On Wednesday, Arcos Dorados Holdings (NYSE:ARCO) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Arcos Dorados Holdings Inc reported a 13% increase in total revenue for Q1 2026, surpassing $1.2 billion, driven by a 16% growth in system-wide comparable sales.

Adjusted EBITDA for the quarter reached $119 million, marking the highest first-quarter result in US dollars, with notable margin expansion in Brazil.

The company added 19 new restaurants in the quarter and emphasized digital growth, with 64% of system-wide sales coming from digital channels.

Strategic marketing initiatives focused on value platforms and partnerships, particularly in Brazil, to drive sales and maintain brand relevance.

Future outlook remains positive, with strong performance expected in Q2, driven by positive guest traffic and solid average check growth.

Management highlighted the importance of operational efficiency, cash flow generation, and maintaining a balance between corporate and sub-franchisee operations.

Full Transcript

OPERATOR

Good morning and thank you for joining Arcos Dorados Holdings Inc's first quarter 2026 earnings webcast. With us today are Luis Aganator, Chief Executive Officer and Marina Carnebaum, 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 that is also available in the Investors SECtion of our website ir.arcosdorados.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. 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 Generally Accepted Accounting Principles (GAAP) financial results. Investors are encouraged to review the reconciliation of these non Generally Accepted Accounting Principles (GAAP) financial results as compared with Generally Accepted Accounting Principles (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 6-K. I will now turn the call over

Luis Raganato

to Luis thank you Dan and good morning everyone. Over the last several years we consistently added towards our dominant market share position and elevated brand attributes to historical highs across Arcos Dorados Holdings Inc's operating footprint. As a result, for the six years ended in 2025, total revenue grew almost 60%, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) nearly doubled and net income was up more than 2.5 times in US dollars.

Moving forward, our objective is to build on this incredible foundation and capitalize on the significant competitive advantages we built over the period. With that in mind, 2026 is off to a good start for the quarter 2026 highlights included some important milestones within the context of a challenging consumer environment. Total revenue grew about 13% and surpassed $1.2 billion for the first time in the first quarter overcoming relatively soft consumption in certain markets.

This included 16% growth in system wide comparable sales which was driven mainly by average, but we also saw improvements in guest traffic in several markets. Similar to total revenue, we generated the highest adjusted ebitda for the first quarter in US dollars. The 119 million dollar result was driven mainly by strong top line growth combined with very solid margin expansion, especially in Brazil and flat. We have pursued strategies that capitalize on the brand to monetize the significant market share advantage we hold in the region.

This, together with very strong Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) growth, is adding to cash flow performance as well. Along these lines, in a few minutes Mariana will take you through how we measure adjusted free cash flow to drive shareholder value. Marketing campaigns focused on offering value platforms that appeal to lower income consumers and core menu items that drive brand love, as well as licenses and partnerships that keep McDonald's culturally relevant.

The brand experience continues to expand beyond our restaurants, bolstered by the region's most comprehensive digital platform and loyalty program. As much as digitalization has and will change the business, 55% of sales continue to be generated inside our restaurants. During the quarter, we added 19 new restaurants to the footprint, including 13 freestanding units with a more efficient capital deployment. Not all markets are in the same phase of the economic cycle, so our local teams have deployed specific strategies to adapt to their specific operating environments.

In Brazil, marketing campaigns during the quarter span Core menu affordability and partnerships for example, the introduction of AS Burger, leveraging limited time offers through Icon, the first promotions associated with the FIFA World cup and a strong presence at Dolla Paloza, Brazil In Nolad marketing initiatives drove sales performance across the division. Mexico, Panama and Costa Rica continue to leverage affordability platforms and localized offerings across markets. Family focused initiatives Seasonal menu and license activations such as the friends menu complemented core and value execution, reinforcing brand affinity and relevance. In Slack, menu innovation was a key growth driver. For example, in the beef category we introduced the tasty feed Cuarto in Chile and Uruguay, blending the popular tasty sauce with the core favorite Quarter Pounder with goat cheese to delight guests.

In Argentina, we leveraged this successful premium sandwich platform by introducing a limited time only Grand Fit Clubhouse featuring Franco Colapinto, the well known Formula one driver and local hero. Within the chicken platform, Colombia introduced Goose stress and the POZO meets shareable option with an encouraging guest response. Finally, we reinforced the brand's cultural relevance in Argentina, Chile and Colombia to music, a key consumer passion point.

