Arcos Dorados Q2 2025 Earnings Report

Arcos Dorados EPS Results

• Actual EPS: $0.11
• Consensus EPS: $0.05
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: $0.13

Arcos Dorados Revenue Results

• Actual Revenue: $1.14 billion
• Expected Revenue: $1.22 billion
• Beat/Miss: Missed by -$78.72 million
• YoY Revenue Growth: +2.80%

Arcos Dorados Announcement Details

• Quarter: Q2 2025
• Date: 8/13/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, August 13, 2025
• Conference Call Time: 10:00AM ET

Arcos Dorados (NYSE:ARCO) operates as a franchisee of McDonald's restaurants. It has the exclusive right to own, operate, and grant franchises of McDonald's restaurants in 20 countries and territories in Latin America and the Caribbean, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curacao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, Uruguay, the U.S. Virgin Islands of St. Croix and St. Thomas, and Venezuela. The company was founded in 2007 and is based in Montevideo, Uruguay.

Arcos Dorados Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Arcos Dorados reported Q2 revenue of $1.1 billion with 12.1% system-wide comparable sales growth above blended inflation, and adjusted EBITDA rose over 7% to $110.1 million with a 40 bps margin expansion.
• Positive Sentiment: Digital and loyalty initiatives drove approximately 60% of Q2 sales, with loyalty members representing 23% of total sales in available markets, supporting robust market share gains and higher brand preference.
• Negative Sentiment: In Brazil, a 30% year-over-year increase in beef prices pressured food and paper costs, leading to margin contraction despite positive constant-currency revenue growth; pricing will be increased in line with inflation to protect volumes.
• Positive Sentiment: The company opened 20 new Experience of the Future restaurants in Q2 (32 in H1) and acquired three restaurants plus exclusive franchise rights in Saint Martin, keeping its 2025 target of 90–100 net new openings on track.
• Positive Sentiment: Arcos Dorados achieved full investment grade status with an initial BBB- rating from S&P, maintains an average debt cost of 6.28% and a net debt/EBITDA ratio of 1.4x, bolstering its capital market flexibility.

Presentation

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Hello, and thank you for joining Arcosurato second quarter twenty twenty five earnings webcast. With us today are Luis Haganathar, our chief executive 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, ir.arcosdurados.com. To better follow the presentation, please note that you can set your view to full screen on the webcast platform. Additionally, you can submit your questions at any time during the presentation using the q and a function on the bottom of the screen.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

After we conclude our opening remarks, we will answer your questions. Today's call will contain forward looking statements, and I refer you to the forward looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with generally accepted accounting principles, we report certain non GAAP financial results. Investors are encouraged to review the reconciliation of these non GAAP financial results as compared with GAAP results, which can be found in today's earnings press release and conference call presentation as well as the unaudited financial statements filed today with the SEC on Form six k.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

With that, I'll now turn the call over to our CEO, Luis Argento.

[Luis Raganato, CEO at Arcos Dorados Holdings]

Thank you, Dan. Good morning, everyone, and thank you for joining us. Before getting into the quarter's results, let me take a moment to thank our executive chairman, Wood Staton, and the entire board of directors for their confidence in appointing me CEO of Arcos Dorados. I am honored to continue the work of my predecessors, each of whom took the company to new operational and customer experience heights by working collaboratively with all stakeholders of the Arcos Dorados and McDonald's systems. I would also like to congratulate all members of the team who are taking on new roles as part of this management change.

[Luis Raganato, CEO at Arcos Dorados Holdings]

We always said that Alcohododos has a deep bench of talented executives. This includes Carlos Gonzalez, who is taking on the role of chief operating officer, bringing very significant management experience and a demonstrated ability to bridge cultural and generational gaps to drive strong performance. I look forward to working with him and the entire team to exceed our guest expectations and generate value for all stakeholders. Moving now to the key highlights of the quarter, we generated solid results in very dynamic macroeconomic and operating environments. Total revenue reached $1,100,000,000.

[Luis Raganato, CEO at Arcos Dorados Holdings]

Constant currency revenue remained solid, built on 12.1% higher system wide comparable sales, which was above blended inflation for the period. Comp sales growth was particularly strong in nodal and slag, growing well above blended inflation in each division. The same calendar effect that impacted Knowledge results in the first quarter helped boost the division's results in the second quarter. Marketing and digital initiatives focused on value and brand strength across sales channels and product categories. Additionally, the loyalty program continued to drive an increasing percentage of sales by bringing members back to our restaurants more often.

