Arcos Dorados (ARCO) 14 Aug 242024 Q2 Earnings call transcript

Good morning, everyone, and thank you for joining our second quarter 2024 earnings webcast. With us today are Marcelo Rabach, our Chief Executive Officer; Luis Raganato, our Chief Operating Officer; and Mariano Tannenbaum, our Chief Financial Officer. Today's webcast, which is being recorded will consist of prepared remarks from our leadership team, which will be accompanied by a slide presentation also available in the Investors section of our website, www.arcosdorados.com/ir.

As a reminder, to better view the presentation on the webcast platform, please scroll over the upper left-hand part of the screen and click on the arrows to maximize the slides. After we conclude our opening remarks, we will answer your questions, which you can submit using the chat function on the left-hand side of the screen.

minimize to to function. the need will the access slides chat You and the call and section forward-looking release statements, contain of filings refer earnings Today's forward-looking the I will SEC. you to our recent with statements We we statements changed reflect forward-looking revise to non-GAAP certain obligation financial assume accounting new principles, to no or or any update events report or results. Form filed reconciliation results and Investors financial today the are non-GAAP with encouraged of to these X-K. SEC on review financial statements the unaudited Marcelo, over to you.

will we second with Today, from Dan. you believe through our we the you, Thank been rating our growth for results take consumer environments and are quarter, demonstrates consistent our and June have profitability we facing which strategy context. this business model Sales year.

discretionary excellence, as in second research, strong of is every share value quarter, plan. we Top McDonald's Gap] level to units, spending. service guests for quarter to support gains with factors great market these drive-through convenient our the can well convenient to own alternatives freestanding and a can be digital well expanded advantages. versatile year, Total brand main experience half Today's the XXth and sales in omnichannel industry. market, sophisticated position restaurant in our remained sales new delivery where support sources consecutive in Caribbean. second XD region share The strong growth openings approach, comparable We Systemwide sales, in XX XX leadership returns additional to XX EOTF market. the become EOTF is service nearly years with our as revenue including growth strategy the control the Brazil, line of many continuing discerning the competitors for receive strong service the McDonald's competitive According QSR other high-quality in this restaurant to of freestanding To restaurant the expectations in market quality, to U.S. are restaurant growth. region's more excluding inflation, with their and with value comparable fair footprint. No for up outpacing Argentina. first match digital first meeting their first established grew including the offerings America new X% value have for and and structural QSR food multiple capabilities we traffic quick investments precedents and was in growing This as favorite will was blended have consumers Latin the year come. for in location operational on unit Guest to indication quarter with [Audio the growth market comparable at industry in rose biggest restaurant on openings focused our brand for continued the extend added the to for ever XX restaurants dollars. Luis? half, the

the period boosting XX% a or growth good October, about the U.S. in loyalty of sale sustainable Brazil's identified of the loyalty comparable almost program about generated with I Marcelo, times rose volume equally average business. in XX% in we more to Thanks, mind division you sales Gap] total the will two and has and terms. contributing dollar and The their in keep Brazil's use campaigns minutes. growth. in included mill-making self-order customer been everyone. track sales. data. strong for a Please family program sales few check that to that and be [Audio morning, Delivery tell marketing to launched Long-term kiosks inflation strong

Big support chicken sponsoring continued the Brazil to also We Brother category.

for Week in division, penetration. more accounted And entire sales least comparable at time promotions for limited sales Holy than and price, in NOLAD's grew quarter's most tasty [indiscernible]. desserts. strengthen grew prior We the quarter. the net channel sauce sales growth. Mexico’s prior guest digital offers digital to run and XX% grew of with volume also Digital XX% sales higher year the versus the

initiatives markets, Against and markets in XX% of are prior competitive the Uruguay, in digitalization the marketing outperformed marketing happy Ecuador the brand launch in offerings indulgent macroeconomic very included X% in preference. Gap] year, with with believe share in of excluding regional almost gain half the against in new that us of country. These and category the Gas Snacks Mac, the quarter attractive the inflation, to Mexico, Now the volumes categories Argentina. menu position [Audio big and accounted X growth remains of stabilize. strengthen for to will challenging. desert conditions also Colombia, the several indicators we we imported quarter was leveraged Dorados leading such capitalizing divisions Argentina. excluding backdrop, burger versus offerings included this to of XXXX, the platform Arcos brand best innovations Formula pounder delivering in and well first best as chicken evident results. growth, on drive [indiscernible] XXXX. exceeded half market country's The the in this cheese Cheeseburger as meal sponsorship this and in the property growth Strong for blended volumes activities Argentina We the Chile, Colombia. The first the

