Q4 2023 Arcos Dorados Holdings Inc Earnings Call
<unk> operating officer, and Mike Amazon inbound, our Chief Financial Officer.
Todays webcast, which is being reported will consist of prepared remarks from our leadership team, which will be accompanied by a slide presentation also available on the investors section of our website Www Dot Arcos Dorado Dot com slash IR.
As a reminder to better view the presentation on the webcast platform. Please scroll over the upper left hand part of the screen and click on the arrows to maximize the slides.
After we conclude our opening remarks, we will answer your questions, which you can submit using the chat function on the left hand side of the screen you.
You will need to minimize the slides to access the chat function.
Today's call will continue to 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 the press release and audited financial statements filed today with the SEC on form 6K marts.
Marcello over to you.
Thank you Donna and good morning.
Everyone and thank you for joining us today.
I am very pleased to confirm that we have a very strong year in 2023.
Our TV strategy on digital delivery and drive through continuous doable by leveraging the industry's largest freestanding restaurant portfolio.
Digital sales, including mobile App delivery Ansel photo kiosks transactions.
The penetration of these channels is expanding throughout our footprint. Thanks to a mobile app that has evolved into an e-commerce platform offering incentives and convenience to increase guest loyalty and visit frequency.
If anybody says channel, which continues to grow strongly in this segment, where we ought to be established industry leaders on.
Ansel photo kiosks that are capturing an increasing share of on premise orders with about 60% of vehicles, what else restaurants already modernized to the experience of the future format.
Our <unk> strategy continues to drive sustainable sales growth supported by both restaurant volume on average check.
Importantly, we are implementing the strategy in a way, we believe will deliver above inflation growth in systemwide comparable sales too.
To then drive operating leverage.
Double digit growth.
Our balance sheet is very strong, which allows us to accelerate restaurant openings and capture significant growth opportunities for years to come.
Otherwise operating responsibly and supporting the communities we serve.
Let's turn to our consolidated results for the fourth quarter and full year 2023.
Total revenue serve robust $1 $2 billion in the quarter.
And for $3 billion for the full year.
Which was the highest U S dollar of total history for each period.
<unk> volumes were up mid single digits in each division this year.
Helping to drive the 19, 7% increase in U S dollars revenue in 2023.
In line with our strategic approach adjusted EBITDA grew with revenue reaching.
Reaching almost $133 million in the quarter.
More than $472 million for the full year.
These results were also the highest U S dollar total in our history for each period.
U S dollar adjusted EBITDA grew 16, 3% in the fourth quarter.
And 22, 2% for the full year.
On top of the prior year's record results.
These included incremental margin improvements in both periods things.
<unk>, mainly to better food and paper costs and G&A expenses.
Net income for the quarter was almost $56 million or 26 cents per share.
We generated and the best ever full year net income totaled more than $181 million.
Or <unk> 86 per share last year.
Systemwide comparable sales grew 32, 4% in the fourth quarter.
Pricing with or above inflation in all divisions.
On about one one times the company's blended inflation demonstrating the strength of the <unk> strategy.
Our restaurant pipeline continues to demonstrate the growth opportunity that lies ahead of us.
During the fourth quarter, we opened 36 restaurants, bringing the full year total to 81, new restaurants across our footprint.
This included 72, new freestanding locations.
In Brazil, we opened 50 total restaurants last year, including 44 freestanding units.
Importantly, first year return on investment for the restaurants, we open in each of the last three years have been in the mid to high Twenty's, which supports our outlook for long term unit growth potential.
Our market share in orderly markets is a testament to the strong brand positioning we have built.
And the significant consumer preference, we enjoy versus our nearest competitors.
According to our research, we gain more market share or not with us that our main competitors in the fourth quarter.
Further strengthening our leadership position.
Notably these gains came in markets, where mcdonalds brand share is already too to almost four times that of our main competitors.
<unk> over to you for the additional sales performance.
Thanks, Marcel and good morning, everyone.
Brazil's comparable sales rose six 2% in the quarter and nine 9% for the full year.
Comparable sales rose one three times inflation in the quarter and two one times inflation for the year with about equal contribution from gas volumes and average check over the course of full year 2023.
About 63% of sales came through digital channels in Brazil with identified sales representing 26% of the total.
The loyalty program, we launched at the end of October helped improve performance on both fronts, especially after black Friday.
Water and two one times inflation for the year with about equal contribution from gas volumes and average check over the course of full year 2023.
As Marcelo just showed you mcdonalds brand market share in Brazil remained at more than twice that of our nearest competitor.
About 63% of sales came through digital channels in Brazil with identified sales representing 26% of the total.
The quarter included 12 of the top 20 strongest sales days of the year driving market share gains in both guest visits and sales.
The loyalty program, we launched at the end of October helped improve performance on both fronts, especially after black Friday.
We introduced the Marquis beef chicken elite sandwich in October.
Combining <unk> and juices breaded chicken with the new honey and fire source.
As Marcelo just showed you mcdonalds brand market share in Brazil remained at more than twice that of our nearest competitor.
The sandwich is already one of the best centers in the country, where we're committed to growing the chicken category.