[Luis Raganato, CEO at Arcos Dorados Holdings]

These efforts helped support robust market share gains in many markets. More on that later. We generated $110,100,000 in adjusted EBITDA in the second quarter. Excluding last year's labor contingency reduction in Brazil, adjusted EBITDA grew by more than 7% and margin expanded by about 40 basis points. The growth plan for 2025 remains on target, and we opened 20 new Experience of the Future restaurants in the second quarter.

[Luis Raganato, CEO at Arcos Dorados Holdings]

This brings total openings for the first half of the year to 32 sites, and the plan remains to deliver 90 to 100 this year. In addition to adding new restaurant through openings, we are excited to announce that last month, we added a twenty first market to the Arcos Dorados family. We acquired three existing restaurants and the exclusive franchise rights to Saint Martin in The Caribbean. The choice of Arco Todados as the new operator in Saint Martin is a testament to our operational excellence and commitment to growth in the region. Marketing and digital campaigns dropped strong comparable sales growth in NOLAD and SLAD during the quarter while also helping to protect market share within a challenging consumer environment in Brazil.

[Luis Raganato, CEO at Arcos Dorados Holdings]

The digital ecosystem that accounted for about 60% of sales in the quarter supported campaigns designed to stay close to guests and adapt to changing consumer preferences. This included the big fest, which celebrated cult favorites at a compelling value. The results were clear. Brand preference rose to almost twice that of the nearest competitor across the region. Brand attributes related to value, taste, and trust saw significantly higher favorable gaps versus the near competitor as well.

[Luis Raganato, CEO at Arcos Dorados Holdings]

And app downloads and loyalty program membership increased strongly during the campaign. The digital loyalty program is now available in six countries with a seventh market currently in its prelaunch phase. The program already covers two thirds of the restaurant portfolio, and we expect it to be available in 90% of all restaurants by the end of this year. Loyalty program members visit us at a much higher rate than nonloyalty guests, and they represented almost 23% of total sales in the six available markets during the second quarter. In Brazil, where the consumer environment has been challenging this year, we took steps to remain close to guests.

[Luis Raganato, CEO at Arcos Dorados Holdings]

For example, the Mequidogia campaign offered one menu favorite per day at a compelling value. Across the operating footprint, the Minecraft Happy Meal also strengthened ties with our guests. The game has significant crossover appeal to both kids and adults, which we optimized by offering a unique adult happy meal with chicken McNuggets. We also used the regional Formula One sponsorship to strengthen ties with families and guests of all ages, Capitalizing on the appeal of Formula one, the movie, we introduced a limited edition sandwich and a collectible race car exclusive to McDonald's restaurants. The campaign was extremely successful, selling out in just a matter of days or weeks depending on the market.

[Luis Raganato, CEO at Arcos Dorados Holdings]

Finally, the dessert category has become increasingly competitive, so we kept the entry level comprised at an attractive price point. We also innovated by leveraging a favorite McDonald's character with the grimace shake and by adding more local flavors to the McFlurry platform. Over to you, Maneno.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

Thanks, Luis, and good morning, everyone. Brazil's total revenue in constant currency grew 2% in the second quarter, including positive comp sales despite operating within a context of negative industry volumes. We were able to offset volume pressure with higher average check with a combination of targeted pricing and product mix. Importantly, market share remained steady versus the prior year, and the brand attributes we track are as strong as we have ever seen. This undoubtedly positions us well for when consumer trends improve in the country.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

More than 70% of system wide sales were generated by digital channels, and the Meiomeki loyalty program surpassed 18,000,000 members who accounted for 26% of the division's total sales. Nolad's total revenue rose 6.9% in constant currency. US dollar revenue growth was impacted mainly by the year over year depreciation of the Mexican peso. Comparable sales rose 1.8 times blended inflation in the period. This included 12.4% comp sales growth in Mexico, much higher than all main competitor brands.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

Digital sales penetration remains steady in NOLAD, where we offer the loyalty program in Costa Rica, and we are in the test phase in Puerto Rico. We believe digital sales performance will ramp up in the division as we expand the loyalty program to additional markets by the end of this year. Slat's revenue rose 37.8% in constant currency with comparable sales up 1.4 times blended inflation in the period. Market share expanded strongly in several markets, including Argentina and Chile. Argentina built on last year's market share gains to boost its continued rebound from 2024.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

