Q3 2024 Arcos Dorados Holdings Inc Earnings Call
Speaker Change: Good morning, everyone, and thank you for joining our third quarter 2024 earnings webcast. With us today are Marcelo Rabach, our Chief Executive Officer, Luis Raganato, our Chief Operating Officer, and Mariano Tannenbaum, our Chief Financial Officer.
Speaker Change: Today's webcast, which is being recorded, will consist of prepared remarks from our leadership team, which will be accompanied by a slide presentation, also available in the investor section of our website, www.arcosderotos.com.
Speaker Change: We have moved to a new webcast platform beginning with today's call.
Speaker Change: To better follow the presentation, please note that you can set your view to full screen. Additionally, you can submit your questions at any time during the presentation using the Q&A function on the bottom of the screen. After we conclude our opening remarks, we will answer your questions.
Speaker Change: 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.
Speaker Change: In addition to reporting financial results in accordance with generally accepted accounting principles, we report certain non-GAAP financial results.
Speaker Change: 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 unaudited financial statements filed today with the SEC on Form 6K. I will now turn the call over to our CEO, Marcel Rabach.
Marcel Rabach: Thank you, Dan. Good morning, everyone, and thank you for joining us.
Marcel Rabach: Third quarter 2024 results demonstrate the resilience of Arco Dorado's business model.
Marcel Rabach: Saves and profitability were strong, while the strategies built around digital, delivery, and drive-thru remained a structural competitive advantage across all our markets.
Marcel Rabach: Our balance sheet is as strong as ever, which allows us to continue ramping up on the fourth beat of our strategy, development.
Marcel Rabach: In line with McDonald's global growth strategy, we expect our restaurant opening pipeline to unlock even more shareholder value as we capture the significant opportunity to expand our footprint over the next several years.
Marcel Rabach: This is why, moving forward, you will hear us talk about our 4B strategy.
Marcel Rabach: Let's get into the details of the order's results, starting with the key highlights.
Marcel Rabach: U.S. dollar revenue set a new high for the third quarter.
Marcel Rabach: ComGET counts roads for the 14th consecutive quarter, with road-based traffic increases in the region.
Marcel Rabach: This helped drive system-wide comp sales up more than 32% in the quarter, despite a more challenging economic and consumer environment.
Marcel Rabach: U.S. dollar EBITDA was the second highest for the third quarter, with a 50 basis point margin contraction and devalued currencies impacting the result, especially in slump.
Marcel Rabach: The digital, delivery, and direct platforms continue to be an unmatched competitive advantage.
Marcel Rabach: Total digital sales grew 16% while guest count growth in both drive-thru and delivery helped these off-premise channels generate 43% of system-wide sales.
Marcel Rabach: For the year today through September, we opened 56 Experiences of the Future restaurants, including 32 openings in Brazil.
Marcel Rabach: And just a few weeks away from the end of the year, we are on track to deliver opening guidance for 2024.
Speaker Change: I will turn it over to Luis now for a look at SACE's performance in each division.
Thanks, Marcelo, and good morning, everyone.
Luis Raganato: Brazil's third quarter comb sales were up 6.8% on top of last year's double-digit growth. Notably, for the last 24 months, Brazil's comb sales grew more than 18%.
Luis Raganato: Both give-count draw and the higher average check draw the quarter's result.
Luis Raganato: U.S. dollar sales were impacted by the devaluation of the Brazilian real versus the prior year.
Luis Raganato: Digital channels that include the mobile app, delivery, and self-order kiosks generated almost 70% of sales in Brazil, one of the region's most digitalized marketplaces.
Luis Raganato: Right-wing sales growth was also strong in the third quarter, leveraging the largest freestanding restaurant portfolio in Brazil.
Luis Raganato: Based on internal research, Brazil strengthened its brand attributes in the quarter, including its industry-leading top-of-mind and favorite brand scores with marketing activities focused on brand with the white-icon Make it Make it campaign, menu with the Sheda Swimming Pool and Bravo's Premium Line campaigns.
Luis Raganato: Desserts with innovations in cones, sundaes, and matcha, and family with a successful, despicable me for a happy meal.
Luis Raganato: NOLATSCOM sales rose 6.2% in the quarter, with higher guest counts responsible for most of the division's sales growth in the quarter.
Luis Raganato: The digitalization of NODAT continued in the third quarter. Digital channels accounted for 40% of sales in the period, up from 30% last year.