The quarter included 12 of the top 20 strongest sales days of the year driving market share gains in both guest visits and sales.
In November we reinforced the beef platform, bringing back the famous big material with the launch of two limited time offers the double the Mac and debit Mac Bacon.
We introduced the Marquis pig chicken elite sandwich in October.
Combining <unk> and juices breaded chicken with the new honey and fire source.
As of the end of 2023, we had more than 3 million registered members in the loyalty program across our handle percent of restaurants in Brazil, including also franchisees.
The sandwich is already one of the best centers in the country, where we're committed to growing the chicken category.
The visa traditional Makey Friday campaign in November helped generate record mobile app downloads and active users.
In November we reinforced the beef platform, bringing back the famous big material with the launch of two limited time offers the double big Mac and the Big Mac Bacon.
No less comparable sales grew five 4% in the quarter.
As of the end of 2023, we had more than 3 million registered members in the loyalty program across our handle percent of restaurants in Brazil, including also franchisees.
And 10, 6% for the full year, which was two one times and two nine times the division's blended inflation respectively.
Volume growth accounted for about two thirds of comparable sales growth last year.
The visa traditional Mickey Friday campaign in November helped generate record mobile app downloads and active users.
The divisional reinforced its market leadership in the fourth quarter, achieving its highest level of BCP share while growing key brand attributes such as top of mind favorite brand and high quality food.
No less comparable sales grew five 4% in the quarter.
At 10, 6% for the full year, which was two one times and two nine times the division's blended inflation respectively.
Mexico sales momentum remained strong with mid teens year over year growth in the quarter.
Volume growth accounted for about two thirds of comparable sales growth last year.
Marketing activities were the key to support this growth with the launch of grants tasty Bacon, a new platform focused on large and indulgent burgers to engage guests.
The revision reinforced its market leadership in the fourth quarter, achieving its highest level of BCP share while growing key brand attributes such as top of mind favorite brand and high quality food.
In Puerto Rico, we continued gaining market share leading the islands highly competitive <unk> industry.
Mexico sales momentum remained strong with mid teens year over year growth in the quarter.
The brand campaign Sacaton candle supported brand loving that market.
Finally, we're making good progress with the digitalization of NOLA. We're at 34% of sales came from digital channels in the quarter up from just 22% last year.
Marketing activities were the key to support this growth with the launch of grants tasty Bacon, a new platform focused on large and indulgent burgers to engage guests.
As less comparable sales grew in line with the division's blended inflation rate for the quarter and one two times blended inflation for the year.
In Puerto Rico, we continued gaining market share leading the islands highly competitive <unk> industry.
Gas volume growth in 2023 was in the mid to high single digit range, while comparable sales were impacted by inflation aided growth in Argentina all year.
The brand campaign Sacaton candle supported brand loving that Mark.
Finally, we're making good progress with the digitalization of NOLA, we're 34% of sales came from digital channels in the quarter up from just 22% last year.
Brand strength has been a consistent contributor to market share gains and sales growth for the entire company, including flat, where we added significant market share in the period.
This led to comparable sales grew in line with the division's blended inflation rate for the quarter and one two times blended inflation for the year.
The fourth quarter included the launch of brand affinity campaigns, such as <unk> in Argentina, and <unk> in Chile.
<unk> volume growth in 2023 was in the mid to high single digit range, while comparable sales were impacted by inflation aided growth in Argentina all year.
The results were important sequential improvements in key brand attributes such as paper brand and brand a thrust in both markets.
Brand strength has been a consistent contributor to market share gains and sales growth for the entire company, including flat, where we added significant market share in the period.
Product innovation, including new large sandwiches, such as the Grand Tasty Spice in Argentina, and the Bacon Cheddar Mac mailed in Chile, and Colombia to boost the beef platform.
The fourth quarter included the launch of brand affinity campaigns, such as bus and of course, I leaned us in Argentina and <unk> in Chile.
We also supported the dessert category, taking advantage of local flavors with Newmark three options in several slab markets.
The results were important sequential improvements in key brand attributes such as paper Brown in Brown They trust in both markets.
After Mariano takes you through divisional profitability I will come back to tell you about the performance of the <unk> strategy.
Brett of innovation, including new large sandwiches, such as the Grand Tasty Spicing, Argentina, and the Bacon Cheddar Mac milk in Chile, and Colombia to boost the beef platform.
Thanks Luis.
Good morning, everyone.
We are very pleased to be reporting the strongest ever EBITDA results for our fourth quarter and full year in <unk> history.
We also supported the dessert category, taking advantage of local flavors with new maturity options in several slab markets.
Adjusted EBITDA grew 16, 3% in U S dollars slightly above our total revenue growth in the quarter.
Mariano takes you through divisional profitability I will come back to tell you about the performance of the <unk> strategy.
Similarly, full year EBITDA grew 22, 2% in U S dollars, leveraging 19, 7% revenue growth in 2023.
Thanks Luis.
Good morning, everyone.
We are very pleased to be reporting the strongest ever EBITDA results for our fourth quarter and full year in <unk> history.
Moving forward, we expect to continue generating profitability growth.
By offering value to our guests and by opening new restaurants to drive sales growth.
