Arcos Dorados Holdings, Inc. Q2 FY2025 earnings call

Thank You and Introduction - Luis Raganato thanked the Executive Chairman and Board, congratulated team members on new roles. ### Quarter Highlights - Total revenue $1.1 billion, constant currency revenue solid with 12.1% higher system - wide comparable sales. Adjusted EBITDA $110.1 million, excluding last year's labor contingency reduction in Brazil, adjusted EBITDA grew by over 7% and margin expanded by about 40 basis points. Opened 20 new Experience of the Future restaurants in the second quarter, with plan to deliver 90 - 100 this year. Acquired 3 existing restaurants and exclusive franchise rights to Saint Martin. Marketing and digital campaigns drove strong comparable sales growth in NOLAD and SLAD, protected market share in Brazil. Digital ecosystem accounted for about 60% of sales, loyalty program available in 6 countries with seventh in pre - launch phase, covering 2/3 of restaurant portfolio and expected to be in 90% by end of year. Loyalty program members visited more and represented almost 23% of sales in 6 markets. In Brazil, Mequi do Dia campaign, Minecraft Happy Meal, Formula 1 sponsorship were implemented. ESG - related, published 2024 social impact and sustainable development report with 6 pillars: Climate change, Circular economy, Sustainable sourcing, Youth opportunity, Family and well - being, Diversity and inclusion.

Total revenue reached $1.1 billion. Adjusted EBITDA in the second quarter was $110.1 million. In Brazil, total revenue in constant currency grew 2% in the second quarter, with positive comp sales despite negative industry volumes, offsetting volume pressure with targeted pricing and product mix. NOLAD's total revenue rose 6.9% in constant currency, with comparable sales up 1.8x blended inflation, and digital sales penetration remained steady. SLAD's revenue rose 37.8% in constant currency with comparable sales up 1.4x net inflation, and digital sales penetration surpassed 60%. Loyalty program members represented almost 23% of total sales in the 6 available markets during the second quarter.

2025 Plan - Plan to deliver 90 - 100 new Experience of the Future restaurants in 2025. ### Acquisition - Acquisition of 3 existing restaurants and exclusive franchise rights to Saint Martin, expected to have no material change in consolidated results. ### Capital Expenditure - Expect to continue making prudent investments in growth, with CapEx guidance between $300 million to $350 million, and CapEx is back - ended.

Macroeconomic Challenges - Challenging macroeconomic environment, uncertainty, and weakening consumer confidence in the QSR market. ### Brazil Consumer Environment - Brazil has a challenging consumer environment with more aggressive competition, and weather had an impact on the dessert center.

Q: How do you assess the balance between foot traffic, pricing, product mix, and profitability in Brazil? Additionally, what internal initiatives should we anticipate from you to potentially reignite same - store sales growth in the back end of the year? Do you have any preliminary insights on demand trends in July for Brazil and Mexico? Brazil's sales remain quite subdued in the second quarter of '25. How is the company perceiving the consumer environment as we turn into the second half of '25? And how are the revenue management initiatives expected to help in sales momentum ahead? With respect to Brazil also, can you discuss consumption dynamics during the second quarter and in July/August? Was weather a factor in the second quarter deceleration?

A: The market continues to face a challenging macroeconomic environment. We managed to deliver positive comp sales by offsetting a drop in traffic with targeted price increases and product mix. Contribution to sales came more from average check than volume. Important marketing actions include Mequi do Dia and Mequi Fest digital campaign. In Brazil, the challenging macroeconomic environment remains, but we have a comprehensive plan including short - term transactional initiatives and long - term focus on building the brand's aspirational aspect. Weather had mainly an impact on the dessert center.

Q: Could you elaborate on which regions and specific actions contributed most significantly to top line and margin performance in NOLAD? How much of the 12% same - store sales growth in Mexico was driven by positive calendar effect? How sustainable is this going into the second half? Can you comment on the underlying sales and margin performance of Mexico, specifically excluding the Holy Week impact?

A: NOLAD has seen sales increasing at 1.8x inflation, with Mexico standing out. Margin in NOLAD improved by 450 bps compared to the same quarter of last year, due to better payroll, service fee, occupancy, and other expenses. The 12% same - store sales growth in Mexico had a positive calendar effect, and we are seeing similar performance in the third quarter. Excluding Holy Week impact, Mexico's underlying sales and margin performance is good due to various factors like better operating income from transactions.

Q: What's the view on a regional basis regarding ticket and traffic trends?

A: In general, there was volatility and challenging marketing conditions. Brazil's comps were up 1.8x blended inflation with low single - digit contribution from traffic. Mexico stood out with strong performance in the third quarter. NOLAD's sales strength was driven by front counter, dessert centers, and delivery in local currency with positive volume growth. SLAD's comps were up 1.4x than inflation with mid - single - digit contribution from traffic and average check in line with inflation.

Q: Could you expand on the changing competitive landscape in desserts? What's the margin of dessert centers and what percentage of sales does this contribute to the total?

A: Dessert centers as of the end of 2024 represented almost 10% of total sales. The segment has significantly higher margins in relative numbers. There is increasing competition in the region, mainly in Brazil, and we have implemented a solid plan regarding aggressive pricing and innovations like the Grimace Shake.

Q: How are you thinking about pricing and your ability to offset higher costs in the context of softer demand? Given your focus on affordability and prudent pricing to drive traffic and protect market share, what does this mean for margins? And do you still think you can maintain margins stable ex one - offs on a consolidated basis?

A: We will continue with our strategy to increase prices in line with inflation. In Argentina, we have been prudent with pricing and seen good results. We expect to maintain or be close to the EBITDA margin achieved in 2024, excluding one - offs related to labor contingencies in Brazil. We are focusing on cost efficiencies and minimizing cost increases.

Q: Could you share more about how you're challenging the team to ensure that every dollar in growth generates the best possible return? Where do you see the biggest opportunities to further maximize those results?

A: We have 3 priorities: today's business, growing the business, and tomorrow's business. We are revisiting the whole process, focusing on modernization of the process, implementing innovative tools like artificial intelligence to better estimate sales and manage the process. We are also looking at reducing costs and making investments more profitable to drive better shareholder return.

Q: Why did we stop releasing detail by region? What's the amount paid for Saint Martin acquisition? Can you provide more detail on the acquisition of short - term investments of $106 million in the investment cash flow?

A: The information by region is still in the earnings release, just a different format to eliminate redundancy. The cash payment for the rights to Saint Martin was not a material sum. The short - term investments of $106 million are time deposits executed with top - tier banks to minimize the current cost of new money funds raised from the latest bond issuance in January.

Q: Can you please give us an update on the competitive environment in Brazil?

A: In Brazil, there is reducing guest traffic in the sector. We remain focused on offering a compelling value proposition with competitive pricing and great experience through all channels. The competition continues to focus on promotional activities. We have a comprehensive plan including Combo del Dia with aspirational aspects like Minecraft and the Formula 1 menu, and we are able to maintain market share.

Q: What's the nature of Francisco Staton's new role as Chief Strategy Officer?

A: Francis has been with the company for over 10 years in increasingly senior roles. He is uniquely qualified to help develop a long - term strategy for every aspect of the business, having supported brand building and sales generation in Brazil and Mexico, led operations in several regions, and been Divisional President for SLAD. He is working closely with Luis on the pillar of tomorrow's business.