Digital sales penetration in SLAD surpassed 60%, and loyalty generated 17% of total sales from the four SLAD markets currently offering the program. Let's shift now to profitability and capital allocation during the second quarter. Adjusted for last year's labor contingency reduction in Brazil, second quarter consolidated EBITDA grew very solidly in US dollars despite currency headwinds. While food and paper remained pressured due to higher beef prices in Brazil, improvements in all other restaurant expense lines supported a solid EBITDA performance. Similar to the first quarter, Brazil's margin contraction was mainly due to higher food and paper costs from rising beef prices in the market.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

As you already know, the royalty fee this year is higher in Brazil due to the normalization of the royalty rate across the three divisions. Excluding last year's labor contingency reduction, the net result of the remaining expense lines had a positive margin impact in Brazil. Nona's margin included improved performance in all restaurants expense lines, except food and paper, which rose rose models modestly versus last year as a percentage of revenue. Royalties were lower due to the normalization of rates across the three divisions, and the result also included a gain from a sub franchisee restaurant transaction in Mexico during the quarter. Margin performance was strong in nearly all the divisions market in the period.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

SLAD delivered another strong quarter of margin expansion with lower costs and expenses in nearly all line items. Notably, last year's EBITDA included a positive impact from a subfranchised restaurant transaction. Adjusting for that impact, Slat's margin expanded by about two sixty basis points versus the 2024. With these results, the company's balance sheet remained strong, and we continued making investments in future cash flow growth. As of the end of the second quarter, our debt was concentrated in two long term bonds, the 2029 and 2032 notes, with an average US dollar cost of 6.28% and an average duration of almost six years.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

After receiving an upgrade to investment grade from Fitch in January, last month, S and P assigned an initial rating of BBB minus to our debt. As a result, Alcos Dorados debt is now considered to be full investment grade, which should help support future capital market transactions. At the end of the second quarter, net debt to adjusted EBITDA ratio was a comfortable 1.4 times, and we expect it to remain near this level for the remainder of the year. Our growth strategy remains intact. And during the second quarter, we added 20 EOTF restaurants to the portfolio.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

As has been the case for the last five years, most openings were freestanding units, and the majority were opened in Brazil. We invested $55,300,000 in capital expenditures, including more than $26,800,000,000 in growth CapEx associated with new restaurant builds. We expect to continue making prudent investments in growth as we remain convinced this is the best way to increase free cash flow generation in the long term. As Luis already mentioned, after the quarter ended, we acquired the three existing restaurants in San Martin and the exclusive franchise rights for that market, which will be subject to the same terms as our existing master franchise agreement with McDonald's. St Martin will be managed by NOLAD and will be included in the division's results beginning in the 2025.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

We do not expect a material change in consolidated results from this acquisition. Back to you, Luis.

[Luis Raganato, CEO at Arcos Dorados Holdings]

I would like to touch on a topic that remains at the core of everything we do at Arco Dorados. We recently published the 2024 social impact and sustainable development report for Arcos Dorados. In it, you can learn more about the initiatives we advanced within the recipe for the future framework. This ESG platform is built on six pillars. Climate change, which saw us reach 50% renewable energy, us to reduce energy cost while also meeting our targeted scope one and two emissions reduction.

[Luis Raganato, CEO at Arcos Dorados Holdings]

Circular economy, which includes recycling of both packaging and used cooking oil. Sustainable sourcing, which supports local economies through local sourcing, youth opportunity, which includes over 60,000 employees younger than 24 years, family and well-being, which supports young people in partnership with local NGOs. And diversity and inclusion, which ensures a welcoming work environment and restaurant experience for collaborators and guests from all backgrounds. You can access the full report at recipeforthefuture.com. Before we open the call up for questions, let me tell you about my priorities as CEO.

[Luis Raganato, CEO at Arcos Dorados Holdings]

To begin with, I have designed and implemented current strategy, so I do not expect to change the big picture. With that in mind, I would say that I have three main strategic priorities or pillars of focus. First, today's business, the organic business. In other words, everything that goes into exceeding customer expectations today. That means the experience we offer through menu, quality, service, and cleanliness inside our restaurants, in customers' homes, and in the digital ecosystem.

[Luis Raganato, CEO at Arcos Dorados Holdings]

Second, growing the business, our development strategy. I am challenging the entire team to revisit every element of our development process to further modernize and improve the way we grow. To increase our cash flow generation and create more value for our shareholders, we need to ensure that every dollar invested brings the best possible return. And third, tomorrow's business. We will work to answer the question of where Arcos Dorados will be in ten years.

