Arcos Dorados earnings: digital flywheel, SLAD strength offset Brazil beef costs
- Hardik Shah
- 1 day ago
- 4 min read
TLDR
Revenue Strength: Total revenue $1.142B, up 2.8% reported (~14.9% constant currency); systemwide comps +12.1%, led by NOLAD and SLAD.
Margin Trends: Adjusted EBITDA $110.1M (9.6% margin); +7.1% USD growth and +40 bps margin expansion excluding last year’s Brazil labor contingency.
Forward Outlook: Management targets stable full-year EBITDA margin ex one-offs; Brazil beef cost spike (~30% YoY) is not expected to worsen in 2H.
Business Overview
Arcos Dorados (NYSE: ARCO) is the world’s largest independent McDonald’s franchisee, with exclusive rights across 21 Latin American & Caribbean markets and 2,457 restaurants (70% “Experience of the Future” (EOTF) formats). Channels span on-premise, delivery, mobile app, kiosks, McCafé and Dessert Centers.
Digital & Loyalty: Digital (Mobile App, Delivery, Kiosks) generated ~60% of systemwide sales; loyalty has 21.5M members across six markets and drove ~22.6% of sales where active. Coverage is ~67% of restaurants, with broader rollout targeted for 2025 year-end.
Arcos Dorados Earnings Q2'25
Revenue:
Total: $1,142.3M (+2.8% reported; +14.9% constant currency). Systemwide comparable sales +12.1%, outpacing blended inflation in NOLAD and SLAD; Brazil remained challenged.
Margins & Profitability:
Adjusted EBITDA (non-GAAP): $110.1M (margin 9.6%), –7.3% reported but +2.4% at constant currency. Ex-Brazil 2Q24 labor contingency, EBITDA grew ~7.1% with ~40 bps margin expansion, as payroll and occupancy efficiencies offset Food & Paper inflation (notably beef in Brazil).
Net Income / EPS: $22.6M (2.0% margin) / $0.11, down YoY primarily on reported margin and lower non-cash FX gains.
“Adjusted EBITDA grew by more than 7% and margin expanded by about 40 bps [ex last year’s Brazil labor contingency].” — CEO Luis Raganato.
Divisions (constant currency):
Brazil: Revenue +2%; comps positive but pressured by beef costs; digital >70%, loyalty 18M+ members (~26% of sales).
NOLAD (North LatAm): Revenue +6.9%; comps ~1.8× inflation; Mexico comps +12.4%, margin +450 bps YoY aided by operating leverage and a sub-franchisee transaction gain.
SLAD (South LatAm): Revenue +37.8%; comps ~1.4× inflation; strong share gains in Argentina & Chile; broad margin expansion.
Key Drivers:
FX: MXN depreciation vs. USD weighed on reported growth, while constant-currency trends remained solid.
Mix & Pricing: Targeted pricing and mix lifted average check where traffic was softer (notably Brazil).
Forward Guidance
Expect full-year EBITDA margin roughly in line with 2024 when excluding last year’s Brazil labor contingency; focus remains on cost efficiencies and prudent, inflation-paced pricing.
Risks & Opportunities:
Risks: FX volatility (BRL, MXN), beef inflation in Brazil, competitive dessert category, macro softness in Brazil.
Opportunities: Loyalty expansion (target ~90% restaurant coverage by year-end), digital penetration, SLAD momentum, NOLAD margin tailwinds, brand campaigns (value and limited-time offers).
Operational Performance
Openings: 20 EOTF restaurants in Q2 (18 freestanding); 32 in 1H25; plan 90–100 for 2025.
Cost Actions: Restaurant-level efficiencies in payroll and occupancy; ongoing productivity programs to offset Food & Paper inflation.
Macro/Regulatory: No material new regulatory headwinds disclosed; Brazil consumer remains cautious.
Segment Snapshot
Brazil: Protecting share via affordability (e.g., “Méqui do Dia”), value-led digital campaigns; front-counter strength despite traffic pressure.
NOLAD: Mexico rebound (calendar tailwind normalizing across 1H), operating leverage, lower royalties under new MFA.
SLAD: Broad-based sales and margin expansion; Argentina a key EBITDA driver in 2025 after prudence on pricing in 2024.
“Beef prices… increased around 30% in the last twelve months. We do not expect further significant cost pressures versus current levels in the second half.” — CFO Mariano Tannenbaum.
Market Insights
Share: Robust share gains across many markets on value, brand strength, and digital activation.
Category Dynamics: Dessert category competition intensifying; ARCO leaning on sharp opening price points and innovation (e.g., Grimace Shake; local McFlurry flavors).
Promotions: Big Fest value campaign; Minecraft Happy Meal (including an adult variant with McNuggets); limited-time F1 tie-in sold out rapidly.
Consumer Behavior & Sentiment
Value/Elasticity: Softer volumes in Brazil mitigated by disciplined pricing and mix; loyalty members visit more often than non-members.
Channel Mix: On-premise front counter performed well; delivery and kiosks remain pillars of the digital ecosystem.
Strategic Initiatives
Digital & Loyalty: Continued expansion; loyalty expected to reach ~90% of restaurants by year-end, deepening frequency and identified sales.
Development: Added Saint Martin as 21st territory (3 restaurants acquired; managed within NOLAD).
ESG (Environmental, Social, and Governance): 2024 Social Impact & Sustainable Development Report published; progress on renewable energy, circular economy, youth opportunity.
“My priorities are today’s business, growing the business, and tomorrow’s business—ensuring Arcos Dorados’ leadership well beyond 2035.” — CEO Luis Raganato.
Capital Allocation
Balance Sheet: Investment-grade BBB- (S&P July 2025; Fitch January 2025); Net debt/Adj. EBITDA 1.4×; no material maturities until 2029 after liability management actions.
Cash Uses: $55.3M CapEx in Q2 (growth CapEx $26.8M); $12.6M dividends in Q2 (1H25: $25.3M).
The Bottom Line
Arcos Dorados delivered healthy constant-currency growth and improving margins ex one-offs, powered by a maturing digital/loyalty engine and strong SLAD/NOLAD execution.
Investors should watch for:
(1) Brazil’s beef cost trajectory and consumer recovery,
(2) the pace of loyalty rollout to ~90% of restaurants and its lift on frequency/mix, and
(3) Mexico’s margin normalization after a strong first half. With full investment-grade ratings and 1.4× leverage, the company has flexibility to keep compounding via development and digital engagement.
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