At Lola Padusa and Estéreo Picnic, digital channels including mobile app delivery and self order kiosks grew 21% versus the prior year and contributed about 64% of system wide sales. Sales growth in delivery remained strong boosted by promotional activity by new3PO partners. In Brazil, of course, with an increasingly modernized restaurant base, Self Orequio sales also grew an accelerated rate. The loyalty program topped 30 million registered members at the end of the quarter and we expect the program to grow quickly with more active members to visit us more often now that the rollout phase is nearly complete.

US Dollar revenue performance was strong in all three divisions. Brazil delivered the highest growth thanks mainly to contributions from new restaurants, a higher average check and the appreciation of the Brazilian real. The first six weeks of 2026 were ahead of expectations, but we experienced an important slowdown in restaurant volume in the weeks following Carnival. Our team in Brazil responded with initiatives designed to recover volume without sacrificing profitability.

By the end of the first quarter, we saw a promising reversal in guest volume trends while also delivering better margins versus the prior year period. In other words, we took a balanced approach to monetize our significant market share advantage in Brazil. The second quarter is off to a very strong start with positive guest traffic and solid average check growth in April and the first half of May. Notice comparable sales rose due to higher guest traffic in a couple of key markets.

The result was supported by disciplined pricing, targeted mix optimization and continued momentum in Mexico, Panama. Costa Rica also achieved early progress toward rebalancing traffic and a red check. The appreciation of the Mexican peso and Costa Rican cologne helped contribute to revenue growth in the period as well. SLAT sustained strong momentum with internal research pointing to either maintained or expanded visit and value share in each slab market within the respective QSR industries.

This performance underscores our ability to consistently gain market share. The currency environment in slide was mixed. Most local currencies appreciated versus the prior year with the exceptions of Argentina and Venezuela. Elevated inflation in these two countries partly offset the currency devaluations and helped to generate US dollar revenue growth in the quarter. Over to you Moreno.

Mariano

Thanks Ruiz and good morning everyone. As you just heard, we were able to monetize brand and market share advantages in several key markets. During the first quarter of 2026, adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) totaled $118 million, up almost 30% in US dollars year over year. The consolidated margin expanded by 120 basis points basis points with a very encouraging 60 basis point contribution from food and paper and 60 basis points from GNA as well. Modest pressure in payroll and occupancy and other operating expenses was fully offset by income from certain sub-franchisee restaurant transactions in NOLAD and SLAD. Even without these transactions, consolidated EBITDA margin expanded by 70 basis points versus the first quarter of 2025. Going back to Food and Paper, both Brazil and SLAD were able to generate margin improvements versus last year when LOLAT was stable as a percentage of revenue despite accumulated food inflation.

Globally favorable expenses were up as a percentage of revenue in Brazil and nola, mainly due to higher hourly crude wages. This was partly offset by payroll expense. Leverage in SLAD occupancy and other operating expenses included modest pressure in each division, whereas G and A was lower, partly reflecting the benefits of last year's restructuring process. First quarter adjusted EBITDA included $5.8 million from sub franchisee restaurant transactions in Flat and NOLADn, which added 2.7 million and $3.1 million respectively.

In Brazil, adjusted EBITDA was up more than 20% in US dollars. Improved food and paper was the main driver of the quarter's 30 basis point margin expansion. NOLA has had a more challenging time generating margin improvement in recent quarters. Excluding the income from the restaurant transaction, EBITDA margin was down about 40 basis points in the quarter. We're working with the leaders in each market to implement strategies that better balance guest volume and profitability.

SLAB continued generating strong USD growth and margin expansion in the first quarter. Even without the income from the restaurant transaction with the local sub-franchisee. SLAB's EBITDA margin rose by about 120 basis points in the period. Moving ahead, we remain optimistic that SLAT is on track to deliver another positive performance this year, navigating the short term while building on the successes of 2025. Starting with today's earnings release, we will be publishing our adjusted free cash flow for the last 12 months.

We believe this calculation over a full business cycle provides a clear picture of our ability to service our debt and fund our CapEx plans. Additionally, this is in line with the three pillars of focus that Greece introduced last year, targeting greater operational efficiency and cash flow generation to create long term shareholder value. For the 12 months ended March 31, adjusted free cash flow generation reached almost $110 million versus a negative $3 million in the previous period.