[Luis Raganato, CEO at Arcos Dorados Holdings]

We need to begin preparing now to meet future customer expectations, and we'll do whatever it takes to maintain our leadership position beyond 2035. Needless to say, this will be a collaborative effort within Arcos Dorados, with McDonald's, with our suppliers, and with our sub franchisees. As we often say, there's nothing we can't accomplish if we work together. I look forward to speaking with all of you over the coming months and years as I am certain the best is yet to come for Arcos Dorados. Thank you for joining today's call. Dan, back to you.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Thanks, Luis. We will now begin the q and a session. You can submit your questions using the q and a function on the bottom of the screen. Please limit yourselves to one or two questions so that I can read, understand, and advance our speakers. We will now pause briefly to compile your questions.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Okay. Great. So we have, actually quite a few questions already in the queue, and a number that are, related to the same topic or similar topics. Bear with me as I go through a few of these, and then we'll start with you, Luis, actually on on this first set of questions. First, Thiago Bortolucci from Goldman Sachs.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Good morning, everyone. Thank you for taking our questions. It's always a pleasure to engage with the team. Before we begin, we would like to once again express our gratitude to Marcelo for his openness and constructive dialogue during his tenure. And we wish Luis, Francisco and Carlos continued success in their extended responsibilities.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Regarding the results, they have three questions. The first two of the first three, I'll combine here. And this is number one, 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? Continuing with that concept, they also asked, do you have any preliminary insights on demand trends in July for Brazil and Mexico?

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Related to Thiago's question, we have a question from Eric Huang from Santander. And he asks, Brazil's sales remain quite subdued in the 2025. How was the company perceiving the consumer environment as we turn into the 2025? And how are the revenue management initiatives expected to help in sales momentum ahead? And finally, Melissa and Bob Ford from Bank of America ask, with respect to Brazil also, can you discuss consumption dynamics during the second quarter and in JulyAugust?

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Was weather a factor in the second quarter deceleration? So with all of that as background, Luis, I'll turn it over to you.

[Luis Raganato, CEO at Arcos Dorados Holdings]

Thank you, Dan, and thank you, David, Eric and Marissa. Let me I'll try to cover everything. First, about the context, the market continues to face a challenging macroeconomic environment, uncertainty, and weakening consumer confidence. But given this context, even though various sources point to a drop in the flow of visits in the QSR market, we managed to deliver positive comp sales. We offset a drop in traffic with a combination of targeted price increases and product mix.

[Luis Raganato, CEO at Arcos Dorados Holdings]

So the contribution to sales came more from average check than volume. What we're trying to do here is to balance between the sales growth and profitability, Alright? We were trying to increase our our margins. And regarding channels, Melissa, the the the impact on weather was mainly in the district center, but, you know, and we do have a more aggressive competition mainly in Brazil. We are addressing that with the plan.

[Luis Raganato, CEO at Arcos Dorados Holdings]

But the good news is that the strongest performance was through our front counter. And this is very good news for us because it is a proof that, you know, our brand and our on premise is aspirational and it's going to be that that on premise experience is going to to be very important. About the most important marketing actions that we had in in the market was first, Mekidojia. It's it is a value campaign, and the Mekifest digital campaign. Those were very successful successful and helped increase visit frequency and drive a 15% increase in identified sales.

[Luis Raganato, CEO at Arcos Dorados Holdings]

You know that for us, identified sales are very important. We had 26% in the region, but in Brazil, in particular, 32%, which is that share in June specifically. So even though we're trying to shield our market share by being prudent with pricing, we do have a comprehensive plan, which includes those short term initiatives more transactional, but we complement that with long term focus because we want to build on the brand's aspirational aspect. And that's why we have, for for example, the the license of Minecraft in in the Happy Meal or, for example, the launch of the Grimace shake or even the Formula One action that reaches all socioeconomic groups and builds on the coolness of the brand. As a result, and very important, our market share in the market remains steady.

[Luis Raganato, CEO at Arcos Dorados Holdings]

We are leading our nearest competitor by a factor of 2.2. And attributes like favorite brand and brand awareness are at the highest scores according to internal research. So we are today in a position of strength despite we see that the challenging macroeconomic environment will remain during the third quarter and maybe during the second semester. We're confident because we have a solid marketing plan. We're going to keep on working with our affordability platform to drive traffic, to shield our our market share, like I said, and we'll remain close to our customers building on the love of the brand because we're going to be having cool launches too.

