Hello, and welcome to the McDonald's third quarter 2018 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. At that time, investors only may ask a question by pressing star one on their touch-tone phone. I would now like to turn the conference over to Mr. Mike Flores, Investor Relations Officer for McDonald's Corporation. Mr. Flores, you may begin.
Hello, everyone, and thank you for joining us. With me on the call today are President and Chief Executive Officer, Steve Easterbrook, and Chief Financial Officer, Kevin Ozan. Today's conference call is being webcast live and recorded for replay by webcast. 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 are reconciliations of any non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures. Now I'd like to turn it over to Steve. Steve?
Thanks, Mike. Good morning. With another solid performance in the third quarter, we remain confident in our business as we continue to execute an aggressive and holistic growth strategy. We are making substantial progress in modernizing restaurants around the world, enhancing hospitality, and elevating the experience for the more than 60 million customers we serve every day. As a result, we've achieved our 13th consecutive quarter of global comparable sales growth, and we're increasing top line, traffic share, and guest counts in most of our top markets. During the third quarter, most of our largest international markets continued to drive momentum in our business. Canada has been on a 10-year run of success. In August, I was in Vancouver to meet with the local leadership team, and we visited the first McDonald's restaurant to open in Canada.
It was recently modernized, and we could see the digital menu boards, the refreshed decor, McCafé bakery displays, and other improvements, making such a noticeable change for McDonald's customers. Like many of our top-performing markets, Canada is excelling at the fundamentals of running great restaurants. Their crew members continue to set some of the highest standards for hospitality in the McDonald's system. Customers appreciate the commitment crew members in Canada have to personalized service that makes each visit enjoyable, as demonstrated by continued year-over-year increases in customer satisfaction scores. Earlier this month I was in China. We've marked a full year since the successful transaction that created the largest McDonald's developmental licensee. The partnership operating and managing McDonald's businesses in mainland China and Hong Kong offers exceptional business expertise and deep understanding of the local market.
They're moving rapidly with an ambitious expansion program to open at least 2,000 new restaurants over five years. They'll open about 375 new restaurants in 2018, over 400 in 2019, and we expect that they will ramp up the pace even more aggressively over the next few years. I was also impressed to see how well the team in China is operating in a highly competitive environment. They've made steady gains with our brand image among consumers in China's largest cities as they have modernized nearly 75% of the existing restaurants in the market. China also is a leader in the McDonald's system with two of our top growth initiatives, digital and delivery. The market has driven exceptional growth for delivery and is gaining strong adoption for its digital platform. Many of our top international markets are well positioned to drive sustained growth for our business.
We have exceptional management teams and aligned franchisees working together to execute ambitious, integrated plans. We're confident that we'll continue to achieve sustained momentum as our restaurants serve delicious food, offer warm hospitality, and advance strategic platforms, enabling us to satisfy rising customer expectations. The U.S. continues to move forward with the most significant transformation ever undertaken in the largest market in the McDonald's system. As we have discussed before, the U.S. team and our franchisees are taking on a lot all at once. The U.S. is maintaining an aggressive pace of modernizing restaurants, completing another 1,000 projects during the quarter. At our current pace, by the end of 2019, we expect to complete over 12,000 restaurants with our Experience of the Future initiative, making this the largest construction project in our history.
We still have hard work ahead, but we're seeing an encouraging response from customers in restaurants where many of these improvements are already completed. This is in line with our experience in other McDonald's markets such as Canada, the U.K., and Italy, that executed programs several years ago that were similar to the one the U.S. is undertaking now. This continues to strengthen our confidence that Chris Kempczinski, our U.S. President, his team, and our franchisees are on the right track as we introduce these enhancements to a growing number of restaurants. As we've evolved to a more heavily franchised business model, we're making sure our operating structure continues to adapt. We have a growing number of developmental licensees. These are business partners who are intensely focused on growth and innovation and operate in some of our most complex markets.
Starting in January, we'll make changes to the operating structure of our business. Joe Erlinger, who now is President of High Growth Markets, will lead our international operated markets. Ian Borden, who now leads our foundational markets, will be President of International Developmental Licensed Markets. This structure will ensure we provide the right level of support that will contribute to the success of our developmental licensees and other franchisees. We'll also continue to enable us to share and scale our best solutions across our international markets. I also want to take a moment to acknowledge Doug Goare, President of our International Lead Markets and Chief Restaurant Officer. Last month, we announced his upcoming retirement. Doug has made many valuable contributions to McDonald's over his 40-year career. We've appreciated his leadership and his counsel, and thank him for all he's done for our brand and our organization.
Kevin will discuss some of the financial performance highlights from the quarter.
