Arcos Dorados Q3 2025 Earnings Call Contradictions: Brazil's Macroeconomic Conditions, Beef Costs, and Digitalization Efforts

Date of Call: November 12, 2025

Financials Results

• Revenue: $1.2B, record quarter; system-wide comparable sales +12.7% YOY (in line with blended inflation)

Guidance:

• On track to deliver 90–100 restaurant openings for 2025.
• Plan to use ~ $125M Brazil federal tax credit to offset federal tax obligations beginning 2026, expected to be monetized evenly over 5 years.
• Target to expand EBITDA margin in 2026; formal 2026 guidance to be provided in Q1 2026.
• Will be flexible on expansion pace, prioritizing most profitable markets and formats and accelerating/deferring non-development investments to preserve cash.
• Loyalty rollout to ~90% of restaurants by end-2025 to support digital penetration and frequency.

Business Commentary:

* Revenue and Sales Growth: - Arcos Dorados reported total revenue of $1.2 billion for Q3 2025, marking a new high for the company. - System-wide comparable sales rose by 12.7%, aligning with blended inflation for the period. - The growth was driven by a strong performance in the SLAD division, particularly in Argentina and selected Northern markets like Mexico.

• Digital Sales and Loyalty Program:
• Digital channel sales rose more than 11% year-on-year, contributing to 61% of system-wide sales in Q3.
• The number of loyalty program members increased to 23.6 million by the end of the third quarter, growing by nearly 50% compared to the end of 2024.

• The growth was attributed to the modernization of the restaurant base and the tech-savvy consumer in regions like Brazil and SLAD.

• Operational Challenges and Cost Management:

• Despite balanced revenue growth, adjusted EBITDA declined by about 3% due to elevated food and paper costs.
• There was a significant increase in beef costs in Brazil, with the price rising over 35% year-on-year.
• Operational efficiencies were partially offset through improved labor productivity and leverage in occupancy and other operating expenses.

• Regional Performance and Market Share:
• Brazil's total revenue grew by 4.9% in Q3, with improved comp sales performance, indicating stabilization in consumer demand.
• The company maintained market share leadership in Brazil despite economic challenges.
• In NOLAD, revenue rose by 6.1%, with strong performance in Mexico, driven by a 6.3% increase in comp sales, outpacing the country's inflation rate.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted a record $1.2B quarter and >$200M adjusted EBITDA, said they are 'well positioned to resume more normalized top line and EBITDA growth' when macro improves, remain 'on track' for 90–100 openings, and expect to 'expand the EBITDA margin' in 2026 while capturing efficiencies and monetizing a Brazil tax credit.

Q&A:

• Question from Alessandro Ciarnelli (Sal Muoio): If you adjust out the tax credit from EBITDA, then it was down year-over-year. Was that related to food and paper costs? Could you give some color on that?
  Response: Excluding the one-off tax credit, adjusted EBITDA declined ~3% in USD mainly due to elevated food and paper costs (beef in Brazil +35% YoY) and some G&A timing; payroll efficiency (improved ~60 bps) plus occupancy/royalty leverage partially offset the hit.

• Question from Eric Huang (Santander): In Brazil, how has market share evolved and how has competition moved? Will you pursue additional initiatives to boost revenues or prioritize profitability?
  Response: Visit share remains near record highs and ahead of main competitors; competitors are more transactional, while Arcos launched the Economequi national value platform and brand initiatives to protect/gain share, with a primary focus on recouping margins.

• Question from Eric Huang (Santander): Given potential dividend taxation in Brazil starting 2026, any expected impact on repatriation of results or operations?
  Response: No law is approved yet; company has efficient cash management and significant Brazil expansion plans; they will assess and comment if/when legislation is approved.

• Question from Eric Huang (Santander) and Froylan Mendez (JPMorgan): If consumer softness persists into 2026, how will you think about openings versus renovations and pricing/affordability strategies for 2026?
  Response: Growth plan remains aligned to long-term vision but will be flexible: prioritize most profitable markets/formats, adjust pace of openings, accelerate or defer non-development investments as needed, keep compelling value offers to protect share and target EBITDA margin expansion in 2026; formal guidance in Q1.

• Question from Froylan Mendez (JPMorgan): Should we expect lower input cost pressure in Brazil already in the fourth quarter given recent beef trends?
  Response: Yes — management believes Q2 was the year's low point for gross-margin pressure from beef; early Q4 indications show improvement in beef costs and they don't expect additional pressures at the levels seen over the prior 12 months.

• Question from Alvaro Garcia (BTG Pactual): Thoughts on consumer weakness drivers in Brazil — could sports betting or GLP-1 drugs be affecting sales?
  Response: Weakness is driven by lower disposable income, especially among lower-income consumers; management is not seeing a material impact from GLP-1 treatments today and does not expect them to have a material future impact.