Adjusted EBITDA grew 16, 3% in U S dollars slightly above our total revenue growth in the quarter.
We should also capture some operating leverage to support incremental margin improvements.
Similarly, full year EBITDA grew 22, 2% in U S dollars, leveraging 19, 7% revenue growth in 2023.
Consolidated EBITDA margin rose by 10 basis points in the quarter and 20 basis points for the full year.
Moving forward, we expect to continue generating profitability growth by offering value to our guests and by opening new restaurants to drive sales growth.
Food and paper payroll and G&A all contributed to margin expansion last year, helping to offset the higher effective royalty rate in 2023.
We should also capture some operating leverage to support incremental margin improvements.
Excluding the impact of the royalty rate our full year 2023, EBITDA margin rose 60 basis points over the prior year.
Consolidated EBITDA margin rose by 10 basis points in the quarter and 20 basis points for the full year.
Fourth quarter adjusted EBITDA grew strongly in all three divisions.
Food and paper payroll and G&A all contributed to margin expansion last year.
In Brazil.
EBITDA was up 15, 4% in U S dollars.
To offset the higher effective royalty rate in 2023.
Lower food and paper and G&A expenses were offset mainly by higher payroll and occupancy and other operating expenses as a percentage of revenue.
Excluding the impact of the royalty rate our full year 2023, EBITDA margin rose 60 basis points over the prior year.
For the full year, Brazil, EBITDA grew 23, 9% in U S dollars.
Fourth quarter adjusted EBITDA grew strongly in all three divisions in.
Listed by a 60 basis point increase in margin.
Margin expansion for the full year, including better food and paper payroll and G&A expenses, which were partially offset by small increases in occupancy and other operating expenses as well as royalties as a percentage of revenue.
In Brazil.
EBITDA was up 15, 4% in U S dollars.
Lower food and paper and G&A expenses were offset mainly by higher payroll and occupancy and other operating expenses as a percentage of revenue.
Nevertheless, EBITDA grew 11, 7% in U S dollars and lower food and paper costs were offset mainly by higher payroll and occupancy and other operating expenses as a percentage of revenue.
For the full year, Brazil, EBITDA grew 23, 9% in U S dollars.
Boosted by a 60 basis point increase in margin.
Margin expansion for the full year, including better food and paper payroll and G&A expenses, which were partially offset by small increases in occupancy and other operating expenses as well as royalties as a percentage of revenue.
No that's full year EBITDA grew 21, 1% in U S dollars.
Margin was down 20 basis points due mainly to the higher effective royalty versus 2022.
No less EBITDA grew 11, 7% in U S dollars.
Which was partially offset by a net improvement in other costs and expense line items.
Lower food and paper costs were offset mainly by higher payroll and occupancy and other operating expenses as a percentage of revenue.
Adjusted EBITDA grew 31% in U S dollars in the fourth quarter.
EBITDA margin improved by 160 basis points with lower payroll and occupancy and other operating expenses.
No that's full year EBITDA grew 21, 1% in U S dollars.
Margin was down 20 basis points due mainly to the higher effective royalty versus 2022.
Partially offset by higher food and paper costs as a percentage of revenue.
For the full year 2023 slots EBITDA grew 19, 5% in U S dollars, including an incremental improvement of 10 basis points over the prior year's margin with improvements in most costs and expense line items offsetting the higher effective royalty rate.
Which was partially offset by a net improvement in other cost unexplained line items.
Adjusted EBITDA grew 31% in U S dollars in the fourth quarter.
EBITDA margin improved by 160 basis points with lower payroll and occupancy and other operating expenses.
Versus 2022.
Lewis.
Partially offset by higher food and paper costs as a percentage of revenue.
Are you.
Let's turn to the <unk> strategy of digital delivery and drive thru.
For the full year 2023 slots EBITDA grew 19, 5% in U S dollars, including an incremental improvement of 10 basis points over the prior year's margin with improvements in most costs and expense line items offsetting the higher effective royalty rate.
Digital sales grew 39% in U S dollars and contributed 53% of system wide sales in the quarter.
<unk> also identified 281% of the quarter system wide sales and this figure should continue to rise as we rollout the loyalty program to more markets.
Versus 2022.
Lewis.
The goal is to identify 40% of sales by the end of 2025, keeping in mind, our ability to positively impact the customers average check and visit frequency, which significantly increases the value of unidentified customer.
You.
Let's turn to the <unk> strategy of digital delivery and drive thru.
Digital sales grew 39% in U S dollars and contributed 53% of system wide sales in the quarter.
We've also identified 21%.
The mobile apps downloads and monthly active users continued to grow during the quarter.
<unk> of the quarter system wide sales and this figure should continue to rise as we rollout the loyalty program to more markets.
See the boost from the launch of the loyalty program in Brazil in Hawaii, as well as the increasing popularity of the mobile order and pay functionality.
The goal is to identify 40% of sales by the end of 2025, keeping in mind, our ability to positively impact the customers average check and frequency, which significantly increases the value of unidentified customer.
As we have said in the past the only channel approach, we are taking across geographies restaurant formats and digital platforms.
Now, we announced to serve more customers the way they want to be served.