Luis Raganato: The increased penetration of digital sales channels was helped by the continued modernization of the restaurant portfolio in Mexico, which is ramping up in the market.
Luis Raganato: NOLAD's marketing initiatives included campaigns focused on menu items designed for families, generating strong engagement with breaded and happy meal licenses.
Luis Raganato: We also appeal to Gen Z guests with a special edition of Chicken McNuggets, introducing Asian-inspired sauces in collaboration with the popular K-pop group, BTS.
Luis Raganato: Mexico continues benefiting from the launch of this burger with a campaign emphasizing the unique taste and high quality of our corn products.
Luis Raganato: In SLAD, com sales growth of 90.4% includes the impact of Argentina's high inflation rate over the last 12 months.
Luis Raganato: Comp sales, excluding Argentina, rose strongly, with guess counts and average checks contributing about evenly to the result.
Luis Raganato: Digital sales are strengthening the connection with guests in SLAD and accounted for 57% of the division sales in the quarter.
Luis Raganato: Inflation in Argentina remains high, but has declined steadily this year through September.
Luis Raganato: The currency is weaker than last year, but it has been stronger than originally expected.
Speaker Change: Against the backdrop, Arco Dorado's performance in Argentina has improved sequentially from quarter to quarter so far in 2024.
Speaker Change: SLAAD's marketing activities included a focus on improving value perception, building compelling entry-level menu items with a strong guest response.
Speaker Change: We also built our chicken credentials through the BTS collaboration, as well as variations on the popular McChicken sandwich.
Speaker Change: Finally, with the same Happy Meal licenses that I already mentioned, SLAB significantly improved its brand attributes related to families.
Speaker Change: One of the keys to sustainable, long-term, and profitable growth is maintaining healthy market share levels. This is why this year's market share gains have been so important.
Speaker Change: No matter what short-term operating environment we are currently navigating, being the favorite USR brand in the industry supports a more efficient operation and continued expansion throughout the region in the long term.
Speaker Change: With that in mind, we are capturing important market share gains. Based on proprietary research, the McDonald's brand gained 5 points of value share across the company's footprint in the quarter, and 3.6 points of value share during the first nine months of the year.
Speaker Change: Importantly, we also gained the most market share this year in our biggest market, Brazil.
Speaker Change: The QSR industry is growing faster than the broader restaurant segment in many markets. And by providing the best value proposition and restaurant experience in the industry, we are consolidating our leadership position throughout the region.
Mariano
Thanks, Luis, and good morning, everyone.
Speaker Change: Profitability in the third quarter was strong, despite currency devaluations and the ongoing economic adjustment in Argentina that contributed to a small contraction in ESD's EBITDA.
Speaker Change: Nonetheless, as Marcel already mentioned, Consolidated Ibiza was still the second highest for a third quarter in the company's history.
Food and paper remain relatively steady compared with last year.
Speaker Change: Margin pressure from payroll and occupancy and other operating expenses was partly offset by margin expansion in G&A and the other operating income lines.
Speaker Change: EBITDA margins expanded in Brazil, but this was offset by contractions in NOLAT and SLAD that led to a 50-basis point lower consolidated margin versus the prior year quarter.
Speaker Change: Although the macroeconomic and consumer environments remain challenging, we are focusing on the factors we control.
Speaker Change: Assuming there is no significant deterioration from current macroeconomic and operating conditions, we continue to expect full-year 2024 EBITDA to beat last year's result in US dollar terms with a flattish margin.
Speaker Change: Brazil's margin expanded by 60 basis points, helped by a $5.6 million positive impact from a recovery related to Social Security contributions.
Speaker Change: Excluding this recovery, Brazil's margin contracted 70 basis points, mainly due to higher food and paper costs and royalty expense as a percentage of revenue.
Speaker Change: Both NOLAB and SLADS margins were pressured mainly by increases in payroll and occupancy and other operating expenses as a percentage of revenue.
Speaker Change: Operating expenses also rose as a percentage of revenue slid due to lower guest counts in Argentina, which further pressured the division's margin in the quarter.
Speaker Change: We believe we are operating at a healthy margin level but we also see opportunities for incremental improvements in all three divisions.
Speaker Change: Looking ahead, we expect to gain efficiencies through the ongoing digitalization of the business.
Speaker Change: This, together with the equalization of operations from market to market, can lead to better profitability margins over time.
Speaker Change: We also expect to capitalize on the market share advantage we built in recent years.