Thanks, Steve. We're pleased with our strong sales performance for the quarter. Global comp sales increased 4.2%, reflecting positive results across all of our business segments. Comp guest counts grew in most of our top international markets, while in the U.S., guest counts declined during the quarter. As Steve mentioned, our top international markets are consistently leading and driving the performance of our system. In addition to Canada's success, here are just a few other highlights from around the world to illustrate this momentum. Australia has delivered 18 consecutive quarters of comp sales growth. France is enjoying eight consecutive quarters of guest count growth. The Netherlands just experienced their 14th consecutive quarter of positive comp sales. Momentum continues in Japan, as they now have 12 consecutive quarters of comp sales growth. Comp sales in the international lead markets remain strong, up 5.4% for the quarter.
The U.K. delivered their highest monthly sales and guest count volumes in their 44-year history, resulting in 50 quarters of consecutive comp sales growth. In addition, every market within the segment contributed to the growth. As markets across the ILM segment reach critical mass on Experience of the Future, or EOTF, they continue to see higher contributions from multiple platforms, including value, delivery, and digital. In addition to Australia's launch of all-day breakfast in 2016, they recently introduced an all-day favorites platform. Customers can now enjoy a limited menu of their favorite burgers, chicken, and fries available any time of day. The sustained positive results of the well-established markets in this segment are a demonstration of the size and scale potential of the McDonald's brand. Turning to the U.S., comp sales increased 2.4% for the quarter.
A higher average check drove sales due to favorable product mix shifts and menu price increases. The product mix shifts were a result of menu news, including Glazed Buttermilk Crispy Tenders, our 100% fresh beef Quarter Pounders, and new choices afforded to customers through our value offerings. Initiatives deployed across the U.S., from delivery to self-order kiosks, also contributed to the higher check. The U.S. plan is grounded in the importance of delivering a mix of higher average check and comparable guest count growth. As guest counts remain a challenge, we're focused on increasing customer visits. The environment in the U.S. remains very competitive, especially around value and deal offerings. Considering this, we're pleased with our comp sales gap for the quarter of positive 70 basis points versus our QSR sandwich competitors. On our last earnings call, I talked about the need to further appeal to our deal customer segment.
We recently wrapped up a successful 2 for $5 mix and match deal offer, and will soon launch a new classic meal deal option featuring some of our iconic core menu items for our customers looking for a satisfying meal at an affordable price. Breakfast remains an opportunity. In September, we expanded our $1, $2, $3 Dollar Menu offerings by introducing $1 any size coffee, as well as adopting 2 customer favorite breakfast sandwiches at the $1 price point. Soon, we'll introduce new breakfast menu items inspired by our customers. A combination of national value, a return to local breakfast deals, and new food offerings positions us to win back customers at breakfast. In the High Growth Markets segment, comp sales grew 4.6%, with positive results across substantially all markets. Italy, the Netherlands, and Poland all delivered double-digit comp sales increases for the quarter.
Italy continues to gain sales and guest comp momentum across all day parts. Each of the Velocity Growth Plan accelerators are contributing meaningfully to results. Across the Foundational Markets, comp sales were up 6%. Each geographic region contributed positively to results, with Japan continuing to lead the segment. Now I'll turn it back to Steve.
Thanks, Kevin. The key elements of the Velocity Growth Plan are working. We have powerful growth drivers at the heart of our strategy. The taste of our delicious food is a top reason customers choose McDonald's. The iconic sandwiches at the core of our menu continue to have strong appeal, and we're always striving to make our food even better. France, for example, where we continue to increase market share, saw success with a 50th anniversary Big Mac campaign. Market also achieved a double-digit increase in premium burger sales from the same quarter a year ago, with a lineup featuring proven successful favorites such as the Le 280 and the Big Tasty. Many consumers also are more focused on the quality of ingredients in their food. During the quarter, we announced a significant step forward we've made in the U.S.
Our seven classic burgers in the U.S. now have no artificial preservatives, no added colors from artificial sources, and still no artificial flavors. This was in addition to the switch we made earlier this year to 100% fresh beef in our quarter-pound burgers, cooked right when you order. Previously, we also removed artificial preservatives in our Chicken McNuggets. Now let's turn to our accelerators. Delivery, digital, and Experience of the Future are proving to be catalysts for sustained growth. As we continue to maximize the impact of these accelerators, we're expanding choices, enhancing convenience, and elevating the overall experience for McDonald's customers. We continue to move aggressively in developing the delivery opportunity. With over 37,000 restaurants, we have a massive global footprint, which provides a distinct advantage by placing us closer to more customers than any of our competitors.
We're focused on expanding coverage, growing demand, and innovating to increase efficiency and provide better service to our customers. We now offer delivery from over 15,000 restaurants, representing substantial growth from the end of 2016. With the benefit of our global partnership with Uber Eats, we're continuing this expansion. We expect to reach thousands more of our restaurants by the end of the year, including a total of 9,000 in the U.S. Delivery is becoming an increasingly meaningful contributor to comp sales. In several top markets such as the U.K., Australia, and France, delivery now represents as much as 10% of sales at restaurants offering delivery. We're working to encourage existing delivery customers to order more regularly as we also strive to raise awareness that McDonald's offers this convenience option. Customer satisfaction with McDelivery remains high.