The mobile App downloads and monthly active users continued to grow during the quarter receiving boost from the launch of the loyalty program in Brazil in Hawaii as well as the increasing popularity of the mobile order and pay functionality.
This is why it was so important to evolve the mobile app from a coupon or two to an E. Commerce platform with personalized offers multiple ways to place and receive orders and a loyalty program.
In addition to the mobile App and delivery, which I will tell you about on the next slide let's not forget that digital sales also include the self order kiosks in <unk> restaurants.
As we have said in the past the only channel approach, we are taking across geographies restaurant formats and digital platforms is allowing us to serve more customers the way they want to be served.
In some markets self order kiosks are the number one sales, China, delivering higher average checks and operation efficiency, while capturing the lion's share of on premise dining.
This is why it was so important to evolve the mobile app from a coupon to to an E. Commerce platform with personalized offers multiple ways to place and receive orders and a loyalty program.
Both delivery and drive thru contributed to the strong sales growth in the quarter with combined off premise U S dollar sales rising 16% versus the prior year.
In addition to the mobile App and delivery, which I will tell you about on the next slide let's not forget that digital sales also include the self order kiosks in <unk> restaurants.
Taking advantage of our freestanding restaurant portfolio. The Libra became almost a billion dollar sales channel for us in 2023 growing from less than 5% of sales in 2019.
In some markets self order kiosks are the number one sales, China, delivering higher average checks and operation efficiency, while capturing the lion's share of on premise dining.
We have also developed plans in each of our markets to continue boosting derived from sales in 2024, which you said, China, we're really dominate across the region.
Both delivery and drive thru contributed to the strong sales growth in the quarter with.
With combined off premise U S dollar sales rising 16% versus the prior year.
In late October of last year, we launched a new loyalty program in two of our markets by seat in Hawaii.
Taking advantage of our freestanding restaurant portfolio. The Libra became almost a billion dollar sales channel for us in 2023 growing from less than 5% of sales in 2019.
The end of February the program had grown to more than 5 million members, adding 2 million members in just the last two months.
We have also developed plans in each of our markets to continue boosting derived from sales in 2024, which you said, China, we're really dominate across the region.
We monitor several important kpis and compare them with benchmarks within both the Mcdonald's system as well as industry peers and similar programs in other industries.
In late October of last year, we launched a new loyalty program in two of our markets plus it anyway.
So our we have very healthy results in terms of active customers visit frequency and redemption rates.
At the end of February the program had grown to more than 5 million members, adding 2 million members in just the last two months.
We will soon rollout of the loyalty program to additional marketing no led and flat and expected to be fully implemented by the end of 2025, we look forward to sharing our progress on future calls.
We monitor several important kpis and compare them with benchmarks within both the Mcdonald's system as well as industry peers and similar programs in other industries.
Now that you have seen the strength of our operating results.
Let's take a look at the balance sheet and cash flows that will support accelerated unit growth in the coming years.
So our we have very healthy results in terms of active customers visit frequency and redemption rates.
Net leverage at the end of 2023 was unchanged from the end of 2022 are just one offs.
We will soon rollout of the loyalty program to additional marketing no led and flat and expected to be fully implemented by the end of 2025, we look forward to sharing progress on future calls.
As has been the trend throughout the year.
Total debt rose modestly versus the prior year and as we deployed cash to fund capital expenditures.
Now that you have seen the strength of our operating results.
Let's take a look at the balance sheet and cash flows that will support accelerated unit growth in the coming years.
Additionally.
The appreciation of the Brazilian real reduced the value of our derivative instruments.
Net leverage at the end of 2023 was unchanged from the end of 2022.
The resulting increase in net debt was offset by the EBITDA growth we presented earlier.
Or just one.
Cash flow from operating activities grew 11% versus the prior year.
As has been the trend throughout the year total debt rose modestly versus the prior year end.
Allowing us to meet our ambitious capital expenditure plans for the year, while keeping net leverage unchanged.
We deployed cash to fund capital expenditures.
Additionally.
As Marcel already shared restaurant openings were just above the top end of our 75 to 80 openings guidance range for full year 2023.
The appreciation of the Brazilian real reduced the value of our derivative instruments.
The resulting increase in net debt was offset by the EBITDA growth we presented earlier.
Just above 90% being.
Cash flow from operating activities grew 11% versus the prior year.
Being freestanding openings increasingly structural competitive advantage across our markets.
Allowing us to meet our ambitious capital expenditure plans for the year, while keeping net leverage unchanged.
Capital expenditures for the full year totaled $360 million in line with our guidance.
As Marseille already shared restaurant openings were just above the top end of our 75 to 80 openings guidance range for full year 2023.
With that we met our opening guidance.
Modernized another 10% of our existing restaurants for a formal require a maintenance on all other restaurants.
Just above 90% Brent being freestanding openings.
Hence our information technology infrastructure and digital capabilities.
Leasing the structural competitive advantage across our markets.
Returns on investment from both opening southern Modernizations remain well above historical averages and part of the Capex at the end of 2023 was invested in the openings planned for the first quarter of 2024.
Capital expenditures for the full year totaled $360 million in line with our guidance.
With that we met our opening guidance.