Speaker Change: The digital tools we have today and the new tools we are developing will ensure we deliver the best value in the industry, which in turn will further monetize guest traffic and sustain sales growth for many more years to come.
Speaker Change: We are proud of all the progress we have achieved so far with the digitalization of Arcos Dorados, but we are even more excited about the potential and opportunity we see ahead.
Speaker Change: With that in mind, let's talk about how digital delivery and drive-through continue to be the primary sources of organic sales growth for our cotorados.
Speaker Change: No other QSR brand in the region can match our digital platform or modernized restaurant portfolio, which we believe will provide us with structural competitive advantages for many years to come.
Speaker Change: Digital sales were up about 16% in U.S. dollars, generating 58% of system-wide sales in the quarter.
Speaker Change: The McDonald's app has been downloaded about 140 million times in the Arco Dorado's footprint since it was launched.
Speaker Change: and we have a database of more than 94 million unique registered users that we are constantly analyzing to generate insights and bring innovation to guests.
Speaker Change: Downloads of the McDonald's app have consistently and significantly outpaced the competition throughout the region for many years.
Speaker Change: And thanks to the popularity of our many, combined with the convenience of our multipurpose app, downloads of the McDonald's app rivals that of the main delivery aggregators in many of our markets.
Speaker Change: Delivery and drive-thru have been long-term growth drivers for system-wide sales since we exited the pandemic.
Speaker Change: In fact, year-to-date sales in these two off-premise channels have grown 43% in U.S. dollars when compared to the first nine months of 2021.
Speaker Change: This growth has been largely incremental to total sales, especially for delivery, which is now a billion-dollar business for Arcos Dorados, accounting for almost 20% of sales so far this year, compared with 2019, when it was barely 4% of total sales.
Speaker Change: The Loyalty Program has been implemented in Brazil, Costa Rica, and Uruguay.
Speaker Change: Membership growth has been robust this year, and so far has reached about 14 million registered members across all three markets.
Speaker Change: We continue to see high 90-day active use of numbers and healthy retention rates among members.
Speaker Change: Frequency is on the rise among active members and we have been able to re-engage with guests who have not visited us for a while.
Speaker Change: Importantly, the program's appeal has helped boost identified sales penetration to between 30 and 40 percent in all three markets.
Mariano Rabach, Mariano Tannenbaum, Daniel Schleiniger, Arcos Dora Hldg
Speaker Change: Let's turn to the company's capital structure and the fourth D of our strategy, development.
Speaker Change: NetDev rose this year as we deployed the excess cash on the balance sheet.
Speaker Change: This was offset by a higher EBITDA over the trading 12 months as we opened new restaurants and modernized existing locations, with strong returns on those investments.
and many more. Thank you. Thank you.
Speaker Change: As a result, the net debt-to-adjusted-dividend ratio held steady at 1.2 times for the first nine months of the year.
Speaker Change: Last month, we received the good news that Moody's upgraded Arcos Dorados' Death Rating to BA1 with a stable outlook.
[inaudible]
Speaker Change: They highlighted the company's strong operating performance and geographic diversification to support the upgrade.
Speaker Change: This rating is now in line with the WBPLUS rating we received from Fitch a few months ago.
Speaker Change: Both ratings are now just one notch below investment grade and in line with Brazil's sovereign debt rating.
Speaker Change: Cash flow from operating activities in the third quarter was about 96 million dollars. We expect the seasonal strength of cash from operations to continue in the fourth quarter.
Speaker Change: The QSR industry is capital intensive, which is why it is so important to have healthy cash generation, a strong balance sheet, and a disciplined development process.
Speaker Change: The fourth beat of our strategy is development, and we opened 19 EOTF restaurants in the quarter, including 11 locations in Brazil.
Speaker Change: Additionally, we are on track to meet this year's guidance for capital expenditures.
Speaker Change: Developing a pipeline of profitable restaurant openings takes time and resources.
Speaker Change: For the last several years, we have been increasing this pipeline by investing in the process and the people we need to identify, develop, build, and run new restaurants across the Arcos Verados footprint.
Speaker Change: This has kept returns on investment at or above the historical average as the number of openings increased in each of the last three years.
Speaker Change: We firmly believe the region remains vastly underpenetrated, and we see a significant growth opportunity for many years to come.
Speaker Change: But we will not cut corners to accelerate growth at the expense of shareholder returns.
