Arcos Dorados Holdings, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• The company's business model has shown resilience, with 2024 being an example of outperforming in various environments. Full-year systemwide comparable sales grew 1.7x blended inflation (excluding Argentina), and adjusted EBITDA reached $500 million for the first time.
• The Four D Strategy (Digital, Delivery, Drive-thru, Development) leveraged structural advantages, with digital sales up 18% in U.S. dollars in 2024. Off-premise sales through delivery and drive-thru contributed about 44% of total sales.
• EOTF restaurant openings were within guidance for 2024, with 79 new free-standing locations and over 150 modernizations, bringing EOTF penetration to 67% of the total footprint. Target to reach 90% EOTF penetration by year-end 2027.
• Margin improvements: Full-year EBITDA margin was an all-time high. Food and paper costs were flat or lower as a percentage of sales in all divisions. G&A expenses were lower compared to 2023 due to natural hedging from corporate teams based in Argentina

Segment Performance

• Brazil: Total revenue in constant currency grew 9.2% in the fourth quarter, with 5.5% higher comp sales. Digital channels generated nearly 70% of sales. U.S. dollar revenue declined due to Brazilian real depreciation.
• NOLAD: Total revenue in constant currency rose 5.5% in the fourth quarter, driven by 4.1% higher comp sales. Digital channels accounted for about 40% of sales in Q4 2024. EOTF penetration was 40% in Mexico and under 50% in Costa Rica and Panama.
• SLAD: Comp sales rose 5.1% in the fourth quarter and 9.8% for the year (excluding Argentina). Digital channel contribution to total sales improved from 51% in 2023 to 57% in 2024. EOTF penetration was 55% at year-end, with most modernized markets in Argentina, Chile, Ecuador, and Uruguay

Guidance

• Expect to open between 90 and 100 EOTF restaurants in 2025.
• Total capital expenditures for 2025 are expected to be between $300 million and $350 million.
• In January 2025, initiated a liability management transaction with issuance of $600 million in new debt due in 2032, used to fund tender offer for 2027 notes and redeem untendered portion, resulting in two notes outstanding with $335 million due in 2029 and $600 million due in 2032. Expect net debt-to-EBITDA ratio to end at about 1.4x

Risks

• Macroeconomic challenges in many markets, including currency depreciations (Brazilian real, Mexican peso) and economic corrections in Argentina.
• Geopolitical events and consumer uncertainty in some markets, particularly Mexico
• Food and paper cost pressures, especially in Brazil related to beef costs

Question and Answer

Q: Can provide an update generally on the ROI on new free-standing stores built over the last few years?

A: Mariano Tannenbaum - Target 20% on first year return on investments for openings, and remain at or above historical average on openings Q: How are sales trending so far in the first quarter across markets?

A: Marcelo Rabach - First quarter 2025 expected to be a low point due to leap year lap, weak currency levels, and geopolitical uncertainty; operating conditions expected to improve gradually Q: Are you seeing any impact from anti-U.S. sentiment, particularly in Mexico?

A: Marcelo Rabach - McDonald’s is most loved QSR brand in Latin America, with high brand reputation scores in Mexico, so not seeing significant impact Q: What are your expectations for food and paper costs this year? And where do you see potential offsets?

A: Mariano Tannenbaum - Food and paper costs pressure mainly from Brazil beef costs; offset by managing menu pricing, product mix, supplier pricing; other divisions (NOLAD, SLAD) not seeing same pressures Q: How is traffic in Argentina evolving? And is there a lower base tax factor?

A: Marcelo Rabach - Consumption in Argentina recovered at end of 2024; lower base tax not highly relevant; recovery in sales and local team efficiencies driving margin improvements in SLAD Q: What is driving SLAD market expansion?

A: Marcelo Rabach - Argentina recovery, strong performance in Chile, Colombia, and Uruguay Q: Better understand the 4.1% same-store sales from NOLAD A: Luis Raganato - Strong affordability platform in Panama, strong Mexico sales growth, and modernization of restaurant portfolio driving growth Q: Color on comp sales breakdown between traffic and ticket in Brazil A: Marcelo Rabach - Brazil comp sales driven by both traffic and average check growth; Q4 2024 average check drove growth with flat guest counts Q: Performance in Brazil by channel A: Luis Raganato - Front counter positive, delivery with strong growth, drive-thru seeing moderation but still room for improvement Q: Additional cost pressure outlook A: Mariano Tannenbaum - Main pressure from Brazil beef costs; working to offset with improvements in other divisions and supplier pricing