McDonald's Presents at Goldman Sachs on September 11 2013: No Problemo, Man

September 11th, 2013

McDonald's (MCD) COO Tim Fenton and CFO Pete Benson presented at the Goldman Sachs Retail conference today. These discussions are strictly dog and pony show and of limited duration and use. Still, interesting tones can be picked up.

McDonalds mentioned twice their 80% plus restaurant franchising margin twice, the fact that franchising throws off so much cash. Yet, there was no discussion of franchisee profit margins, "owner/operator cash flow" as they call it, or the even better metric of free cash flow per store. Like many franchisors, McDonalds does not talk about the conditions of franchisees' balance sheets. If you are 81% franchised, how can this not be discussed?
CFO Pete Benson indicated the cook time for the Mighty Wings (that launched today) will take longer, but mentioned "we have plenty of holding cabinet storage". Tip to Pete: bad line. Customers want hot fresh product, not pre-prepared stuff.
Benson mentioned company operated store margins were down to 17%, down 90 basis points. But MCD indicated owner/operator cash flow was up year to year, in last quarter's call. Comment: Huh ? How can that be?
MCD showed attention to the notion that stores are reaching apparent sales capacity. They mentioned that 80% of stores can expand sales, using the preexisting labor and scheduling tools. Operations note: labor scheduling can indirectly drive sales in some limited fashion, but its mainly about getting customers to show up and then take care of them.
Average remodel lift is 6-7% sales lift. Q: but what is the free cash flow gain, post debt and CAPEX?