Speaker Change: The underwriting process will be disciplined and our focus will remain on running great restaurants while we capture the growth opportunity for the company and generate significant social and economic benefits for the communities we serve.
Marcello, back to you
Speaker Change: Before we open the call for Q&A, I will wrap up the presentation with some final thoughts.
Speaker Change: In recent interactions with the market, we have been asked what we think investors are missing about Alco Dorados. I believe there are so many reasons to be excited about the future of the company and its shareholders. Let me share a few.
Speaker Change: First, we operate the world's most loved USR brand, with the largest market share in the region by far.
Speaker Change: Our restaurants receive at least twice as many guests and generate at least two times the sales as our nearest competitors.
Speaker Change: Additionally, we operate the region's most modernized restaurant portfolio, with the highest number of freestanding locations that will continue to be a structural competitive advantage for the foreseeable future.
Speaker Change: Second, we have the right strategy, and for this include best-in-class digital delivery and drive-thru, and a sophisticated development process to ensure we capture profitable long-term growth.
Speaker Change: Third, we believe we are operating in the world's best ship coast. Latin America has one of the globe's most underpenetrated U.S.A. industries.
Speaker Change: When it is true we have political and economic cycles, we are the least impacted emerging market when it comes to the serious geopolitical issues in other parts of the world.
Speaker Change: and the consumer class continues to grow in Latin America's biggest markets.
Speaker Change: which will generate growing demand for the world's most popular USR brand.
Finally, our balance sheet is as strong as ever.
Speaker Change: We have low financial leverage, which provides us with plenty of flexibility when it comes to capital allocation.
Speaker Change: The strength and diversification of the business, together with improved debt ratings from Fitch and Moody's, also provide us with efficient access to capital markets to support future growth.
[inaudible]
Speaker Change: It will be our job to capitalize on these opportunities in the years to come. Thank you for joining today's call. Dan, back to you.
Thanks, Marcelo. We will now begin the Q&A section.
Speaker Change: You can submit your questions using the Q&A function on the bottom of the screen.
Speaker Change: 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.
Speaker Change: Great. So we have a few questions already here in the Q&A chat. The first comes from Jean-Paul Landrade from Bradesco.
and Obala says congratulations for the results.
Speaker Change: And how does the competitive environment look like in terms of promotional activity this quarter, especially in Brazil?
Speaker Change: And we'll start with you, Marcelo, I think on that one.
Marcelo Rabach: Excellent. Thank you, Joao Pablo, for the question. I will say that, in general,
Marcelo Rabach: What we show is more or less the same competitive landscape that we have been facing.
Marcelo Rabach: all through the year. Important to mention that we gained significant market share across our footprint in the third quarter, not only based on our internal research, but for example, in the case of Brazil.
Marcelo Rabach: based on CREST information. In most of the markets there has been a great focus on value platforms.
Marcelo Rabach: and different kinds of promotional activities across the industry. That's more or less the general rule. In this scenario, we are focused on offering a compelling value proposition.
Marcelo Rabach: with not only competitive pricing, but on top of that what I think is an unmatched restaurant experience for our guests.
Marcelo Rabach: in order to drive volume growth and leverage our feed costs. So, the McDonald's brand comes sales over the last two or three years.
Marcelo Rabach: has been stronger than any of our main competitors, including Brazil. And importantly, this growth of comp sales is of a much higher average unit volume base.
Marcelo Rabach: and as a result, our capital gap in sales and profitability continues to expand in absolute terms.
Speaker Change: Great. And Juan Pablo has a second question, which I think is also for you, Marcelo. How did post-elections macro environment in Mexico impact overall consumer environment in that country, especially in the QSR segment?
OK.
Speaker Change: Well, Mexico, we are very pleased, absolutely pleased with the trends we are seeing in Mexico.
Speaker Change: the last many years. Mexico has been the fastest-growing history in arco dorados.
Speaker Change: and the McDonald's brand performance has been among the strongest in the Mexican USA industry.
Speaker Change: I guess have responded positively to our main architecture, our compelling value, and it's important to mention our improved execution.
Speaker Change: And we are in fact, for example, in terms of the digitalization of the business in Mexico in the early stages.
for example, in terms of the modernization of the restaurants.
Speaker Change: In order to offer the EOTF package, we have less than 40% of the restaurants in Mexico
modernized to the EODF
Speaker Change: So, still a lot of work to do there, but we believe that this digitalization of our operation in Mexico will be the next big step.