Modernized another 10% of our existing restaurants for a formal required maintenance on all other restaurants.
In fact.
We have already opened 18 restaurants, so far this year.
Hence our information technology infrastructure and digital capabilities.
For the full year 2024, we plan to open 80 to 90, <unk> TF restaurants, again with about 90% of them being freestanding.
Returns on investment from both opening southern Modernizations remain well above historical averages and part of the Capex at the end of 2023 was invested in openings planned for the first quarter of 2024.
We expect to accomplish this plan with capital expenditures of $300 million to $350 million.
Which we plan to fund with cash on hand, and cash from operations.
In fact.
We have already opened 18 restaurants, so far this year.
About 60% of restaurants across the arcos that others footprint, our experience of the future locations.
For the full year of 2024, we plan to open 80 to 90, <unk> TF restaurants, again with about 90% of them being freestanding.
We remain confident that we will surpass 90% of our footprint modernized two <unk> by the end of 2027.
We expect to accomplish this plan with capital expenditures of $300 million to $350 million.
Bringing all the benefits of the formats enhanced technology to improve guest experience, while driving additional sales growth and operational efficiency.
Which we plan to fund with cash on hand, and cash from operations.
About 60% of restaurants across the arcos that others footprint, our experience of the future locations.
Finally in addition to devalue the business is generating and as part of its ongoing commitment to provide shareholders with multiple sources of return Idaho store Atlas Board of directors has approved a cash dividend of 24 cents per share to be paid in four equal.
We remain confident that we will surpass 90% of our footprint modernized two <unk> by the end of 2027.
Bringing all the benefits of the formats and technology to improve guest experience, while driving additional sales growth and operational efficiency.
Install lines towards the end of each calendar quarter.
Marcello back to you.
Thank you Mariano.
Finally in addition to the value of the business is generating and as part of its ongoing commitment to provide shareholders with multiple sources of return Idaho stood out as a board of directors has approved a cash dividend of 24 cents per share to be paid in four equal.
Operating responsibly is an important principle for article hotels, which is why we continue to develop and implement our recipe for the future ESG platform.
In 2023, we continued moving forward with our commitment to source, 100% fresh cage free eggs.
Installments towards the end of each calendar quarter.
So far we have stretched our sourcing in Brazil.
Marcello back to you.
<unk>, Costa Rica, Puerto Rico and Peru.
Thank you Mariano.
Operating responsibly is an important principle for article hotels, which is why we continue to develop and implement our recipe for the future ESG platform.
We are already working now the deep days toward our upcoming transition in several additional markets.
To achieve our commitment to return, 100% fresh cage free in all the articles developed markets by the end of 2025.
In 2023, we continue moving forward with our commitment to source, 100% fresh cage free eggs.
Our sustainable construction program reached new Cds in Latin America.
So far we have stretched our sourcing in Brazil.
Arriving in Brazil, Chile, Peru, Argentina and Ecuador.
<unk>, Costa Rica, Puerto Rico and Peru.
We are already working now the deep data support our upcoming transition in several additional markets.
These new or remodeled restaurants, including up to 25 sustainability initiatives.
Base to achieve our commitment to be 100%, Chris Cage free in all the articles, but other markets by the end of 2025.
<unk> equipped with technology that Minimises the operations environmental impact.
That ignored Ashish include smart air conditioning systems.
Our sustainable construction program reached new Cds in Latin America.
Water collection dance solar panels.
<unk> separation beams among others.
Arriving in Brazil, Chile, Peru, Argentina, Ecuador.
In 2023 article Hood Allo source about 30% of its energy from renewable sources.
These new or remodeled restaurants, including up to 25% sustainability initiatives.
Last year, we also signed an agreement with petrochemical kimono reorient.
<unk> equipped with technology that Minimises the operations environmental impact.
A leading company in the Argentinian energy sector.
That they ignored Ashish include smart air conditioning systems water collection times.
To source electricity from a new wind farm they built in the province of Buenos sinus.
Solar panels on week separation beams among others.
We've begun sourcing electricity from these new farm last month.
In 2023 article Hood Allo source about 30% of its energy from renewable sources.
Along with other projects in Brazil, and Colombia, we expect these to help us continue converting our energy matrix to more sustainable sources in 2024.
Last year, we also signed an agreement with petrochemical commodity <unk>.
Leading company in their continuing energy sector too.
Before we open the call for questions and answers I would like to share a few final thoughts.
To source electricity from a new wind farm they built in the growing support of sinus.
We are very proud of the results we delivered in 2023.
We've begun sourcing electricity from these new farm last month.
Comparable sales rose with or above inflation in all markets.
Along with other projects in Brazil, and Colombia.
Driven by higher volumes and a competitive pricing strategy.
Expect these to help us continue converting our energy matrix to more sustainable sources in 2024.
Ofer, the most compelling value proposition in the region.
Total revenue benefited from the strong comp sales performance.
Before we open the call for questions and answers I would like to share a few final thoughts.
Well as a restaurant openings on a mostly neutral currency environment.
We are very proud of the results we delivered in 2023.
In 2023 profitability grew mainly as a result of top line growth.
Carnival saves rose with or above inflation in oil markets.