Once they experience the convenience, many of them become our most loyal customers, frequently reordering for delivery. The delivery market is evolving rapidly, and we're committed to innovating so we remain competitive. We are seeing improved speed and accuracy after completing an initiative early this year to integrate delivery orders into our point-of-sale systems in many of our restaurants. We are exploring additional innovation opportunities ranging from integrating delivery ordering through our mobile app, to new packaging that will protect the quality of our food, to new approaches that improve efficiency at our restaurants with the highest delivery volumes. Underpinning everything we do with this growth accelerator is our commitment to make delivery easy and convenient for our customers, which will help us maximize the competitive advantage for our business. We have also introduced new technology to our customers that allows them to engage on their terms.
Self-order kiosks, which are already in over 15,000 of our restaurants worldwide, provide customers an opportunity to spend more time browsing the menu and personalizing their orders. Supported by our guest experience leaders and with the option of table service, the popularity and utilization of self-order kiosks continue to grow over time with a higher average ticket. In France, Italy, and Spain, well over half of all in-restaurant visits are transacted through the kiosk. We continue to engage customers through our Global Mobile App. Many of our markets have used special deal offers to drive incremental traffic and encourage increased utilization of the app. During the quarter, the U.S. doubled the pace of downloads and registered users, driving more transactions through the app.
As this base of active users grows, the rate of mobile order and pay adoption increases, we're providing our guests greater convenience on their terms while gaining deeper insights on their purchasing behavior. All of this is helping us create a foundational base of information upon which we will build programs to deepen our customer relationships. Through EOTF, we're elevating convenience, hospitality, and personalization for McDonald's customers. The improvements include crew members who serve in the front of our restaurants as guest experience leaders, kiosk ordering, table service, digital menu boards, and our Global Mobile App. It's clear that customers notice and appreciate the changes we are making. When all of these elements are in place at a restaurant, we are seeing improvements in sales, in overall customer satisfaction, and in particular in the U.S. restaurants, we should put in place all of the growth strategy initiatives.
These restaurants are achieving significant growth in both new customers and frequency of visits by existing customers. These customers are giving us much higher satisfaction ratings, especially for those that dine in. We're encouraged by the opportunity for our business as we continue to roll out EOTF to more restaurants around the world, maximize the customer and business impact, and to find ways to further elevate the customer experience in the future. We have made significant progress in deploying EOTF across the McDonald's system over the past year. By the end of the year, we expect to have converted over 15,000 restaurants across the global system, including half of all restaurants in the U.S.
As Steve mentioned, the U.S. is modernizing at an unprecedented pace, transforming over 3,000 restaurants to date in 2018 alone, expecting to surpass our original target of about 4,000 projects this year. We move at a quickened pace, we continue to learn throughout this process and adapt our approach in order to maximize the benefits to the business. Overall, restaurants have experienced a little longer downtime than we expected, we're focused on limiting that in order to minimize the impact on sales and guest counts. The downtime in our restaurants ranges from partial, for example, when the drive-thru remains open but the lobby is closed for remodel, to full, when a restaurant has a large scope project and the restaurant completely closes for a short period of time. The sales and guest count recovery period after we complete a project has also been a little inconsistent.
We've put processes in place to execute strong grand reopening plans after construction that involve our local communities. Overall, we are seeing the sales lifts we expected, our efforts are focused on achieving those results as quickly as possible. Our refranchising strategy has been a key part of transforming McDonald's into a more purposeful, stable, and efficient organization focused on delivering long-term growth. We're now more than a year out from our significant refranchising efforts, including the China-Hong Kong transaction last year, I'm pleased with our resulting global financial performance. Earnings per share for the quarter was $2.10, a 22% increase in constant currencies after excluding prior year special items. Year to date, our operating margin improved to 43%.
Nearly 85% of our total restaurant margin dollars for the quarter came from our franchise business, the growth in franchise margin dollars more than offset the decrease in company-owned restaurant margin dollars. Franchise margins for the quarter benefited from refranchising as well as positive comp sales growth, partially offset by higher depreciation related to our EOTF partnering contributions in the U.S. Consolidated company-operated margins declined 70 basis points to 18.4% for the quarter. ILM company-operated margins grew 60 basis points, driven by positive comp sales, partially offset by commodities and continuing labor pressures. U.S. company-operated margins were challenged due to EOTFs, labor costs, and commodity pressures. Our company-owned restaurants in the U.S. are modernizing at an accelerated pace.