• Question from Alvaro Garcia (BTG Pactual): Double checking on the $125M tax credit in Brazil — how will those savings be phased over the next 5 years and is $125M the right number?
  Response: $125M is the fair number and management expects the credit to be gradually compensated against federal taxes, assumed to be evenly monetized over the next five years.

• Question from Alvaro Garcia (BTG Pactual): How do you see mix shifting toward chicken in beef-loving markets like Brazil and Argentina?
  Response: Chicken growth is gradual but consistent; the McCrispy platform and innovations (e.g., spicy, Chicken Bacon Ranch, McNuggets) are gaining share quarter-after-quarter and are a strategic pillar for top-line and margin improvement.

• Question from Alejandro Fuchs (Itaú): With more cash flow and MFA CapEx flexibility, how do you view buybacks as a capital allocation priority?
  Response: Board already declared a $0.24/share dividend in 2025; buybacks remain an option but will be considered by the Board against capital priorities, available cash and expected cash generation — no commitment given now.

• Question from Bob Ford (unspecified): How do you expect the FIFA World Cup to impact traffic and marketing activity?
  Response: Expect a positive impact on traffic and brand attributes; delivery strength allows capturing at-home consumption during games and the company plans regional/global marketing campaigns tied to the event.

Contradiction Point 1

Macroeconomic Conditions in Brazil

It involves differing perspectives on the macroeconomic conditions in Brazil, which could impact business strategies and financial performance.

How has the company's market share and competitive landscape in Brazil changed in the previous quarter amid ongoing macroeconomic challenges? - Eric Huang (Santander)

2025Q3: Consumer confidence and disposable income are down, affecting lower-income consumers. - Luis Raganato(CEO)

How do you assess Brazil's current consumer environment given subdued sales, and how will revenue management initiatives impact sales momentum? - Eric Huang (Santander)

2025Q2: Consumer environment in Brazil is challenging with declining traffic. - Luis Raganato(CEO)

Contradiction Point 2

Impact of Beef Costs on Margins

It involves differing assessments of the impact of beef costs on margins, which could affect pricing strategies and profitability.

Could you clarify the impact of tax credits on EBITDA? Adjusted EBITDA decreased year-over-year after excluding tax credits. Was this decline linked to food and paper costs? Could you provide more details on this? - Alessandro Ciarnelli (Sal Muoio)

2025Q3: Food and paper gross margins were mainly affected by beef inflation, up 35% over the year. - Mariano Tannenbaum(CFO)

How do you expect margins to evolve in Brazil, particularly with beef price impacts? - Eric Santander (Santander)

2025Q2: Beef prices in Brazil have increased by 30% in the last 12 months. - Mariano Tannenbaum(CFO)

Contradiction Point 3

Digitalization and Operational Efficiency

It highlights differing views on the timeline and expected benefits of digitalization and operational efficiency efforts, which are crucial for company growth and financial performance.

When will operating leverage clearly drive higher margins? - Yuron (Obam)

2025Q3: We continually work on operational efficiencies and have seen significant improvements in payroll and occupancy costs. - Mariano Tannenbaum(CFO)

Can you explain the strategy for franchise expansion in Colombia? - Julian Ragone (Morgan Stanley)

2024Q4: Same-store sales in Brazil improved 1.4% with same-store sales in Colombia growing 3.9% and same-store sales in the NOLAD region declining 1.2%. - Javier Suarez(CEO)

Contradiction Point 4

Delivery and Front Counter Sales Performance

It involves differing statements about the performance of delivery and front counter sales, which are key indicators of customer behavior and operational efficiency.

Can you provide details on same-store sales and foot traffic performance in Brazil, Mexico, and Argentina? How did traffic share change? - Thiago Bortoluci (Goldman Sachs)

2025Q3: Our delivery business was down in the quarter, which was impacted by our timing decision to shift promotions to Q4. - Luis Raganato(CEO)

Can you provide sales trend updates for early Q2 2025 in Brazil and NOLAD, adjusted for calendar effects? For Q1 2025, how much of the weak sales in these regions was due to calendar effects versus weaker consumption? - Eric Huang (Santander)

2025Q1: Delivery and front counter sales were strong. - Luis Raganato(COO)

Contradiction Point 5

Market Share and Consumer Confidence in Brazil

It involves differing perspectives on the impact of macroeconomic factors on market share and consumer confidence in Brazil, which are critical for business strategy and investor sentiment.

How has the company's market share in Brazil changed last quarter? - Eric Huang (Santander)

2025Q3: Consumer confidence and disposable income are down, affecting lower-income consumers. We focused on competitive pricing to protect market share. - Luis Raganato(CEO)

Can you clarify the strategy for franchise openings and development in Colombia? - Julian Ragone (Morgan Stanley)

2024Q4: In Brazil, market share performance remains strong, expanding sequentially for the first time in over 25 quarters. - Javier Suarez(CEO)