[Luis Raganato, CEO at Arcos Dorados Holdings]

Regarding Mexico, Mexico had a very strong quarter with plus 12% in sales. And it was the highest in the market. And not only in marketing, the QSR and the entire industry. The good news is that it was driven by discharge centers, by delivery, and by from counter. We're seeing a similar trend in beginning of the third quarter. Dan? Thanks, Luis.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

So now over to you, Mariano. And again, this will be a combination of questions. Actually, to be fair, we received questions from Jack Gater, Chael Mohambro asking for more detail on the Brazil division and consumer demand. And also Julia Rizzo from Morgan Stanley asked about same store sales trends in Brazil, which I think you just answered, Luis. So I'm not gonna come back to those.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

I just wanted to recognize both Jack and, Giulia. So now I'll move to, Mariano and start with one of the questions that came in from Thiago from Goldman Sachs combined with a question from Melissa and Bob at Bank of America and also Freudlin at, JPMorgan. So, bear with me again, Mariano, please. From Thiago, could you elaborate on which regions and specific actions contributed most significantly to top line and margin performance in NOLAD? I think associated with that, is Froylan's question from JPMorgan.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Can you give us some sense on, sorry. I think I'm I'm confusing myself here here. Yeah. I am confusing myself. And then asked, can you how much of the 12% same store sales growth in Mexico was driven by positive calendar effect?

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

How sustainable is this going into the second half? And Melissa and Bob from Bank of America asked, additionally, can you comment on the underlying sales and margin performance of Mexico, specifically excluding the Holy Week impact? So this is kind of a general NOLADMexico question for you, Marjan.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

Perfect. Good morning, everyone, and thanks, Thiago, Melissa and Frode for the question. We're very pleased with the performance of NOLAD during the second quarter of this year and of course, on the first half of this year. First, we have seen in NOLAD sales increasing at 1.8 times inflation. So and as Luis already mentioned, Mexico stands out in this performance.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

So it is true, and we mentioned in the first Q that Holy Week has an impact in Mexico, strong impact and that we were expecting good results for the second Q. But if you consider the first half of the year, Mexico is performing much better and is growing above inflation compared with the 2024. In terms of impacts in margins, NOLAD is showing in this quarter an improvement of four fifty bps compared to the same quarter of last year. And this the good news here is that this is due first, despite a deterioration of the FX because the Mexican peso in the quarter averaged this quarter, 19.5 versus ARS 17.3 last year. So despite the devaluation of the Mexican peso, we are seeing a much better margin in Mexico and in the division.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

And this is due to a better payroll, a better service fee, as we already explained the new MFA, better occupancy and other expenses with better margins in delivery. And in this particular quarter, we are seeing as well a better operating other operating income given the transaction on the new the restaurants acquired in Mexico. So all that together is improving the margin in Nomad in 450 bps. Of course, when we see sales in the division growing at almost 2x inflation, we see leverage in all the fixed cost lines and that's also reflecting, of course, in the results.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Great. Thanks, Mariano. The next question comes from Frey Mendez from JPMorgan. And although we've talked about ticket and traffic trends with Brazil specifically, he asked for a view on a regional basis. And this question will be for you, Luis.

[Luis Raganato, CEO at Arcos Dorados Holdings]

All right. Thank you, Fred, for the question. In general, what we saw in the region was volatility and changing marketing conditions. But despite that, we believe we have the best position to face this current situation or any that, you know, may arise. The sales performance was solid in local currency, and consolidated comparable sales were in line with the company's blended inflation within the context of of each division.

[Luis Raganato, CEO at Arcos Dorados Holdings]

I already talked about Brazil. In NOLAD, our comps were up 1.8 times blended inflation with a low single digit contribution from traffic. So the contribution to sales, if you do the math, were two thirds from from average check. Like I said, Mexico stood out and is keeping that performance in this third quarter. And by channel, in NOLAD, the sales strength was driven by front counter, dessert centers and delivery in local currency, with positive volume growth in all three segments.

[Luis Raganato, CEO at Arcos Dorados Holdings]

In SLAD, comps were they were up 1.4 times blended inflation with a mid single digit contribution from traffic and average check-in line with inflation. So in general, all markets had a good a very good quarter, and we're seeing a similar performance in in the beginning of this third one. In by channel, the sales growth was strong across all the channels in the quarter. For the remainder of the year, we're going to keep on focusing on the factors that we control. Of course, the brand, the four d strategy, and taking advantage of the footprint and geographic diversification. Thanks, Okay.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

The next one for Mariano again, this will be a series of questions, all of them related to the beef cost trends in Brazil. So Frey from JPMorgan, can you please give us color as to the beef trend in Brazil? Eric from Santander, could you please elaborate on your expectations for margins, especially in Brazil? And how are you seeing beef prices impacting margins in the upcoming quarters? Alvaro Garcia from BTG Pactual asks, how does management see beef prices evolving in the second half of the year in Brazil?