In addition to the anticipated depreciation pressure on margins, our restaurants converting to EOTF are experiencing a temporary decline in labor productivity due to a combination of lower guest counts and continuing to pay crew during construction downtime. We expect this pressure to dissipate in mid-2019. Moving on to menu pricing and commodities. In the U.S., third quarter pricing year-over-year was up about 2%, while commodity costs for the quarter increased nearly 3%. We expect commodity pressures to ease somewhat in Q4 and anticipate our U.S. grocery basket will be up about 2% for the full year. For the International Lead Markets, menu prices averaged about 1.5% higher year-over-year. Commodity costs were also up about 1.5% for the quarter, and we still expect commodities to be up about 2% for the full year. Continuing on to G&A.
At the beginning of the year, we indicated that we expected our G&A for the year to be down about 1% in constant currencies, with fluctuations between quarters due to the timing of spending. For the third quarter, in constant currencies, our G&A was down 8%, which resulted in costs being down 3% through the first nine months of the year. We now expect G&A costs to be down about 1%-2% for the full year. Our effective tax rate was 24% for the quarter. We now expect our full year tax rate to be in the range of 24%-26%, down from 25%-27%. Although we may have additional favorable adjustments in Q4 as we finalize the amounts recorded at the end of last year related to U.S. tax reform. Turning to foreign currencies.
For the quarter, foreign currency translation hurt our results by $0.05 per share. At current exchange rates, we expect the impact of foreign currency to be a similar headwind in the fourth quarter, which would result in a full-year benefit of $0.03-$0.05. As usual, this is directional guidance only because rates will change as we move through the remainder of the year. Before I turn it back to Steve, I want to touch on our capital allocation. Our first priority remains investing in the business to drive future growth through initiatives such as EOTF. Our current expectation is that we'll spend about $2.5 billion in capital this year. As we communicated last month, we increased our quarterly dividend by 15% to $1.16 per share, the equivalent of $4.64 annually.
The dividend meaningfully contributes to our cash return target, which we increased to about $25 billion for the three-year period ending 2019 and reinforces our confidence in our long-term strategy.
Thanks, Kevin. We've provided an overview of the progress we are making and perspectives about why we remain so encouraged by our velocity strategy and the future of our business. Most of our largest international markets continue to drive momentum. The U.S. is growing sales as it makes investments that will enhance the experience of customers we serve. We're encouraged by the success of restaurants that have already put the growth initiatives in place. We'll continue to fine-tune our tactics, but we're confident that our strategy is clearly guiding our business in the right direction. McDonald's system is focused on execution and committed to unlocking even greater potential.
Thanks, Steve. We're now going to open the call for analyst and investor questions. Please press star one if you have a question and pound one to remove yourself from the queue. 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. Now, our first question is from David Palmer with RBC. David?
Thanks. Good morning. Question, I think, for Steve on the U.S. There's been a lot of change, obviously, in 2018, and I think people are trying to figure out which parts of this are temporary friction that you'll evolve out of into 2019 and beyond. Then maybe where you have learned something and you're going to make adjustments. I guess to summarize, you've had that shift in marketing dollars out of regional to national value. You have the Experience of the Future. Then, of course, people are hearing about these headlines about franchisees that are adjusting to a new structure of communication and decision-making, and I think people want to understand what adjustments you might have to make for that, too. Thank you.
Hi, David. Thanks. As we've said all along, really throughout this year, and it'll continue through 2019, we're taking on a really ambitious plan in the U.S. We're at that kind of the grind out stage at the moment where we're putting significant investments into the restaurant and adapting to changes in that. Naturally, that's just hard work. The good news is, look, we've always had a very proactive, positive relationship with our owner operators as much as we have with our suppliers. We call it the three-legged stool. Any conversations which are constructive and helpful into how we can better execute a plan, we're totally open to. Kevin referred to one or two things we're looking at with regards to EOTF, for example, on how do we minimize the impact of the downtime so we can come out stronger.
We're learning as we go along with regards to the most effective way of investing the national marketing spend versus the local through the co-ops. We continue to learn as we go along there. Breakfast is a good example where we feel there's more regionalization to breakfast, and therefore, we're going to swing a little bit more of our emphasis on the marketing side to the local co-ops to take ownership of that, and then we can invest in more national platforms in the center. I think this is evolving. What is really encouraging for us, and just keep reminding ourselves why we're doing what we're doing, is not only does the international business provide a helpful kind of signpost to what the opportunities are.
Actually, even here in the U.S. now, if we look at the analysis between the performance of restaurants which haven't yet adopted any of the EOTF and the major initiatives, all the way to those restaurants that have adopted multiple of the initiatives within their Bigger Bolder Vision plan, there is actually an absolute crystal clear correlation at both sales and guest count level and customer satisfaction level. That literally, as you step up the initiatives, whether it's going to be EOTF, whether it's table service, whether it's delivery, whether it's outdoor menu boards, for example. As you step up the number of initiatives the restaurants adopt, sales step up nicely with it, as do guest counts, customer satisfaction. You can expect us, clearly, as we always do, to work with the operators. Any constructive ideas, we're absolutely wide open to.
