a +2.5% US comp in Q2.

• Global comps were also strong at +3.8%, it was a noticeable improvement from recent quarters: -1.0% in Q1, +0.4% in Q4, -1.5% in Q3 and -1.0% in Q2. MCD was lapping a pretty easy year ago comp of -1.0%, but it was still a good number, and likely was helped by favorable F/X. What's more, MCD saw comp sales and guest count accelerate in each segment.
• US comps were quite good at +2.5%, a nice turnaround from -3.6% in Q1. MCD outperformed fast food competitors on both comp sales and comp guest counts. Overall QSR traffic in the US remains challenging as visits across the industry by low income consumers once again declined by double digits yr/yr. Reengaging the low income consumer is critical, as they typically visit MCD restaurants more frequently.
• In response, MCD has re-energized its focus on value. The $5 meal deal continues to resonate with consumers as MCD recently celebrated the one year anniversary of the program. MCD has also added to its value offering with its buy one, add one for $1 deal, which launched at the beginning of this year. MCD also brought back Snack Wraps to the menu after a nine year hiatus at an attractive $2.99 price point. Early results are encouraging. MCD also is providing value deals on its app.
• In terms of the menu, MCD has an upcoming test in about 500 restaurants in the US with a beverage lineup that includes a variety of options from cold coffee and fruity refreshers to crafted soda and energy. Also, chicken remains a significant opportunity as it's a larger global category than beef and continues to grow at a faster rate.
• Looking ahead and despite the good Q2 results, MCD says headwinds facing its business and consumers in the US and top international markets remain largely the same. US restaurant traffic, especially for the QSR industry, remains challenging. However, MCD says it will leave no stone unturned when exploring ways to drive guest count. MCD is working closely with its US franchisees to evaluate ways to improve upon its core menu offerings.

Overall, this was a very good quarter for MCD. We were a bit nervous heading into this report given the weak results we saw from Chipotle (CMG) in late July. Also, MCD has higher exposure to the lower income consumer than most fast food chains. Nevertheless, we were surprised to see the strong comps numbers. And it's not all F/X tailwinds as US comps grew nicely as well. Also, MCD saw improvement in guest counts, which is very important. Looking ahead, MCD will be lapping fairly easy comps in 2H25, but we would not expect big comp numbers given the macro pressures on lower income consumers.