Speaker Change: in our drop store in the market. And in fact, just as an example of the digital ramp up in Mexico last year, our mobile app became the most popular in the market based on active users, which is huge in a very competitive market.
Speaker Change: Great, we'll now move to Eric Huang from Santander who sent four questions and we're going to...
Speaker Change: work through each one of these. The first one I think is for you Mariano and I'm going to read Eric's and then we have a similar question from Froy-Mendes from JP Morgan. I'll read both of them for you.
Speaker Change: Regarding the food and paper pressure we saw in Brazil, could you elaborate if these were more related to protein prices or paper?
Speaker Change: and how are the recent price increases in protein is going to affect the company's margins in the short term. That from Ericko Santander.
Speaker Change: Freud Mendes and JP Morgan, a similar question, we're seeing higher food inflation in Brazil with beef having a strong momentum.
Speaker Change: How confident are you that you'll be able to pass through to consumers considering what seems to be a second half deceleration in consumption of Brazil?
Speaker Change: Perfect, thanks Dan, and thanks Eric and Troy for the questions.
and hi to everybody.
Bye.
Speaker Change: Basically, some cost increases that we have been delaying from the beginning of the year. As you have seen that the freedom paper line actually was positive with some gains. The gross margin was better in the first half of the year.
Speaker Change: We are not expecting this to have an impact on 2024.
Speaker Change: But, of course, at the end of the day, for next year, we will see some pressure building up in big costs, not for ATCOs, but for the industry in general. And, of course, we will try to mitigate these effects by managing pricing and mix.
Speaker Change: in a way to have a lower impact, of course, in our cost structure. But also we feel confident that this impact will, as I mentioned, will affect the whole industry.
Speaker Change: So some of the prices we will be able to pass as well to...
to consumers.
Speaker Change: Great. Eric's second question. As for the ongoing labor and other cost pressures in NOLAD, what are management's expectations regarding the easing of such pressures?
Speaker Change: Yes, we effectively have seen some increases in minimum salaries in NOLA, particularly in Mexico and Puerto Rico.
and, of course, we...
Speaker Change: It's difficult to predict what will happen next year, but we do not expect this to continue at the same pace during 2025.
Speaker Change: On top of that, we have deployed digital tools to generate sales more efficiently and also to manage restaurant staffing in a better way.
Speaker Change: Perfect, thanks Mariano. The next question from Eric is, and I think this one is for you Luis, regarding digital and especially delivery, could you provide us with an update in terms of own delivery penetration and current levels of investments, as well as the impacts and profitability from such investments?
Speaker Change: All right, thank you, Dan. Hello, Eric. These sales were up 16% in the quarter and represented 58% of total sales, and specifically delivery grew 14% in US dollars.
Own delivery represented.
Speaker Change: 12% of total delivery sales, and the marginal contribution is positive in the channel. The returns are positive, and it's accretive to our results, mainly because it allows us to leverage fixed costs.
Speaker Change: And regarding on delivery, we continue working on finding a scalable logistic model.
Speaker Change: We have to meet our guests' expectations and this solution will for sure be different from market to market.
Yeah.
Speaker Change: Thanks, Luis. And then the fourth and final question from Eric Santander. This one's going to come back to you, Mariano.
Speaker Change: And a similar question came in from Chavo Bortolucci of Goldman.
Speaker Change: about the potential negative impacts on labor costs. And Thiago asks, from Goldman asks, what are your early views on the potential improvement of the six by one labor reform in Brazil?
Speaker Change: Perfect and thanks Tiago for the question. We still don't have all the details on the reform so we will give you more information in the coming calls once we know all the details.
Great. Thanks, Mariano.
Speaker Change: From Melissa Buenow of Bank of America, and apologies Melissa, I know that you asked a couple of questions related to what we've already answered. I'll read your full questions.
Speaker Change: and then we'll start with Marcello on the first one. And I think some of this has already been answered, Marcello, and you can address the rest. Can you please provide an update on consumption and sales trends?
Speaker Change: and EOTF rollout in Mexico, and what are your expectations for labor costs next year, and what opportunities do you have to offset them? The second part, I think Mariano has answered the first part, I'll give to you. Yeah, as I mentioned before, Mexico is doing extremely well, comparable sales.
Speaker Change: are multiple times inflation of the market where we we are seeing
Speaker Change: an improvement in volumes per restaurant, which has been very significant not only this year but this is the fourth year in a row that we see Mexico growing volumes. And I'm going to check
Speaker Change: So, as a result, growing very strongly, comparable sales. As I mentioned before, we are in the early stages in terms of the EODF deployment in the market, less than 40% of the restaurants, but we are accelerating the process.