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Jeronio de Guzman from Inca Investments asked about, can you comment more on the beef cost pressures you're seeing in Brazil? Have you seen any changes? And do you still think you can maintain if margins are stable ex one offs on a consolidated basis for full year 2025? So multipart question that I'll turn over to you, Mariano.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

Perfect. And thanks, everybody, for the question related to the beef prices in Brazil. Beef prices in Brazil, as I mentioned, impacted our results during the first half of the year. We have seen price increases of around 30% in the last twelve months. Here, we have good news, and that is that we do not expect further significant cost pressures versus current levels in the second half of this year.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

On top of that, for the other items in the food and paper line in Brazil, we have seen so far a devaluation of the Brazilian real that, of course, impacted the costs on imported goods. What we have seen or what we are expecting now in July, we have seen an appreciation of the Brazilian real to below 5.4 to the donor. Actually, today, last time I checked, it was at BRL 5.39. And this could have, if this FX trend persists, a positive impact on the gross margin for the rest of the year. So of course, we the outlook and what we know so far is that we are not expecting significant cost pressures from beef from the current levels.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Thanks, Mario. Actually, I think you addressed it, but Eric also had asked if the tariffs on Brazil exports had prompted an improvement in commercial terms and prices of beef on the company side. We've already sort of addressed the beef trends. So just wanted to mention that. So the next question will be for Luis.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

I'll let you catch your breath, Mariano, because the next one will be for you. And the next one is from Jack Gator at J. O. Hambro. And he asked if we can expand on the changing competitive landscape in desserts.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

What's the margin of dessert centers? And what percentage of sales does this contribute to the total? And we'll give that one to you, Luis.

[Luis Raganato, CEO at Arcos Dorados Holdings]

Alright. Thank you. Thank you for the question. The search centers as of the 2024 represented almost 10% of total sales. The segment has significantly higher margins, you know, in in, you know, in percentage, in relative numbers.

[Luis Raganato, CEO at Arcos Dorados Holdings]

And what we are seeing in the in the landscape is that we're seeing an increasing competition in general in the region, mainly in in Brazil, but we have already implemented a solid plan regarding aggressive pricing and with innovations, like, for example, as I said, the the agreement shake.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Dan, back to you. Okay. Thanks, Luis. And and now another multiparter, for you, Mariano. Starting with, Melissa from Bank of America.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

How are you thinking about pricing and your ability to offset higher costs in the context of softer demand? I presume that's mostly a Brazil question, but in general. And then Hirono de Usman from Inca 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?

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

So that second part I'd already said, but the piece about pricing versus margins, I think, the crux here. I'll give that to you, Mariano.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

Perfect. Thanks, Belisa and Jeronimo for the question. Related to pricing to offset costs, as we have seen in the first half of the year, a deterioration of margins in Brazil. In fact, we will continue with our strategy to increase prices in line with inflation. We are not going to in order to pursue a quick gains in margin gains to increase prices well above inflation because this will be maybe something that will have an impact positive impact in the short term, but it's not going to be sustainable in the mid to long term.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

As an example, we have done that in Argentina last year. Argentina in 2024 experienced an important devaluation of the currency and impact in the whole economy. We have been very prudent with pricing in Argentina, and we are seeing the results this year with very, very good results in terms of sales, traffic and margin recovery. And Argentina is going to be one of the key contributors to EBITDA growth during 2025. In Brazil, we are not expecting to do anything different from our strategy.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

We will continue increasing prices in line with inflation. And when the consumer environment starts recovering, we are confident that our margins will start recovering, and we will see much better margins than what we have seen in the first half of the year. And going to the second part of Gerolimo's question and how do we see the EBITDA margin for this year, excluding one offs. First, during this quarter, we're very pleased with the EBITDA margin. We have seen that excluding labor contingencies from last year, we increased EBITDA margin by 40 basis points during the quarter compared, of course, to the same quarter of last year.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

For the full year 2025, we expect to have an EBITDA margin close to 2024, excluding, of course, the one offs related to labor contingencies in Brazil. As I explained, we're not expecting further deterioration on the gross margin line. And for example, during this quarter, we have seen gains in the payroll line with, excluding one off, 50 bps better than last year. We have also seen improvements in the occupancy and other expense line of 70 bps during this quarter. And if we continue focusing on cost on cost efficiencies and trying to look at all the cost structure and trying to minimize those increases, we are confident that we will be able to maintain or to be very close to the EBITDA margin that we achieved in 2024 that was record for the company.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Thanks, Mariano. We have one more from Alvaro Garcia from BTG Pac-twelve, and this one is going to be for you, Luis. And he asked about Argentina traffic trends in the quarter relative to the 2023 baseline.