As a reminder, during the first quarter we also completed the liability management transaction we described on our last call. As of the end of the first quarter, net debt to adjusted EBITDA was unchanged compared with year end 2025. We continue to have a healthy cash balance and are combining improved profitability and cash regeneration with other initiatives to strengthen our balance sheet and support future growth and modernization. With that in mind, during the first quarter we invested $36.8 million, including $16.7 million for new restaurants.

Growth continues to be a priority for capital allocation as long as the returns on investment are strong. With all the uncertainty currently influencing local economies and consumer behavior, we continue to focus on the factors we control to drive profitable sales growth and generate value through the investments we make inside and outside our restaurants. I am encouraged by the progress achieved during the first quarter and our objective remains to deliver improved underlying margin performance throughout the year.

Back to you, Luis.

Luis Raganato

Thanks, Mariano. I have just a few more things to mention before we open up for Q and A. Arcos Dorados Holdings Inc is in a unique position in the Latin American consumer space. We operate in a segment of the economy that will never disappear as we meet a basic need for guests. Within that segment. We developed significant competitive advantages spanning the emotional connection we have with consumers, the multiple channels we use to generate sales, the business foundation built on operational efficiency and the prudent management of the company's capital structure.

We also partner with the communities we serve to support economic development and new formal job opportunities for young people. In fact, over the last several months we have been recognized by Great Place to Work among large companies as the number one Great place to work in both Argentina and Uruguay and the number four Great Place to Work in Brazil, the highest ever ranking in that country's history. In Mexico, the prestigious Expansion Media Group publishes an annual superempresas ranking which evaluates organizational culture among the country's largest companies.

The ranking is based on factors including leadership, professional growth, company policies and social responsibility, among others. We were honored to have been ranked number one in the 2026 ranking. The recognition we received in each of these markets is a reflection of a company wide commitment to running their restaurants while also generating new formal job opportunities that have a positive impact on the communities we serve. Soon we will publish The Arco Torados 2025 Social Impact and Sustainable Development Report in addition to the Impact Team's ongoing work on Youth Opportunity and the other pillars of the Recipe for the Future.

You will find the details of how we met the targets of the Sustainability Link bond we issued back in 2022. Check back on the website recipeforthefuture.com in the next few weeks to download the report. Also, please mark your calendars for Arco Dorado's next Investor Day. We are working on an agenda for the morning of October 1st in New York with the participation of several members of the company's executive leadership who will provide an update on how we are addressing the business three Pillars of Today, Growth and Tomorrow.

In the coming weeks we will provide more details on how you can participate in the event. We hope you will join us. Finally, let me reinforce a couple of key messages from today's presentation. The plan for 2026 was developed to optimize sales growth drivers over the course of the year and capture efficiencies to drive improved profitability. This should help us generate positive adjusted free cash flow to create additional shareholder value. The team is focused and the second quarter is off to a good start.

Thank you for joining today's call. Dan, back to you.

Dan

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 yourself to one or two questions so that I can read, understand and convey them to our speakers. We will now pause briefly to compile your questions. Okay, thanks. We actually have quite a few questions already in the queue. We're going to try to go systematically through these. We're going to start with a question related to our beef costs, which we have from both Bob Ford of Bank of America who says how should we think about beef costs and pricing for the balance of the year across markets? And also for The Mendez from J.P. morgan. Can you provide more detail on the evolution of beef prices in Brazil during the first quarter and quantify how much of the margin improvement was attributed to this tailwind?

And also how do you expect beef prices to trend for the remainder of the year and what implications could this have to your margin performance in full year 26 in Brazil? So with all of that, I'll turn it over to you, Marian.

Mariano

Thank you. Good morning everyone. And thank you, Bob and Freuden, for the question regarding food and paper. I would start with Brazil food and paper and beef in particular was the main driver of margin improvement in Brazil during this quarter. As we already or I mentioned during the previous call, this is the second quarter where we are seeing big cost reduction in Brazil. So we are very pleased with that compared to last year. There's a clear moderation on price increases and that's of course helping our margin performance at the restaurant level. Looking ahead, we expect costs, especially beef, to remain dynamic. Global demand, as you know, is still shaping domestic prices. Brazil is still with beef costs lower than in many places in the world. We are working on that for the outlook.