As we use some lower margin opportunity to drive guest volume.
Driven by higher gas volumes on a competitive pricing strategy.
Over time this is more sustainable and reflects habit formation among guests supporting increased frequency and lifetime value.
Offer the most compelling value proposition in the region.
Total revenue benefited from the strong comp sales performance as.
As well as our restaurant openings on a mostly neutral currency environment.
But it is worth repeating that excluding deemed but a bit higher royalty rate full year 2023, EBITDA margin was 60 basis points higher than the prior year.
In 2023 profitability grew mainly as a result of top line growth.
So we used some of the lower margin opportunity to drive guest volume.
The structure and Comorbidities that advantages, we enjoy today are real and we strengthened them in 2023.
Over time this is more sustainable and reflects habit formation among guests.
Our freestanding restaurant portfolio grew lot of share and we open even more will break up between us and our nearest competitors.
<unk> increased frequency and lifetime value.
But it is worth repeating that excluding deemed but a bit higher royalty rate.
On our digital platform is second to none with the industry's most downloads active users functionality saves you name it.
Full year 2023, EBITDA margin was 60 basis points higher than the prior year.
We have structural competitive advantages we enjoy today are real and we have strength in them in 2023.
Our plan is to continue leveraging these advantages.
While bringing them to more markets in the coming years.
Our freestanding restaurant portfolio grew lot of share and we open even more will break up between us and our nearest competitors.
Finally, the restaurant openings pipeline is as strong as ever.
We will maintain discipline around the processes and tools that have generated the strong results of the last few years.
On our digital platform is second to none.
With the industry's most downloads active users functionality saves you name it.
We also expect to increase the pace of openings in the next couple of years to take advantage of the opportunity to expand the mcdonalds brand in a highly underpenetrated region of the world.
Our plan is to continue leveraging these advantages.
When bringing them to more markets in the coming years.
Finally, the restaurant openings pipeline is as strong as ever.
We are now two and a half months into the first quarter of 2024 and.
We will maintain discipline around the processes and tools.
And we are pleased with the continued growth of our markets.
<unk> generated the strong results of the last few years.
We set ambitious internal goals for revenue and EBITDA growth. This year, we had solid results so far.
We also expect to increase the pace of openings in the next couple of years to take advantage of the opportunity to expand the mcdonalds brand in a highly underpenetrated region of the world.
Needless to say, we are also keeping a close eye on developments in Argentina, and Ecuador at the beginning of 2024.
But we feel confident we have the best product.
We are now two and a half months into the first quarter of 2024.
With the right strategy and team to continue generating significant value for our shareholders.
We are pleased with the continued growth of our markets.
We set ambitious environmental goals for revenue and EBITDA growth this year.
And communities.
Thank you all for your continuing support.
We had solid results so far.
Then over to you to start the Q&A session.
Needless to say, we are also keeping a close eye on developments in Argentina, and Ecuador at the beginning of 2024.
Thanks, Mark so in order to get started please minimize the presentation slides. So that you can access the chat function on the left hand side of the webcast platform.
But we feel confident.
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 took them by your questions.
Greg So our first question today comes from Melissa beyond we're actually center a couple of questions from Bank of America. So we'll start with the first one I think this one is for you Mariano.
Can you please discuss the margin outlook for 2024, including expectations for food and paper costs wages and other expenses and where do you see the potential for productivity gains and or other sources of savings.
Perfect. Thank you Dan Thanks, Melissa for the question and good morning to everybody.
Uh huh.
For the margin outlook 2024, we're committed to continue with our successful strategy that we have consistently delivered in the past four years.
With our unmatched footprint of freestanding restaurants on the <unk>, we will focus on growing sales above inflation increase in our EBITDA in dollars.
<unk> margin expansion as we have done in the last few years.
That's how we increased our EBITDA from $272 million in 'twenty one.
Two 472 in 2023, that's a 74% increase in U S dollars.
And our EBITDA margin from 10, 2% to almost 11% last year. Despite the increase in the royalty rate.
So in 2023, specifically our strategy generating an EBITDA growth of 16, 3% in the fourth quarter.
22, 2% for the full year in U S dollars.
For 2024, we expect to continue with this trend of growing sales.
Or above inflation with a more benign cost environment for food and paper.
That should translate in maintaining the healthy margin trends of the last two years we.
We didn't see some headwinds seen margins in Brazil.
And not the ones.
That we experienced in <unk> in the last quarter of 2023 to translate into 2024. So in summary, with the expectation for 2024 is to continue with the same trend that we had in 2020.
And if you let me add Mariano to improve margins, while we're doing that return is focusing on the equalization of our execution and how we manage our behind what we do is we.
<unk> market like Brazil, we think the best practices to impact a positive impact market is to have a specific opportunity and we have these kind of opportunities not only when you compare our market to market, but within some markets and even at a store level. So while we are doing today today's leveraging from the diversity and scale that we have.
And the company.
Great. Thanks, guys.
The second question actually back to you is going to be.
The growth of our loyalty program has been very impressive can you share any metrics on the behavior of members versus non members. Thank you. She says.
Yes. Thank you for the question and he said the main metric that we have today is the.