Our success is inextricably linked, and we actually see our franchisee relationships as being something which is something of a competitive advantage for us. It has been over time, and we see it continuing that way. I think fundamentally, the key elements that we have built into the Bigger Bolder Vision plan, which was really pulled together between our own leadership and the operator leadership through the course of 2017. We're still confident in, as I say, the international business provides a good signpost for that.
Next question is from Andrew Charles with Cowen.
Great, thanks. I wanted to dig into the gap to domestic quick service peers that narrowed in 3Q. You guys are obviously introducing impactful initiatives to grow mix through fresh beef and the new chicken tenders flavors, while remaining competitive on value through enhancements to the One, Two, Three Menu, as well as the new 2 for $5 promotion. Has the offset to your efforts been a more broad slowdown in service times across the U.S. system, or has this been confined to the disruption of traffic from remodel construction? If it is the latter, can you help quantify what the impact has been to 3Q comps?
I can start, then Steve can chime in. Let me talk briefly about the comp gap that you started talking about, the 70 basis points for this quarter. I guess, we certainly look at, I will say all of the above, current year comps, two and three-year stacks, just to look at kind of trends in our business. I think we feel pretty good about the fact that we have had seven consecutive quarters, 11 out of the last 12, of positive comp sales gap versus those QSR sandwich competitors. I would say that service times still are an opportunity, I guess I will let Steve talk a little bit about that. It is fair to say that service times remain an opportunity. That is one of the big opportunities that I think we still have to continue closing or kind of accelerating that gap.
EOTF drag, I guess, real quickly, we will not quantify every quarter what the EOTF drag is, but just to give a perspective, roughly, if I look at year-to-date comps in the U.S., roughly, it is probably around a half a point impact, negative certainly, on our U.S. comps. There is several components of that, as you know. One would be the downtime we are experiencing, we are focused on reducing that downtime. One would be a recovery time and how long it takes for us to get back to and kind of volumes that we were at plus the lift that we expect. Then net of that is obviously the sales lifts we are getting. As time goes on, obviously, our expectation is that the negative drags will start dissipating as we complete projects, while we will obviously be left with the sales increases and sales lifts.
Again, that is what we have seen in our international markets. I would say it is a little bit longer downtime, a little bit longer recovery period, but we are seeing similar overall trends in the U.S. than we have seen internationally.
Just to add to what Kevin was saying there. Interestingly enough for us, as Kevin said, our service times have slowed down. Interestingly, customer satisfaction has improved. Now we don't just want to rely on that, but it's interesting that as we have enhanced the broader experience, that we do see customer satisfaction levels improve. We also know that speed is a fundamental part of our DNA. When you look back over the last two to three years with the introduction of initiatives such as All-Day Breakfast, which have helped drive the top line but have added a level of complexity into the restaurants. Introduction of fresh beef, which has really enhanced the taste and the quality of the Quarter Pounder and the signature ranges. That has been an operational challenge to absorb.
Even if you look at such initiatives such as GMA offer redemptions and just the speed with which our drive-through teams can redeem offers and still keep the car count moving through. I think we've got ourselves a challenge into 2019 that I know the team are focused on, which is around how do we get back to the concept of net simplification? We're always going to want to introduce initiatives that are attractive to customers, which are reflecting where customers want us to go and the change in taste. At the same time, how can we maintain that discipline of making sure we take as much out as we ever put into the restaurants? I know in particular with the drive-through, that is a focus between our leadership and operator leadership, and a team has been established to make a meaningful headway into that.
It's slightly less of an issue for us in store, obviously, because the customers are now self-selecting how they order. Many are choosing to go to the self-order kiosk because they can get longer dwell time there. They don't feel so hurried. If you're slightly more in that kind of grab-and-go mode, let's say, over busy lunchtime, weekday lunchtime, then you go to the front counter as you typically have. You'll see greater focus on the drive-through, and we do have an ambition to bring the service times back down.
Our next question is from Eric Gonzalez with KeyBanc.
Hey, thanks for the question. Can you comment on the performance of breakfast in the U.S. during the quarter? Are you still losing share in the morning day part? Maybe if the loss is accelerating in the quarter, how much was breakfast hurt by the messaging and the advertising shift?
Well, as you say, we've made some tweaks through the year, actually, at breakfast, both in terms of regional spend. Some of the spends are regional. We're still losing a little share. It's very competitive out there at breakfast. We did make some changes in September, such as adding $1 any size coffee, $1 sausage biscuit, $1 sausage muffin. Again, the local co-ops choosing which of those items are best suited for their customer base. That shift was really largely through September, so it's a little early to tell as to whether that's going to be sufficient. We haven't had much new food news at breakfast for a little while, and you'll see some new food news in the fourth quarter this year, which I know the team are excited about, and so am I. It continues to be a battleground.
