Arcos Dorados Holdings, Inc. Q3 FY2025 earnings call

Luis Raganato highlighted balanced US dollar revenue growth, solid profitability, and successful navigation of challenging consumer dynamics. Marketing and digital were key differentiators. Mariano Tannenbaum discussed Brazil maintaining market share leadership, NOLAD's performance, and adjusted EBITDA details including tax credit impact. Focus on Recipe for the Future platform, youth opportunity, and three priorities: optimizing current business, maximizing CAPEX ROI, preparing for long-term.

Total revenue reached $1.2 billion, a new single-quarter high. System-wide comparable sales rose 12.7%. Digital channel sales rose more than 11% versus the prior year and generated 61% of system-wide sales. Brazil's total revenue grew 4.9% in Q3, with digital channels accounting for almost 72% of system-wide sales and 30% of sales involving Meumeki loyalty program members. NOLAD's total revenue rose 6.1% in US dollars, with strength in Mexico, Costa Rica, and the French West Indies; Mexico's comp sales rose 6.3%. SLAD's sales growth remained strong, with digital sales penetration at 61.5% during Q3. Adjusted EBITDA was over $200 million in Q3, but excluding certain impacts, US dollar adjusted EBITDA declined by about 3% due to food and paper cost pressure. Opened 22 restaurants in Q3, on track to meet 90-100 openings guidance for 2025.

On track to deliver 90-100 restaurant openings in 2025. Guidance for 2026 to be given in Q1 2026. Marketing plans for remaining 2025 weeks, including FIFA World Cup sponsorship in 2026. Balance sheet strong with net debt to adjusted EBITDA ratio of 1.2 times; new syndicated revolving credit facility provides flexibility.

Challenging consumer conditions in largest markets impacting guest traffic and disposable income. Persistent food and paper cost pressure, especially in Brazil. Macroeconomic uncertainty in Mexico, including potential tariff policies and social reforms affecting operations.

Q: On tax benefit and EBITDA, was the decline related to food and paper costs?

A: Mariano Tannenbaum said margin contraction was mainly related to food and paper costs, especially beef in Brazil, partially offset by payroll efficiencies.

Q: Brazil market share evolution and competition?

A: Luis Raganato said traffic in Brazil challenging, visit share strong, focus on recouping margins, and launched EconoMeki value platform.

Q: Dividend taxation in Brazil and repatriation?

A: Mariano Tannenbaum said taxation not approved yet, but efficient cash management structure in place.

Q: Expansion plans in 2026 and pricing?

A: Luis Raganato said focus on compelling value proposition, flexible growth plan, prioritizing profitable markets and formats.

Q: Input costs in Brazil and same-store sales trends?

A: Mariano Tannenbaum said beef cost pressure easing, Luis Raganato discussed same-store sales trends in Brazil, Mexico, and Argentina, focusing on average check and channel performance.

Q: Chicken mix shift in Brazil and Argentina?

A: Luis Raganato said McCrispy chicken platform gaining share, with innovations like spicy chickens and chicken bacon ranch.

Q: Cash flow generation and buybacks?

A: Mariano Tannenbaum said board considers buybacks based on capital allocation priorities and cash generation.

Q: Promotional strategy in Mexico and NOLAD margins?

A: Luis Raganato discussed promotional strategy in Mexico, Mariano Tannenbaum noted NOLAD margin pressure from food and paper costs.

Q: World Cup impact and operating leverage?

A: Luis Raganato said FIFA World Cup sponsorship will positively impact traffic, Mariano Tannenbaum and Luis Raganato discussed operating leverage through digitalization and operational efficiencies.