[Luis Raganato, CEO at Arcos Dorados Holdings]

All right. Thank you, Alvaro, for the question. What is happening in Argentina, this year since the second semester of last year is that it's showing a more stabilized macroeconomic environment. The inflation is dropping and and the recovery of the economy is happening, but, you know, showing mixed behavior across different sectors. If we compare with 2023, we are mostly in line with that performance.

[Luis Raganato, CEO at Arcos Dorados Holdings]

But, you know, what I want to highlight here is that in the con in this context, in the context of that recuperation of the economy, our business is very solid with a strong evolution. And we have a local team that is doing a great job harvesting the investments that they did last year. Last year, they stayed close to the customers. They increased market share. And those gains that we had during 2024 are driving strong results this year.

[Luis Raganato, CEO at Arcos Dorados Holdings]

That's why it's so important that we keep and we are focusing on keeping that strategy in another markets that have this similar, you know, challenging environment. And so in Argentina, today, we continue to be very prudent with pricing. We're trying to take, like, across the region, all the opportunities possible to improve margins. And, you know, we had the, for example, the tasty feed quarter as a highlight of marketing action or the formula one action that is important in in the market too. According to internal research, these actions helped us further increase our market share.

[Luis Raganato, CEO at Arcos Dorados Holdings]

We are outgaining all players in the market. And in Argentina, the difference is of three times the size when we compare with our main competitors. And another great news is that while we are improving strongly the brand attributes, and we are seeing a similar trend in now in the third quarter of the year. Dan, back to you.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Okay. Thanks, Luis. The next one will be for you, Mariano, this question comes from Giulia Rizzo from Morgan Stanley. She says that CapEx was well below expectations. And could the company end the year with CapEx below initial expectations?

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

What are the gains and improvements we're noticing, if any?

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

Perfect. Thanks, Julia, for the question. We actually maintain our 2025 openings guidance of between 90 to 100 EOTF restaurants with a CapEx guidance of between $300,000,000 to $350,000,000 The CapEx this year, as usual, is a bit more back ended. So we expect for the full year to keep on and maintain our we maintain our guidance. In terms of improvement, we are always looking at improvements and ways to reduce the cost of each opening, and we are doing that all the time.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

We are looking at efficiencies. We are looking at reducing costs, at localizing decor packages to reduce the impact of currency movements. So my team and the development team is continuing focusing on these improvements and cost reductions to make our investments more profitable.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Great. Thanks, Mariano. The next question comes from Max Joseph. This one will be for you, Luis. He goes, congratulations on the promotions and the strong results.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Luis, 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? And I think maybe you can get started. And and, of course, Mariano, if if you have anything to add there, please feel free.

[Luis Raganato, CEO at Arcos Dorados Holdings]

Yeah. Thank you. Thank you very much for the message, Max, and and for the question. Yeah. Well, as I said, I'm going to have those three priorities, today's business, tomorrow's business, and the development strategy.

[Luis Raganato, CEO at Arcos Dorados Holdings]

As I as I said in the opening remarks, what we are doing is revisiting the whole process, starting with with people, the teams, and how how we, you know, look in the field for for for the sites and how we build the sites and working as a team with Mariano, how we we measure those returns. I would say that we would like to focus on the modernization of the process and implementing, you know, new innovative and more sophisticated tools like like, you know, artificial intelligence, so we better estimate our sales. We were we better manage the the the whole construction and, you know, measuring the the the the process afterwards with finance when, you know, we already have the outcome of the performance. I don't know, Mariano, if you want to add.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

No. What Luis just mentioned, and I also mentioned in the previous questions, a question from Julia, return on investments is one of our top priorities, and we are, as a team, looking of ways always to reduce costs and make our investments more profitable, driving a better and a higher shareholder return in terms of investments. So we are focused. This is one of our top priorities. And yes, that's that would be my add to Luis' answer.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Great. Thanks, Mariano. We have a question from Lorena Wright from Luker Analytics. And actually, it's a let's call it a a a four parter. I'll take the first one, which is why did we stop releasing detail by region.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Actually, Glenn, I think if you take a look at our earnings release, what you'll find is that what we eliminated are it was redundancies from the previous version. The information by region or by division is still in in the release toward the end. You'll find all of the sales, EBITDA, operating income, same store sales information that has always been in the release. What we did is just eliminate that redundancy that was in the document previously. And our discussion of both sales growth as well as EBITDA performance at the consolidated level includes commentary on the divisional performance.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