Just going back to Andrew's previous question and this one, Eric is, the reality is, it's a market share fight on traffic. There's real no tailwinds on traffic. Any expansion or any additions that anyone from our data is seeing is really through new unit additions. On a like-for-like basis, whilst we can get sales growing, I don't see many people out there in the sector who are actually growing traffic at all. It's a scrap, and it's a market share fight, and our teams are responding. We want to do better at breakfast. We've got some initiatives in place, which we're going to see out through the next few months, and also some new food news, which we think will re-energize the day part.
Our next question is from Brian Bittner with Oppenheimer.
Thank you. A question regarding the U.S. and just the store-level margins there. Can you tell us what the decline was year-over-year in the margins there when you strip out the EOTF downtime pressures? Meaning, what was just the decline in margins from the kind of the real pressures we're seeing? To follow up on that, how are these margin issues that you're seeing framing the current conversations that you're having with franchisees related to the overall strategy, whether that be menu strategy or EOTF strategy and whatnot? Thank you.
I'll talk about the financial piece of the U.S. margins, then I'll let Steve talk about the owner-operators related to that. A couple things hit. There were a few pressures on margins this quarter. One was overall labor pressures, that has two main components to it. One of them is increase in wages and labor costs, second is productivity, which would be the downtime and lost guest counts related to EOTF. About roughly half of the labor impact was due to each of those. Roughly half was on productivity, roughly half on wages. The other piece that's hitting margins is the depreciation related to our investments. As you know, if I think about the company-operated stores, obviously we're incurring capital to remodel those stores, the depreciation related to that is also hitting margins.
This quarter, we also had some commodity pressure, a little bit more than we had the previous two quarters and a little bit more than we expect to have next quarter. The combination of the labor costs and productivity, depreciation, and commodities, all hit company-operated margins and put pressure on them this quarter. The only thing I'd remind everyone of is our McOpCo margin dollars these days represent less than 10% of our total margin dollars in the U.S. because of the refranchising that we've done and the fact that we're now 95% franchised. Obviously, it does impact restaurant-level profitability and certain of those costs certainly have an impact on operators also.
Just to take up the owner/operator sentiment. Clearly stating the obvious, owner/operators want to grow cash flow, we want owner/operators to grow cash flow. Our plan was built and designed to do exactly that. Clearly, they're seeing many of the same input costs pressures that the company-owned restaurants are, when you've got your two major lines, food and labor, both with inflationary increases, that puts pressure on the bottom line. Really this comes down to it being a growth story. We're having strong average check growth, as you would have recognized. Partly that's because of the strategic investments we're making. We're seeing higher average checks at the self-order kiosk because people dwell for longer. We're seeing clearly a higher average check on our delivery orders that can be somewhere between one and a half and two times the normal average check.
Some of the other menu initiatives, such as the Glazed Chicken Tenders, for example, have helped boost average check. It's not an average check story. This is about getting the guest count moving, and if we can get both of those alongside each other, that'll give us the top-line growth that we're looking for. I think back in the day, it used to be a 2%-3% comp would have helped you stay flat at a margin percentage level. We need stronger growth than that. That's the mindset with which we build our plans. All of our markets in the developed world are facing similar input cost pressures. That's why the strength of the international growth is so positive because it does translate into cash flow growth as well as top-line growth.
That's why we're going to stay not single-minded, but certainly focused on getting the guest count momentum back into the U.S. business, where if we can generate that and maintain the average check growth, then that's going to be a lot more profitable for our owner/operators, which is what we're keen to see.
Our next question is from Matthew DiFrisco with Guggenheim.
Thank you. My question is with respect to the G&A savings and the improved guidance there. How sustainable are those lower rates of savings than what you had originally targeted for?
Again, at the beginning of the year, we said that we expect to be down about 1%. We're now saying 1%-2%. In our mind, it's not dramatically different this year than what we expected. We will have a little bit more decline next year, as certainly we won't have costs related to our operator convention that we have every other year. We won't have costs related to Olympics. Then we've taken some actions this year where we will get a full year of savings next year, such as the U.S. reorganization. I think we're well set up to achieve our G&A savings that we expected next year. This year is coming in a little bit, maybe more than we expected, but relatively in line.
Our next question is from John Ivankoe with JPMorgan.
Hi, thank you. Two, I think, basically, follow-ups. First, it did surprise me a little bit that the net EOTF impact in the U.S. was 50 basis points year-to-date 2018. I was hoping for some thoughts in terms of what you thought that impact would be as we got into the fourth quarter of 2018 and first half of 2019 as the first clarification. Secondly, half of the U.S. system will be on EOTF by the end of 2018. One could interpret that 2019 CapEx would be even higher than 2018 CapEx or revised 2018 CapEx.
I did want to make sure whether that was true or maybe some of the increase that we saw in this 2018 CapEx is in fact paying forward for some of the projects that you'll be doing in 2019, thus allowing your previous CapEx guidance in 2019 to remain unchanged.