drove almost Rica on Panama Brazil, to it sustained leaders volume prior According gains to this to QSR research, to when delivering our continued and say is biggest of during about channel year, tell the generation Rico. a the important this and but you. Chile, half building In advantage our first activations this Costa and you related strong addition, Puerto to all of share fair growth more the we the generate gains QX I bonds market top to on we release, measured that Mariano, segment. versus XXXX, during local half over share Ecuador, come in market of sales Panama, first sports sponsorships. among of sales X we back brands we the the additional added point in first According maintaining market XXXX, especially the focusing Colombia, experience in football about research proprietary by

Thanks, relatively Luis. labor the to due about Brazil. flat margin grew [Audio with be with contingencies of line revenue favorable year. versus in in judgment Gap] reduction a To prior in fair, dollar a

expenses geographic Dorado's Excluding to higher better absorb currency and consumer this Brazil, region. information and payroll dollar Arcos the a as food flat about Brazil that operating vapor, payroll the of factors weaker environment positive result Without a these of came reduction other second last utilities in in a occupancy the robust highest This will technology. within revenue, increases versus versus our the quarter operating flat quarter. external G&A percentage pressures This was in business, of a from [indiscernible] for line occupancy the expenses. contingency able the results year. U.S. and and less the in number are offset across quarter Most pressure Dorado's of be other Alcos and history. margin prior refis, and given

all continue to delivery mentioned, sales channels. other outpaced sales Luis exceed As

to a percentage payments fee as our refis. increased partners of result, delivery a As

in region, activity business. that Additionally, delivery monetize investing is segment to better home of the strategy successfully penetration our in been promotional this we the increasing of the have delivery

to experience all seen to guest more offered quarter. than because before, In tools in best restaurants energy ways Market cost the far offices. markets are level, largely in writing the we increases and utilities, have In unit we're and ever more working digital efficiently. currently identify terms response, their consumption businesses reduce and of systems restaurants run in

about year quarter, digitalization sales. growing in you in challenging out efficiencies. with to prior SLAD. versus Colombia, were Arcos of restaurant-level each and active quarter, slightly in Over in for of digitalization the occupancy term, EBITDA were Dorados other even compared division accounting year users, continued identified other the the conditions the through Arcos macroeconomic in tools. Brazil flat and Earlier, is system-wide paper sales and cash of high to explained. a penetration the combined Sales brought leading generation, told and were to sales Sales while Costa generate Dorados. in environment last short despite Argentina. each XXs this was very reasons each identified working and last for higher quarter, Rica, employee the the long-term consumption the had was generate download in the managing the is both, I have competitor. U.S. and payroll dollars as grew with and increasing flow challenging every with to year. were schilling we U.S. in new sales in dollars NOLAD number XX% XX% off-premise we trailing ever, operations Mexico, Brazil, Food already of expenses, expect Brazil, XX% penetration channels for here. markets XX-month dollar of in in digital U.S. and Enable XX% are each NOLAD operating highest few X.Xx growing account about strong last history sales better such trends the nearest XX% in particular, year I team grew The the in than mid-XXs the we restaurant a higher expenses Payroll years, versus and in the

we It's XXXX. of July [Audio loyalty Over than year-end members registering evolve why as digital members. as have time, deployed to alike innovation bring customers active and more We will Gap] million XXXX. XX XX, by loyalty

XX standpoint, it to days, and growth. in are historical frequency EBITDA million, close Trailing ever member highest visit believe second a with X.X year, investments totaled relatively in of seasonally net from capital Capital opened quarter second has XX from restaurants. expected X.Xx months restaurant healthy quarter in than generated you. been, compared normal Marcelo, of be quarter. the Xx we capital at While this to and is and to of still we flow first quarter is new EBITDA year, the investments of cash keeping XXXX. freestanding it flow the loyalty with with structure in expenditures conversion the a non-loyalty. for to back openings early All remain were expect leverage of portfolio. working Normalized will macroeconomic stronger the balance bring the $XX end we a cash very we the We at operations the that here better

and Current years August agreement renewal. brand the [indiscernible] X, master renewal in successful been about beginning in the the had extend of operator to franchise unprecedented XXXX. America system. A Okay, an and process. additional with profitability. generated strategy strength a on McDonald's dollar market talk X XD the MFA McDonald's for to respect until has the MFA August execution Latin Arcos disciplined let's XX

