Arcos Dorados (ARCO) Surges 9% on Q2 Earnings Beat and Digital Sales Momentum

Summary
• Arcos Dorados (ARCO) surges 9.06% to $7.58, driven by Q2 earnings and digital sales growth
• Q2 revenue hits $1.1B, outpacing estimates with 12.1% comp sales growth
• Loyalty program now active in 67% of restaurants, driving 23% of sales in six markets
• Brazil margin pressures persist, but disciplined cost controls offset beef cost inflation
• Intraday range spans $7.00 to $7.64, with 4.39M shares traded

ARCO’s explosive 9% rally reflects a rare confluence of earnings outperformance and strategic digital tailwinds. The stock’s surge follows a Q2 report highlighting $1.1B in revenue, 12.1% comp sales growth, and a loyalty program now driving 23% of sales in six markets. Despite Brazil’s margin challenges, disciplined cost controls and a 90-100 restaurant expansion plan underpin optimism. With the stock trading near its 52-week high of $10.27, investors are weighing whether this breakout is a catalyst for a broader re-rating.

Q2 Earnings Beat and Digital Sales Momentum Ignite ARCO’s Surge
Arcos Dorados’ 9% intraday rally stems from a Q2 earnings report that exceeded expectations on both the top and bottom lines. Revenue of $1.1B (+2.8% YoY) outpaced the $1.137B consensus, while EPS of $0.11 beat the $0.07 estimate. Digital sales now account for 60% of total sales, with the loyalty program driving 23% of sales in six markets. Management highlighted a 40-basis-point EBITDA margin expansion, achieved despite 30% higher beef prices in Brazil. The stock’s surge reflects optimism around the loyalty program’s scalability (targeting 90% coverage by year-end) and disciplined capital allocation, including 20 new Experience of the Future (EOTF) restaurants opened in Q2.

Restaurants Sector Rally on Digital Momentum, MCD Trails ARCO’s Gains
The Restaurants sector saw mixed performance, with ARCO’s 9% surge outpacing McDonald’s (MCD) 1.15% intraday gain. While MCD’s core markets remain stable, ARCO’s digital and loyalty integration—now active in 67% of restaurants—has created a distinct competitive edge. Brazil’s margin pressures, however, highlight regional risks, as beef prices rose 30% YoY. The sector’s broader rally was fueled by Taco Bell’s $3 Luxe Value Menu test and Scream Truck’s on-demand ice cream innovation, but ARCO’s earnings-driven breakout stands apart due to its scalable loyalty program and disciplined EBITDA margin management.

Options Playbook: Leverage ARCO’s Bullish Momentum with Gamma-Driven Calls
• 200-day MA: $7.765 (below current price) • RSI: 36.93 (oversold) • MACD: -0.17 (bullish crossover near) • Bollinger Bands: $6.48–$7.52 (price at upper band) • Gamma: 0.49 (high sensitivity to price moves)

ARCO’s technicals suggest a short-term bullish setup, with the stock trading near its 52-week high and RSI in oversold territory. The 200-day MA at $7.765 acts as a key resistance level, while the 30-day support at $6.83 offers a floor. For options traders, the ARCO20250919C7.5 and ARCO20251121C7.5 calls stand out due to their high leverage ratios (20.07% and 12.71%) and moderate delta (0.585 and 0.572), balancing directional exposure with gamma-driven sensitivity. Both contracts have implied volatility above 31%, reflecting market anticipation of near-term volatility from earnings follow-through and Brazil margin dynamics.

• ARCO20250919C7.5 (Call, $7.5 strike, 9/19 expiry):
- IV: 31.97% (moderate)
- Leverage: 20.07% (high)
- Delta: 0.585 (moderate directional bias)
- Theta: -0.0046 (moderate time decay)
- Gamma: 0.493 (high sensitivity to price moves)
- Turnover: 6,916 (liquid)
- Payoff at 5% upside ($7.96): $0.46/share
- Why it stands out: High leverage and gamma make this ideal for a short-term rally, with theta decay manageable given the 9/19 expiry.

• ARCO20251121C7.5 (Call, $7.5 strike, 11/21 expiry):
- IV: 33.53% (moderate)
- Leverage: 12.71% (high)
- Delta: 0.572 (moderate directional bias)
- Theta: -0.0027 (low time decay)
- Gamma: 0.288 (moderate sensitivity)
- Turnover: 450 (liquid)
- Payoff at 5% upside ($7.96): $0.46/share
- Why it stands out: Lower theta decay and longer expiry (11/21) provide flexibility for a multi-week rally, with leverage amplifying gains if the stock breaks above $7.765.

Action: Aggressive bulls should prioritize ARCO20250919C7.5 for a short-term breakout above $7.765, while ARCO20251121C7.5 offers a safer, longer-dated play if the stock consolidates near current levels.

Backtest Arcos Dorados Stock Performance
The backtest of ARCO's performance after an intraday surge of 9% shows mixed results. While the stock experienced a maximum return of 3.83% on day 58, the 3-day win rate and 10-day win rate were both 49.17%, and the 30-day win rate was slightly higher at 51.82%, indicating that the stock tended to rebound moderately in the short term. However, the average returns over the 3, 10, and 30 days were relatively modest at 0.14%, 0.54%, and 1.44%, respectively.

ARCO’s 9% Rally: A Catalyst for a 52-Week High Challenge
Arcos Dorados’ 9% surge is a high-conviction trade, driven by Q2 earnings outperformance, digital sales acceleration, and a loyalty program now active in 67% of restaurants. The stock’s technicals—RSI in oversold territory and a 200-day MA at $7.765—suggest a potential retest of its 52-week high of $10.27. Key levels to watch: $7.765 (200-day MA) as a breakout threshold and $6.83 (30-day support) as a floor. With McDonald’s (MCD) up 1.15% and the sector broadly optimistic, ARCO’s disciplined margin management and 90-100 restaurant expansion plan position it as a top-tier play. Act now: Buy ARCO20250919C7.5 if $7.765 breaks, or hold ARCO20251121C7.5 for a multi-week rally.