Arcos Dorados Holdings, Inc. Q4 FY2025 earnings call

• 2025 marked solid finish with double-digit revenue growth, expanded margins, and strong adjusted EBITDA growth despite challenges. • Focus on three priorities: optimizing today’s business, maximizing returns on capital investments, preparing for tomorrow’s trends. • Fourth quarter progress on pricing, cost control, marketing, and investment in restaurant development and digital capabilities. • Marketing activities included integrated menu strategy leveraging Stranger Things, value platforms in markets, menu innovation, and Happy Meal sales. • Digital penetration at 62% of total sales, loyalty program with 27.2 million members. • Divisional performance: SLAD with sequential improvements, Brazil with modest comp sales growth and strong digital/loyalty, NOLAD with comp sales growth and Mexico as main contributor, SLAD with strong EBITDA growth and margin expansion. • Adjusted EBITDA growth in fourth quarter, Food and Paper costs trends, payroll expenses trends, G&A expense reduction through headcount reduction, tax benefit in Brazil, capital structure and allocation initiatives, 2026 openings and CapEx guidance, dividend declaration.

Fourth quarter total revenue reached $1.3 billion, up 10.7%. Adjusted EBITDA was $172.7 million, up 17.2% with an 80 basis point margin expansion. Full year 2025 total revenue grew almost 5% in U.S. dollars, full year adjusted EBITDA was the highest in history. SLAD had sequential improvements in Brazil and NOLAD, contributing to consolidated top-line growth. Brazil saw modest sequential improvement in comparable sales growth with strong digital platform and loyalty program support. NOLAD comparable sales grew 1.7% with strong guest traffic growth in several markets, led by Mexico. SLAD comparable sales increased 49.5% driven by strong execution in Argentina. Digital channel penetration reached 62% of total sales in fourth quarter, loyalty program had 27.2 million registered members at year end.

• 2026 openings guidance: 105 to 115 restaurant openings. • Total capital expenditures guidance: $275.0 million to $325.0 million. • Board declared cash dividends of $0.28 per share, up from $0.24 last year. • Expect underlying profitability trends of fourth quarter to continue, potential for higher gross margin in 2026, focus on cost and expense discipline for incremental margin improvement.

Q: Can you please explain the higher taxes paid during the quarter and if we should expect this higher level going forward?

A: Regarding the ETR, analyze on full-year basis. Full year 2025 ETR was 37.7%, improvement vs 2024. Fourth quarter rate high but in line with projections, no structural changes. Expect 2026 full-year ETR in line with 2025, quarterly variability possible but annual profile stable.

Q: Can you give more color on the drivers of margin expansion in Brazil and SLAD?

A: In Brazil, improvement in gross margin, payroll (excluding one-offs), occupancy and other operating expenses. In SLAD, payroll expenses, royalties, other expenses leverage, better other operating income, flat G&A, 180 bps improvement in margin vs same quarter 2024.

Q: Given the recent depreciation of Latin currencies, does this change your outlook for top line and margins versus the time you shared guidance?

A: Brazilian real and Mexican peso have appreciated, FX performing better than expected, real appreciation with modest inflation has positive impact on results.

Q: How should we think about Brazil’s comp sales throughout 2026, bearing in mind all of the initiatives undertaken by the company, and the additional resources from the increase in income tax rate exemption level in Brazil?

A: 2025 Brazil market challenging, but managed positive comp sales and better margins. Consumers rational with spending power, focus on pricing and mix to increase average check. First quarter performance in line with expectations, expect consumption levels to normalize in second semester.

Q: In addition to a lower rate and no longer needing to hedge part of the U.S.-denominated debt into Brazilian reals, are there any other monetary benefits of raising debt in Brazil or in BRL, i.e., lowering pretax accounting results that lowers tax, avoidance of taxes for taking money outside the country, etcetera?

A: Identified market opportunity to lower debt cost, structured loans with derivatives to maintain debt in U.S. dollars, avoided cost of carry in Brazil, resulting in lower interest rate, captured larger tax shield.

Q: On Brazil sales, Economy, are you seeing any interesting behavior from cohorts buying the Konamiqi, i.e., adding other items to their order or increased traffic?

A: Value platform gives chance to shield market share, has good results, some add-ons, maintained market share, expects operating environment to improve in second quarter and on.

Q: Headcount reduction: can you give more color on the headcount reduction—both financial impact and strategically why it makes sense for the organization?

A: Maintaining strong discipline over G&A expenses, implemented G&A reduction completed, ongoing cost base reduced by more than $10.0 million annualized, positions to generate operating leverage in 2026, restructure in three divisions and corporate level.

Q: Why was CapEx for 2025 below initial guidance despite a higher number of openings? Is this FX-related? And how does investment per unit and ROI for recent openings compare with previous vintages?

A: Remained focused on optimizing capital spending, exceeded guidance, accelerated initiatives with localized suppliers, rightsizing restaurants, FX movements helped reduce per-unit cost without compromising quality, contributed to increase in free cash flow.

Q: What is the allocation of your 2026 CapEx budget across restaurant openings, reimaging, technology, and other areas?

A: In 2025, ~80% of CapEx allocated to development, ~20% to non-development (technology). For 2026, ~85% to development, ~15% to technology and other investments.

Q: Are you planning to increase modernization rate to hit your year-end goal of Experience of the Future of 90-plus percent?

A: Not explicitly stated in provided transcript.

Q: Are there already signs of same-store sales recovery in 2026 in Brazil and NOLAD? And when do you expect same-store sales to reach inflation levels according to the company’s algorithms?

A: Plan is to deliver comp sales growth in line with inflation as year progresses, strategic marketing plan in place. Brazil situation expected to last, NOLAD comparable sales grew 1.7% with volume growth, expect to reach inflation in second semester.

Q: Can we explain NOLAD’s margin fall despite the royalty rate being 100 basis points better? And what should we expect for NOLAD margins in 2026?

A: Margins in NOLAD challenged due to sales growing below blended inflation, deleverage in fixed cost lines, Food and Paper cost pressures in second half 2025, but saw improvements in occupancy and other operating expenses, leverage in payroll line, expect to generate leverage in 2026 with early signs of improvement in Food and Paper costs in first quarter 2026.

Q: Related to same-store sales in Brazil. At 2% same-store sales growth, I assume traffic in Brazil is at least mid-single-digit negative. How has it evolved sequentially versus the third quarter? To which factors would you attribute this evolution? What are the drivers for an eventual inflection in 2026?

A: Luis addressed earlier, plan is to build healthy comp sales, strategic marketing plan, new affordability platform performing well.

Q: What is your base case for beef prices in Brazil in 2026? And how have you prepared your menu board for the next twelve months in the context of the costs?

A: Beef inflation in Brazil was up ~30% last twelve months, seen two consecutive quarters of sequential improvement, trend continued into early 2026, confident in recovering gross margin, real appreciation helps. Menu board has various categories, beef, chicken, desserts, beverages covered, focus on recouping pre-pandemic levels, new affordability platform performing well.