McDonald's the received and brand in of from XX-year January with renewal we optimistic a Gap] XXXX. its we are Given potential record success, beginning notice and new we all MacDonald’s MFA And this that for America X, Caribbean. Latin will [Audio track the shareholders. Growth a reach

market this to informed in expect appropriate. the process as We developments keep of

Q&A, we open final would sustainable the to thoughts, with for Before I leave and call like some long-term results. resilient, you

restaurant We freestanding the platform. leveraging the have delivered portfolio experience best our and convenience digital consistently of guest

good positioned Our more making in U.S. flow second dollars and the because financial consistent for quality, what to to where platform terms price, markets. are positive cash we right a a to from sustainability thing the results. do, macroeconomic experience about point of is [indiscernible] for to generate is value cleanliness the is in dollar despite just is the we EBITDA growth business. than U.S. we sustainable expect impact delivered it and and quarter their We service believe know It second-best it about

to Finally, and see the strategically Q&A growth to as McDonald's as you We industry session. possible. profitably QSR well start brand. the for [indiscernible] both for over tremendous the Dan, as

We Instructions] questions several Gap] well. as here [Audio [Operator have

to asks -- So, America you royalties consolidate of what and when from think franchise terms, us to issues color expected know asks Santander if we details [indiscernible] commitments. Eric of Ford the Fuchs, your related are there MFA try the and from on And those. Eric I'm things first [Audio on MFA and the renewal we the master going to the release do time have the timing, topics. there MFA agreement. in is regarding Huang Alejandro significance growth topic. expect new like more for Gap] is can date about if to of asks the he resolve more to Bank outstanding to some

putting so, we'll you, start and those with And one Marcello. with that all together

Okay.

Dorados and Arcos commencing August which notice all McDonald's on MFA, to You provided X, on by X, new McDonald's received conditions under by to January XXXX, XX was provided Dorados. Arcos XXXX, terms

includes the the complex specific renewal. current a requirements. document laid of out And we regulatory in with will part additional that process MFA in renewal communicate accordance As applicable legal is the information the a time and procedures line for --

margins. question relates other to Alejandro's

excluding And you the is line can I top you is where So, pressure margin that us dynamics, the and expense guess, one, Mariano. understand solid positive help gross for coming from?

we will but The main segments, for some Gap] grows delivery in the other market and efficiencies lastly, productivity are are see expenses, line bps. with a in sales in many the confident in also we -- seeing more than operating profitability that are we more normal [Audio gains the coming is our line, scheduling to delivery looking are accretive we Then systems seeing for channels. our pressures as in are future, benefits and than of forward, each And highly we in the as costs. but investments new we we offset when to bring That, in will restaurant, mentioned, are in platform see will rest seeing the quarters. it's that other markets. allow we where at the decrease to utilities margins the margin in pressure the means decrease increases and bring the and of segments, same these that other example, to same growing drive That XXX these more in they that implementing productive digital seeing be faster will the that than

MFA, and in demand and want from Bortoluci Marcelo, those We the QSR the different increasingly it one know operators to around Marcelo more world to QSR give with over Start a don't about do challenging have Thiago we're who world, of -- color we're maybe just Sachs, the with you And can -- in we can seeing terms on value with move and also, on Goldman rest the going momentum for addition their more another companies to if and Brazil. to focus then a focusing is from of platforms Brazil why? we traffic. X the talk to I on on bit

world. in think as I the in around consumer we is region, that the first Yes, industry the -- the But other leaders of markets one the it most the like in the to case do. are and

other promotional focusing offering activity workloads value many all are across We the great markets. across our and

unmatched in a is an same leverage our offering different on and pricing drive we're cost. focused as competitive volume at second above more grow for sales, that in challenging are We we the inflation. And not fixed growth offering great guests environment able time, the restaurant to this experience whether saw which quarter, that