Are they ready to members, Okay and like you said, it's a very positive number we came from 3 million members in December two 5 million members.
By the end of February and what we are expecting is to increase the value of identified sales. That's another metric that we are starting to.
To see what we expect is that the loyalty program works as a booster of dose identified sales and.
We are already seeing is that increase in visit frequency by today's very early to.
Two two.
Early stages of the program and what I can add is.
That will go into.
The rollout of the program in mid markets by the by the end of this year.
Great. Thanks.
The next question is from Julia Rizzo from Morgan Stanley extra she has about a three or four parter here. So, let's let's take those in pieces versus the police and comment on same store sales trends I think should probably talking more about the beginning of 'twenty four than the end of 'twenty three since we published those back in January and we'll start with.
That's another metric that we are starting to.
To see what we expect is that the loyalty program works as a booster of dose identified sales and.
We are already seeing as to an increase in VC frequency, but today's very early to.
A few myself okay. Thank you Julia and thank you for your questions.
Through February of this year of 2024.
Two we're in the early stages of the program.
Cumulative sales trends are about in line with our expectations.
What I can add.
That will go into.
Our strategy is to remain focused on offering value great value to our guests all across our menu.
Rollout of the program in mid markets by the by the end of this year.
Great. Thanks.
The next question is from Julien <unk> from Morgan Stanley because she has about a three year quarter here. So let's take those in pieces versus the please comment on same store sales trends I think should probably talking more about the beginning of 'twenty four than the end of 'twenty three since we published those back in January.
And we expect this to head to deliver comparable sales growth up or above inflation in the full year 2000, <unk> before in most of our markets.
And there are contributions in <unk> coming from a very competitive.
<unk>.
We will start with your myself, okay. Thank you Julian and thank you for your questions.
We are pushing for categories of our frozen meats, where we see the biggest opportunities. So we should have some contributions coming from our both made some finally, we continue to see a positive evolution in terms of gift volumes.
Through February of this year of 2024.
Cumulative sales trends are about in line with our expectations.
Our strategy is to remain focused on offering value great value to our guests all across our menu.
That has been the case for these first two two months of beer in terms of the contribution of the different markets I would tell you that based on the first two months of the year, we faced some headwinds in <unk>, particularly in Argentina and Ecuador.
And we anticipate this to head to deliver comparable sales growth up operation in the full year 'twenty before in most of our markets.
And there are contributions from <unk> coming from a very competitive.
But at the same time, we saw a very.
Very strong contributions coming from the other markets.
<unk>.
We are pushing for categories of our product mix, where we see the biggest opportunities. So we should have some contributions coming from our boat Meacham I'm. Finally, we continue to see a positive evolution in terms of just volumes.
The other two divisions proceed is doing extremely well in Angola too. So with this kind of performance in terms of sales. We expect these on EBITDA growth at the consolidated level for the full year 'twenty put before us have been the case.
When we take a look to our results in the first two months of this year. So we are pretty constructive in terms of the same store sales trend, which allowed us to win market share.
<unk> has been the case for these first two two months of the or in terms of the contribution of the different markets I would say that based on the first two months of year.
Faced some headwinds in <unk>, particularly in Argentina and Ecuador.
Assistant really across our region last year.
We continue with that trend in the first two months of this year.
But at the same time, we saw a very.
Okay.
Great. Thanks Marcella.
There were strong contributions coming from the other markets of solar.
The next sort of three parts of Julia's question I think our offer you money out of the first once you asked about margins declining in Brazil in NOLA and if Thats a one off I think you addressed that already.
From the other two divisions proceed is doing extremely well in Angola too. So this kind of performance in terms of sales. We expect this EBITDA growth at the consolidated level for the full year, but before us has been the case.
Basically, saying that correct that is more of a one off not something that we expect to continue into 'twenty four.
Yes, a couple of questions on some level related to Argentina.
When we take a little tour results in their first two months of this year. So we are pretty constructive in terms of the same store sales trend, which allowed us to win market share.
This is also a corporate expenses and others increased above expectations. Despite the exposure to a weaker Argentine peso.
And related to that how much is Argentina in our total sales and EBITDA. So I'll give you those two.
Consistently across our region last year.
We continue with that trend.
Perfect.
First two months of this year.
Thanks, Jennifer for the question.
Okay.
Great. Thanks Marcella.
First of all we continue to improve the SG&A as a percentage of revenues in fact.
The next sort of three parts of Julia's question I think are all of your money out of the first one she asked about margins declining in Brazil in NOLA and if Thats a one off I think you've addressed that already.
23 has the lowest percentage of SG&A as a percentage of revenue in the history of the company.
Basically, saying that correct that is more of a one off not something that we expect to continue into 'twenty four.
The positive impact that we should expect that you mentioned from the devaluation of Argentina, we have an impact during 2020 for us the devaluation happened only in the first and the last two weeks of last year.
And then she asked a couple of questions on some level related to Argentina.
She says also corporate expenses and others increased above expectations. Despite the exposure to a weaker Argentine peso.
Sure.
And the increase in absolute terms can also be explained by the.
And related to that how much is Argentina in our total sales and EBITDA. So I'll give you those two.
Investment in digital that the company continues.