Thanks, John. I'll take both of those. Regarding the net EOTF drag, if you will, I said on a year-to-date basis, it's about roughly half a point. It is fair to say that the impact in Q2 and Q3 were more than Q1. I guess I'll say it's safe to assume that it may have been a little more than half a point this quarter. We want to look at this on a longer term basis, because to us, this is a long-term initiative for the long-term sustainability of our U.S. business. I don't want to get into having to talk about a specific impact every quarter, which is why we've talked about it in a year-to-date. It is fair to assume that it was a little bit heavier impact on the individual quarter comp sales.
Regarding capital, we said that our capital this year, we expect around $2.5 billion. A couple of things I guess to note regarding this year's EOTF projects. One, a little bit heavier skewed to McOpCo, our company-operated stores. We've completed about 60% of the projects, the company-operated restaurants. A little bit more skewed to company-operated restaurants. The other thing that I'd say is while downtime is a little bit heavier and recovery period is a little bit longer, construction costs are probably a little bit higher than we originally anticipated too, partly because we're going at a quickened pace, we're not going to achieve some of the efficiencies that we may have thought that we were going to. Not dramatically different.
What that means for capital in 2019 is our CapEx should be relatively similar, maybe a little bit higher in 2019 than 2018. We will likely do a relatively similar number of projects, potentially a little bit less, but they're some of the higher-cost projects. If you think about what we got accomplished in 2018, we will get more than our 4,000 projects done, but some of them are a little bit skewed to the lower-cost, I'll say, easier projects to get done. In 2019, it'll be some of the higher-cost, more intense projects, if you will. Our overall capital should be relatively similar to the 2.5. Again, maybe a little bit higher than 2.5, but not substantially higher.
Again, we have seen some inflation, I'll say, in the construction costs that has impacted some of the costs. We do expect this overall impact of EOTF to start flipping positive as we progress through 2019. Probably in the back half of 2019 is when you should expect to see kind of the net impact of EOTF being net positive.
Our next question is from David Tarantino with Baird.
Hi, good morning. Steve, I want to come back to your discussion on throughput for the U.S. business. Seems like a big opportunity we've been talking about now for multiple years, and I know you've thrown a lot at the system in the past year or so in terms of complexity and new operating approaches. I'm just wondering, I guess if you can elaborate a little bit more on what you think the opportunity is, and what type of, in terms of drive-thru speed, in terms of time you think you can shave off of that and what it might mean for the sales going forward, and how quickly you think you can start turning the dial on that whether it's a 2019 or even longer term impact. Thanks.
Yeah, sure, David. I think
I think the greatest opportunity we have, as we look all around the world, and the U.S. is no different, is continuing to maintain our kind of system standards of day-to-day operations. You'll hear me talk a lot about running better restaurants, and that's not loose rhetoric. That's an underlying principle by which we're all embracing and, at the same time, consumers get increasingly demanding and therefore, they expect different forms of service. They expect greater interaction with technology. They expect more menu innovation, et cetera. It's always a delicate balance to get the operational foundation right whilst also creating enough energy and attraction in our business to win customers more often in a flat market, frankly.
Not going to put a quantification on the improvement of drive-through, but what we can do, and we have done, and you may even remember it from when we actually launched the Velocity Growth Plan back in March of last year. We're able to model really what we believe the car throughput would be, as you can positively impact service times. Whether it's from cars that may be turning away at the end of the lot because they could see the line and that will just turn them off and they'll carry on going, all the way through to just literally throughput through, and particularly in the peak hours, obviously, the lunchtime hours and the early evening hours. It's a fundamental truth that the quicker we're able to get service, the more cars we can serve because we are beginning to create the demand.
We just need to just be able to meet that now as well. We'll have more to say around it, but there are probably seven or eight sub-teams within the U.S. working at a number of different areas around complexity. The menu is one of them. Getting reliable technology working on a more consistent basis would be another. How we can ease the merchandising. We clearly have a broad menu, but how much of that do you merchandise? Do you tend to focus more on your highest selling items, for example? How we can also improve the training and improve retention of our crew in the restaurants would be another one. What other elements of the building and equipment could we continue to invest in, which would actually make it just easier for our managers and crew to run great restaurants.
Just getting back into the disciplines of day-to-day operations, making sure that as we release new initiatives to the restaurant, we provide fantastic training materials for our teams and make sure we don't overload them. It's kind of a multi-pronged approach. We will continue to be introducing things to our restaurants because that's what our customers expect. I do think we need to do, collectively, we need to do a better job, and I need to do a better job at ensuring that there's a corresponding reduction in just the workload for our managers and crews. They're working hard out there, and it's not easy, and we're committed to making a difference.
Next up is Jeffrey Bernstein with Barclays.