contributions a supply we and environment position, done half the inflation. and second that good all came very market good system or healthy well about whole this, team in have [indiscernible] in sales nearly the volume and cost and of company. cumulatively and coming great pricing. our in share XX significant in second Doing which the by sales only sales compared and top the the improved our months trailing the a in more Keep with to with pricing, second sales of were and XXXX the gained Brazil. a great and -- terms came Czech near quarter, quarter and quarter term from of improvement peers offers share -- In results offer not favorable from players chain XXXX, volume were from gain of outpace some or were We on came VS a Brazil, quarter Brazil able and the the comparable smaller second that, job at mind very share from both number quarter, over to comparable of better the second above years, up Brazil, of in most results as are volumes but last we in the to mix with X to even

and... question with I also And gross margin the to guess that Brazil is related

happy food the in are full in all line and we with his better Brazil. results are a cost of leverage respect [indiscernible], seeing paper as better we Brazil, We Marcelo are in mix and improvements, observe in to by in of the the also the line paper doing suppliers mentioned answer from in gain negotiations and

last questions the And X Thiago. from

same-store Thiago times possible next at think growing keep And trending over there. I Number asks underlying you several to X sales comment the it's is one. how on inflation years. to demand

like is We think engines can be to our blended above have possible maintain -- going one is sales we the comps growth. We inflation, yes. of that many of

our One be net technology. We're impact digital. of our positive investments a opportunities. and is them to drive-through still have on that going use We having we in delivery,

X growth product improvements demand in have be maintain to going that are we even those have need operational those we in though that some the sales. We categories, indicators operations of region engines across important Mexico. underlying of to calls the best And in

context, you give similar a performances. to they First, no, have

X.Xx Now be demand is division as first to in it's second still in not said, the future. X.Xx very I quarter that do relaying expect near We anything... the And and increased quarter. directly Mexico in and the strong going

could Ford channel do it in How the then causes Robert contraction and the please -- how about, margin for Mexico. delivery segue a to you and in opportunities that Robert of NOLAD Mariano, It's related by asks operating America. comment growth and intend on the talking Ford And from your these, Julia NOLAD. Stanley, you expectations comment good you will for questions the take? you about Eric and explore Julia top Aguilar came are that? to about in line will Santander asks Can offset long region of asks the Bank on several leverage from way, Rizzo Morgan Huang Mexico/NOLAD on be for

explained analyze to and last that due Eastern need holiday specifically the through the but the for the to the year for and seasonality we year I effect itself, will Mexico, not first half it's one. on concern in about NOLAD focus the quarter Mexico of first NOLAD of the was

So, in basis the Mexico, is is increases points usually consumption. points are if or of year, see we our that the increase, basis coming wage payroll we observe there's months affecting income that consider when first have that those NOLAD salary observing in see what increases well particular. we line XX salary disposable minimum that's, of if And in region payroll the we been from which -- In from X and Mexico. course, more We

of explanation analyzing even though see how the we dollars. in part was semester, that's well… So, So by first is of that X% the down what U.S. margin

So, this we with are We pleased a the have that with line we don't trend seeing. going forward. concern special are

So, growth this the on with much and channel Can can How on has regard? question other Julia's delivery. to margin? delivery expected do comment be you in impacts

Yes.

explained than will I over seeing Alejandro terms. first made, in percentage. the other As results other the pleased pressure faster But growing the U.S. analyze channels the the in are question with that very dollar we on are we channels, we and delivery, and or delivering that are we see we

growth relevant at dilute The are we level last So, been usually have is time. the portion of lunch that fixed the is the at a to helping also EBITDA sales coming. seeing time stronger because costs of of years in delivery restaurant growing the

So, the costs it's dilute restaurant helping fixed level. at

to So, our EBITDA. is seeing we benefits share delivery the bringing that are market and

came And this Santander. one from And to Huang from you. back Eric so

how in Additionally, the evolve Brazil, excluding... payroll expenses

Yes.