We are cautiously optimistic about the evolution of food and paper costs in Brazil. You know, besides beef, we are seeing the rest of the main categories pretty stable and going out from Brazil, we haven't seen the same pressure that we have seen last year in beef cost in Brazil in the rest of the countries where we operate, and we are not seeing further pressures during this year. So in summary, we are very pleased with the performance in the last two quarters. We have seen big cost reductions and we are cautiously optimistic for the outlook for the remaining of 2026.

Dan

Great, thanks, Mariano. The next question we're going to stay with Bob Ford from Bank of America. Can you talk about loyalty penetration rates in your bigger markets and what's what that's doing to frequency and average ticket and where are you rolling out loyalty or have yet to lap in terms of the markets, what's already been rolled out? And that one is for you, Luis.

Luis Raganato

All right, thank you very much Bob for the question. First, Start Loyalty boosts the power of the app because it brings PC frequency while increasing the percentage of identified sales. The program continued to grow this first quarter reaching more than 30 million registered members. And this is an increase of 62% versus the end of of last year representing 25% of total sales in the first quarter we launched one additional market above Panama. So our loyalty program is available in 10 countries now that account for 94% of our stores. Regarding the KPIs, analyzing the transactions of the program, we calculated a 20 to 25% increase in VC frequency and the performance of 90 day active users frequency and redemption rates is above the average of the market. And regarding margins, we're seeing a positive impact.

Since redeemed products have on average a higher margin, we are seeing a minimal impact on average check and this is compensated greatly by the increasing in frequency. And another advantage is that it helps us to analyze the customer's behavior to better manage the customer lifetime value that has reached record high fe. So that's the understanding.

Dan

Thanks Lis. Adam. Actually I have a couple more from Bob. Both of them will be free.

Mariano

Mariano, go one at a time here. First is what's behind your sub franchisee acquisitions and sales and Nolad and Argentina or Slat. And how do you think about the optimal balance of corporate versus sub franchise locations these days? Perfect. Basically this is business as usual for us. We currently have more than 2,500 restaurants in the region. And it's normal for us to acquire some restaurants from some franchisees and to sell some restaurants operated by us to some franchisees. And that happens, you know, on a regular basis. So this quarter we acquired some restaurants in Mexico and we sold a restaurant in Splat. So this is normal for us. You are going to see these type of transactions as you have seen them in the past and you will see them in the future.

Regarding the mix between an Arcos operated restaurants and sub-franchisees, we are not expecting any big changes on the percentage you recall. More or less. We operate 70% of total restaurants and the sub-franchisees operate around 30% and we are planning to maintain that percentage quite stable throughout the this year and next year. Great. Thanks Mariano. And then final one from Bob Ford bank of America. How should we think about the cuts to the central administrative structure net of the severance and opportunities for further improvement due to AI or other efficiencies? And that's back to you Mariano.

Perfect. Well, as you know, maintaining a strong discipline over the G&A expenses, it's a core priority for arcos as we continue to focus on efficiency and operating leverage while supporting the needs of the business. Following this G&A restructuring that started in November last year until January this year, we can say that we entered 2026 with a linear and morata. eco-structure is better aligned with our strategic priorities and growth agenda.

So at a consolidated level, G&A over revenues is down 60 basis points versus the prior year. And that's supported of course by sales growth and the reductions that we that I just mentioned. The only thing is of course the increase in the US dollar that is helping our. Sorry. The Real appreciation of the local currencies in the last month is hemping our results and our ebitda, but at the same time is making our GNA in dollars a bit higher. But throughout the year we expect to maintain the leverage that we obtained during this first quarter and we are very pleased with with these results. In terms of AI, we are beginning this journey. We of course training all our staff, adoption of AI tools and we are convinced that we have the scale to generate value through AI advancements. And we will talk about this with much more detail during our investor Day in September.

Dan

Thanks Mariana. The next question is going to be a combination of three questions for Luis and I'll start with Eric Huang from Santander. Good morning. Three questions from his side. I'll start with the first. Comm. Sales in Brazil remained quite pressured but we saw a sequential improvement in your main competitors indicator in the quarter. Could you walk us through the competitive environment and current expectations towards a rebound in comp sales in Brazil? Combining that with one from Thiago Bortolucci from Goldman Sachs who asked us could you comment on how traffic has sequentially evolved since mid last year and how it is into the second quarter?

And I'll add to that Julia Rizzo from Morgan Stanley who says she would like to hear management's expectations on the pace of sales recovery.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.