Great. Thank you very much. Perhaps looking outside the U.S. for a moment. Steve, you mentioned China and what sounded like encouraging commentary all around in terms of new leaders and their initiatives and how they're pretty keen to accelerate unit growth in what will be your largest market outside of the U.S. I'm just wondering if you can provide any more color around that in terms of performance, maybe the comps this quarter or just broader sentiment, because whether it's in comps or consumer behavior, all the headlines we hear about is caution. I would have thought we might have heard more of a tempering tale around the China growth story. Maybe you can provide any insight into anything you're hearing, whether qualitative or quantitative, that might indicate that.
Absolutely. Well, as I mentioned in my comments, I was out there earlier this month, actually, managed to spend two or three days in Beijing with our partners and with our management teams out there and obviously getting into the restaurant. To give you a sense on the quarter, sales were marginally up in China for quarter three. Guest counts were up stronger than that. They had a number of initiatives to drive customers into the restaurants, and that did give us a marginal positive sales comp. I felt really good about the fundamentals of the market. With 3,000-ish restaurants now, 75% of those have been remodeled to the full EOTF standard.
They are system leading for us in terms of delivery, both a combination of the McDonald's delivery service, MDS as we call it, which was the original system we adopted there, and then the use of a number of third-party operators now. It's dramatic to experience. I was in one restaurant in Beijing where they created a dedicated delivery area in the front of the restaurant where they were able to just take the riders, and the drivers would come in and we could just service them independently, so it didn't distract from the in-store dining experience for our customers. They continue the remarkable journey on the digital platform, for example. We've seen they now have got about 60 million app downloads, for example, and therefore building this sort of rich database of customer behaviors and understanding purchase patterns.
Also encouraging was just the interaction with our partners. They've got a good long-term perspective. Already previously announced a ramp up in new restaurant openings from 375 this year, it'll be just over 400 in 2019, it wouldn't surprise me to see that kind of rate of acceleration continue as you look into the out years. The new ownership and our management team have settled into a good, constructive working relationship. I think I overall feel really strong. We're in a very strong position in tier 1 cities, in the most developed cities. It's a bit tougher in the lower tier cities. Again, we're going to keep working on the best positioning for us. The investment levels in a restaurant, menu prices, and restaurant sales expectations as we open more restaurants in those lower tier cities.
We still want more to learn there, but we've got the right partners in place. We've got a deep understanding of the Chinese consumer and Chinese marketplace. Overall, I left China feeling really encouraged that a year, 15 months into the new ownership structure, that we've made a great decision. Also, I've got to say, what was also encouraging is that we're not really seeing any meaningful anti-American sentiment given some of the geopolitical issues that clearly exist between the countries. I think increasingly we're being seen to be a locally owned business of a global brand, and that's also encouraging as well.
We have time for one final question, and that will be Andy Barish with Jefferies.
I was just wondering, as you go through your kind of operating plan and look out towards 2019, your confidence in reaching your normalized targets that you've outlined before. Any gives and takes that we should be aware of at this stage, after what was termed kind of a choppy 2018?
I can talk about the financial targets, obviously. I think we've talked about that we're progressing on operating margin, so I feel very good about our sales target, our operating margin, our ROIC target, and our EPS target, as well as achieving our G&A target that we've set. As I think about all the things that we've set out there going into 2019, I think we feel pretty good about all of those. Obviously, the U.S. continues to be a very competitive market, but as we look overall, I feel real good about all those, and I feel certainly good about achieving our cash return to shareholders target by the end of 2019.
I think we enter 2019 with pretty good confidence in the business, knowing that, as Steve said, we still got a big street fight to continue in the U.S. just for us to continue getting all of our projects done, while at the same time trying to achieve comp sales increases and turn around guest count growth there.
Just to add to that, momentum is a very important psychological helps guide behaviors of our teams. Winning is contagious from market to market. I think with our new simplified structure previously, then the way we're going to adapt it into the new year, just the visibility of what's working from market to market is only getting better. The speed with which we are lifting, localizing, and then launching these initiatives has never been greater. Clearly, we go through our annual planning processes, and as we exit or look to exit 2018, I think 16 of our top 18 markets are in positive sales comp territory. Some of them are quite incredibly strong sales momentum as well. Certainly, as we go through the early look at plans for next year, I would say our managing directors in the markets are confident in that momentum continuing.
Clearly, we're planning to grow in each and every market around the world. I think the next four to six weeks as we shape up the detail of the 2019 plans, that there is a mood of optimism amongst the managing directors and our field leaders. I share that. Honestly, none of this is taken for granted. There is not a single market out there where there is easy growth. There just simply is not. Even what had typically been the hyperinflationary countries where you have a lovely tailwind, the likes of a China or Russia historically, these are now much more mature markets, much more competitive, and we've had to sharpen our game in those markets as well. We're confident in the direction we're heading and excited about what's to come.
Thank you, Steve and Kevin, and thank you, everyone, for participating. That will end our call.
This concludes the McDonald's Corporation investor call. Thank you for your participation, and you may now disconnect.