Brazil on what leverage entirely payroll we is leverage almost excluding course, the line, NOLAD, the seeing as the seeing that, are as line, we one-off. are on opposed effect are in in the respect, that payroll given in even Excluding that we seeing reflected of

that one another those had has do Eric to with And [indiscernible].

over it to you. So, I'll turn

future, we ability by we [Audio the maintain Gap] the in are million results. to great record us active in and X XX our like confident users. the for sales in mobile our the We and far, order driven and the trend of continued new The us number trend and a achieved for a in growth already booster We have near so of our are second results to downloads main app delivery. is increase factors: implementation of we a on today factor. functionalities the EUR with seeing Eric, digital had the

Puerto For periods. customer data example, of to XX our [Audio Bridgerton million already identified we program. sales have reached the Gap] fully end results markets of -- we good objective number we Gap] than X implement members. to to program And the in have the Rico, and have members have in loyalty is in markets main performance have in [Audio and more by X our all that the access the

is other The average check. one

a We to that frequency. because in and customers, healthy, the customers expansion lifetime convenience, is and platform other [Audio very drive that have Gap] value We and our loyalty digital one that it know value. seeing frequency and X.X check we're average XX-day higher the active enhances Dan? is the are while the of Xx

give Ford. August. going He come I'm you little... know, to and trends Marcelo, to a question on had operating back to do in want Robert July to had that a recent And with I margins, and us if don't

so we the of in in third quarter Yes, sales. terms saw far

before, As inflation [Audio or most depending in on year of with the but great diversified. are focus on we I and we the mentioned the in to [indiscernible] our XXXX delivering for Gap] at -- have intensity full above Dorados value -- remained different Arcos consumer, guests facing

managing that us are example, was we excellent helped excellent mentioned but minutes to sanction results Argentina, challenges couple more ago. markets, offsetting are we mitigate than this with more So, for environment is and challenging, of a pressures the those

QX markets in of able will So we when our the inflation of cases, most results. third on on the to sales in maybe to we terms above go specifically any report our grow be and quarter market that sales,

I in this is Mexico about will we're the that of company. work a What and he doing remodeling is from the one shareholder Another assume Rodrigo, continue? in

sure. for Yes,

[Audio early our end I modernization in the terms Gap] would EOTF restaurants stages converted of say, are, in in to of of Mexico. the restaurants in We at Mexico

lot of costs. and of lot a still job a to do So

sales to in that And EOTF. in our operation We of transformed our those the story. company be significant in step lift to Gap] big growth next we a Mexico in will the [Audio are general, continue restaurants and in see

mobile in MacDonald’s a are Mexico, track, on the do the in of market, that's lot to and Gap] Mexico but in with direction. And popular the app in [Audio have right excellent app, Mobile became we the work most the right Our based still result… We in

One labor for you, He the from Mariano, forward? Froylan asked, Mendez will lower [indiscernible] contingency JPMorgan.

longer Actually, the is no No. lower-level contribution applicable.

So [Audio Gap] future contributions changes there.

the you follow-up received By Okay. Ford Bob specific on And we service. question, back sent and get more how over you, solutions details lower addressed one. has to questions follow-up; we've on delivery to I'm already that couple your cost MFA, that better has a on of a I'll about that. way, for and Luis. own to a you think turn I have Marcelo think if happy But should

For those allows and it us a points, a cost it has lower better to deliver tax.

finding guest this We the growing XX% small. in we is channel working X,XXX still our but quarter, service are in restaurants is in by expectations. on very countries, X have still

sure, we're time. going you is it better and an potential economics, in different the but from over sales solution the Like said gains. For these to increase be has seeing slightly that today,

Marcelo. we've one hand with Argentina. Thanks, Fuchs exposure Alejandro companies from at that improving And you, seen to follow-up from other comments I'll trends Luis. a Itaú, consumer Also, to

An in improvement in business the Argentina. trends the of

market. the a We've been We continue challenging to in than doing peers consumption. our most face better of

very here our declining half offering the resilient take about and X% doing value the remain close have -- the in volumes a of should position. us this a just strong at best overall the year to strengthen industry attributes, this and we position half to of been look that in already the and work and customers year If in first which that rate very our you proposition QSR are further and brand remaining Argentina

and XXXX, December in will declining the year trends for the has July since but country its factors but we based inflation saw in already XXXX we results peak, on cautiously impact are actually been full optimistic August. the Fortunately,

of is National question a [indiscernible] that and XXXX Mariano. from you, We have notes, for

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