And as I'm sure you saw in today's presentation, we further explained some of those details. So I think that the information is still there. It's just a little bit different format. The second question from Lorena has also, I think, already been answered, which is related to Julia's question around CapEx and store openings, which is do you expect to reach the annual guidance for store openings? Mariano, you just answered that, so we're good.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

And then we have two more from her, and these are a little bit sort of quick fire in there. They'll be for you, Mariano. The first one is what's the amount paid for St. Maarten acquisition?

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

Yes. Thanks, Lorena, for the question. The cash payment for the rights to San Morin was not a material sum within the context of our consolidated cash flow, and this payment will be reflected within the investment investing activities in our statement of cash flows by the September 2025. Great.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

And then another question that relates, guess, our cash flow statement. Can you provide more detail on the acquisition of short term investments of $106,000,000 in the investment cash flow? That's again for you, Mayim.

[Mariano Tannenbaum, Chief Financial Officer at Arcos Dorados Holdings]

Yes. This is simply time deposits executed with relationship top tier banks and was done in order to minimize the carry cost of the new money funds raised on our latest bond issuance in January.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Okay. And then we have a thank you, Mariano. We have a question for you, Luis. This one comes from Ingrid Gosman from Inca Investments. Can you please give us an update on the competitive environment in Brazil?

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Are you seeing any significant changes given the softer consumer environment?

[Luis Raganato, CEO at Arcos Dorados Holdings]

Yes. Thank you, Geronimo, for the question. What we are seeing in Brazil is that there is reducing guest traffic in the sector. We saw that in the second quarter. For this reason, it's that for us, it's very important to remain focused on offering a compelling value proposition with competitive pricing and delivering a great experience through all the channels.

[Luis Raganato, CEO at Arcos Dorados Holdings]

In general, in the industry, the completion continue to focus on promotional activities. We have a a comprehensive plan that complements actions targeted to increase traffic and gain or shield our market share, like, you know, Combo. Dollgia with aspirational aspects, like Minecraft and the the Formula one menu. So that's why you're seeing as a result of that. Regarding to to Chris, we are, you know, being able to maintain our market share and and given the difference, the distance that that we have that we have in market share when we when we compare with our nearest competitor, that difference is of 2.2 times.

[Luis Raganato, CEO at Arcos Dorados Holdings]

So what we are trying to do is, you know, combine that healthy Gong sales, new restaurant openings with a much healthier much healthier margin. And, you know, we are convinced that we are in a position of strength here in Brazil to face any the current situation and any situation that may arise. Dan?

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Thanks, Luis. We have a we actually had a question from Max Joseph, a follow-up question. I think we've already answered it. Just to recognize you, Max, I know you asked about our perspective on pricing strategy and how we think about raising prices in line with inflation versus keeping them below inflation to drive traffic.

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

I think we've touched on that. We have one more question here and it's from Alvaro Garcia from BTG Parcatoil. This one will be for you, Luis. And he says, I'm not sure if this has been asked or answered already, but I'd like to ask about Francisco Statement's new role as Chief Strategy Officer. What's the nature of his new role?

[Luis Raganato, CEO at Arcos Dorados Holdings]

Alright. Thank you, Alvaro, for the question. Francis has been with us for more than ten years now, increasingly senior leadership positions. We believe he's uniquely qualified to help develop a long term strategy for every aspect of the business. He has supported brand building and sales generation in Brazil and Mexico, and he gained experience leading operations in Colombia as managing director, not only in Colombia, Colombia, Curacao, Aruba, and Trinidad at the time.

[Luis Raganato, CEO at Arcos Dorados Holdings]

And he gained experience as divisional president for SLAD also. So I can tell you that I am already working with Francis very close in the pillar of especially tomorrow's business. Dan?

[Daniel Schleiniger, VP of Investor Relations at Arcos Dorados Holdings]

Thanks, Luis, and thanks everyone for participating today, a longer than usual Q and A session, but very happy to see all the engagement. This is the end of the Q and A session, and I'd like to thank you for your interest for joining the call today. We look forward to speaking with you again in the November on our third quarter twenty twenty five earnings webcast. Until then, stay safe and have a great day.

Participants

Executives

• Daniel Schleiniger, VP of Investor Relations
• Luis Raganato, CEO
• Mariano Tannenbaum, Chief Financial Officer