Perfect. Thanks.
Thanks, Tony for the question.
Two two.
First of all we continue to improve the SG&A as a percentage of revenues in <unk> 'twenty.
And that is driving safe and helping us to drive sales.
<unk> 2023 has the lowest percentage of SG&A as a percentage of revenue in the history of the company.
Above inflation.
And also due to the increase last year in the stock price that has an impact on the mark to market of the long term management compensation plan that we already mentioned regarding the.
The positive impact that we should expect that you mentioned from the devaluation of Argentina, we have an impact during 2020 for us the devaluation happened only in the first and the last two weeks of <unk>.
The second part of the question about how much is Argentina, <unk> total sales and EBITDA. It remains the same as in 2022 in 2023, 16% approximately of total sales.
Last year.
And the increase in absolute terms can also be explained by sea.
The investment in digital that the company continues.
Great. Thanks Mariano.
Two two.
Next questions come from Java Bertolucci from Goldman Sachs.
And that is driving safe and helping us to drive sales.
Morning, Marcello in Arcos team congrats on a strong EPS could you also please comment on sequential gross margin performance our E versus the third quarter of 2003 per division.
Above inflation and also due to the increase last year in the stock price that has an impact on the mark to market of the long term management compensation plan that we already mentioned regarding the.
The first part of <unk> question, I guess I'll give that over to your Marcellus, Okay, Tycho and thanks for your question.
The second part of the question about.
What we saw in the second half I would say of 2023.
Such as Argentina announced total sales and EBITDA.
That's the trend.
Remains the same as in 2022 in 2023, 16% approximately.
Each week.
With which we started in 2020 before is less pressure coming from food and paper costs.
Thats why our firm paper improve in the second half improved sequentially in the fourth quarter of this year when compared to the third quarter.
We are you seen strategically.
The room in our.
<unk> costs were <unk>.
Margins in order to invest in offering the most compelling value proposition in the markets.
And that's why I think one of the main reasons I think we continue to gain market share.
We continue to build this customer base, which will allow us allow us to create a degenerate to capture shareholder value for the long term for the company.
We are experiencing.
Leadership position, which is pretty strong and we are building on that leadership position.
That room.
In our favor.
Of course.
The leverage ratio that we are seeing in terms so from bank of course.
<unk> in order to invest in offering the most compelling value proposition in the markets.
Great. Thanks, Marcella and a second part of <unk> question, we'll come back to you Mariano and he says could you walk us through the impacts from Argentina on your P&L. Thanks, again, I'm, assuming we're talking about the fourth quarter of 'twenty three.
And that's why I think one of the main reasons I think we continue to gain market share.
We continue to build this customer base, which will allow us allow us to create and regenerate to capture shareholder value for the long term for the company.
Yes perfect.
FX hit on the P&L is as described in our.
We are experiencing a leadership position, which is pretty strong and we are building on that leadership position.
Press release.
Other operating income that includes the total of $7 4 million non cash expense, that's primarily related to higher impairments and write off of long lived assets versus the prior year within this number about $3 5 million is related to the devaluation.
In our favor.
The loss ratio that we are seeing in terms so from bank deposits.
Great. Thanks Marcello.
Part of that question.
In Argentina.
We'll come back to you Mariano and he says could you walk us through the impacts from Argentina on your P&L. Thanks, again, I'm, assuming we're talking about the fourth quarter of 2003.
In addition in the fourth Q there is some FX noncash remeasurement loss of 11 $5 million, but keep in mind that for the full year 2023, the impact is positive in $5 million.
Yes perfect.
The FX hit on the P&L is describing.
In our <unk>.
So those are the main impacts that we have in the P&L.
Yes relief.
Other operating income that includes the total of $7 4 million noncash expense.
On top of that we have.
Primarily related to higher impairments and write off of long lived assets versus the prior year with needing this number about $3 5 million.
<unk>.
An improvement in our effective tax rate as well related to Argentina due to.
As related to the devaluation in Argentina.
Generating non taxable gain below also E operating line that actually.
In addition in the fourth <unk> noncash Remeasurement is also 11 $5 million, but keep in mind that for the full year 2023, the impact is positive in 5 million.
Giving us or.
Allowing us to have the effective tax rate below 35% that you can see.
<unk>.
In our results.
So those are the main impacts that we have in the P&L.
Okay.
Great. Thanks, Mariano I actually don't see any more questions in the queue. So that brings us to the end of the Q&A session.
All of that we have.
Uh huh.
But as you said and I remain available to any analyst or investor that has a question related to our results or our expectations for 2024. Thanks.
An improvement in our effective tax rate as well as related to <unk>.
Argentina due to.
Thanks, again to everyone for your interest in Arcos and for joining the webcast today look forward to speaking with you again sometime in the middle of May when we report our fourth our first quarter 2024 earnings results and until then stay safe and have a great day.
Generated non taxable gain below the operating.
Operating line.
Absolutely.
Giving us or.
Allowing us to have the effective tax rate below 35% that you can see in our results.
Okay.
Great. Thanks, Mike I actually don't see any more questions in the queue. So that brings us to the end of the Q&A session.
Okay.
Two any analyst or investor that has.
Okay.