Speaker Change: this year and in coming years, and at the same time looking for opportunities to grow the base of restaurants with new restaurant openings. And this growth in sales is part of the answer to the pressure, part of the question related to the pressure in labor costs.
Speaker Change: We are experiencing leveraging in many other coastlines of the PNN and GNA and bottom-line margin materials growth.
We are...
Speaker Change: extremely pleased with what is going on in Mexico and for sure there are a lot of opportunities for Arco Volados and the McDonald's brand in this market in coming years.
Perfect, thank you.
Speaker Change: And Melissa's second question, again, the first part, I think, Mariano, you've already answered, and the second part is, I think...
Speaker Change: I'll turn it over to you, but she asks, what's the outlook for food and paper costs, especially or specifically in Brazil? And can you provide an update on your FX hedges in Brazil and in other markets?
Mariano Tannenbaum: Perfect, thanks Melissa. Yes, the first part I already answered regarding food and paper costs in Brazil.
Mariano Tannenbaum: Regarding the hedges, our policy in terms of food and paper hedges is to hedge 50% of the projected food and paper exposure.
Mariano Tannenbaum: We do this on a rolling basis, looking out from two to three quarters in advance.
Mariano Tannenbaum: This is done to reduce volatility of our input costs. These are not meant to be speculative hedges and we have them in five markets in Brazil, Colombia, Chile, Mexico and Uruguay.
Mariano Tannenbaum: So, we are currently hedged according to our policy in the main markets through the first quarter of 2025.
Mariano Tannenbaum: and we are implementing HEDGES as appropriate now for the second and third quarter of next year.
Mariano Tannenbaum: So, we are going according to policy, and this is how we manage the effects of exposure related to food and vapor costs.
Speaker Change: Great. Thanks, Mariano. The next question from D. S. Galarsky from Black Creek.
Speaker Change: Venezuela used to be a significant contributor to the business and so was Argentina.
Speaker Change: What are the prospects for these two countries to again become significant contributors for the business? And how do you manage the business in these two countries until that happens?
Marcelo Rabach: and I'll get that one to you Marcelo. Okay, thank you. Thanks for the question. I think that these are two different stories these days for the company, these two markets.
Marcelo Rabach: In the case of Venezuela, even though the McDonald's brand strength remains very high in this country, Venezuela does not have a material impact on our current financial results.
it's a small business in these days so
Marcelo Rabach: We are also not expecting a significant change in this scenario in the short term.
Marcelo Rabach: So we continue to invest in the basics of the business, running great restaurants.
They can get a lot of people.
Marcelo Rabach: Once the Venezuelan economy begins to grow, for sure we are well positioned in order to capture a big part of that growth.
Marcelo Rabach: But as of today, it's not material in terms of our financial results. On the other hand, Argentina, it is important for us, and despite consumption in Argentina remains negative.
Marcelo Rabach: Our corporal volumes have been resilient all year and declined at about half the broadened rate in the market, so we remain close to consumers.
should have us in a very well position.
Marcelo Rabach: on the market consensus, and in fact this year we have seen
Marcelo Rabach: sequential improvements in our results in each quarter in Argentina. So we are very, very
Marcelo Rabach: positive in terms of the trend of Argentina. It's a market that continues to be a big contributor to our results and for sure we continue to do that in the short and long term.
Speaker Change: Perfect, thanks Marcelo. Let's move now back to Thiago Borbolucha-Goldman, who had sent the question earlier about labor reform in Brazil, but he had two other questions as well. First, let's go with, could you elaborate more on Brazil growth, how much of the comp sales or the same store sales was traffic versus ticket, and how was your growth in delivery and drive-through separately? And we'll start with you, Luis.
All right. Hello, Joe.
Consales was mostly driven by aggregate cheques.
Speaker Change: this third quarter, even though volume was positive. In drive-thru, drive-thru continues to perform well and represents about 20% of total sales and delivery is growing at a faster pace and in line with the growth of the company.
Speaker Change: Great, thanks. And then the third question from Jagu is, I think for you Marcelo, any early comments on the next three-year plan and can you walk us through how you're seeing ROICs within each cohort of stores?
Okay, thank you for the question.
Marcelo Rabach: What I can share with you is basically what we already said about 2025.
Marcelo Rabach: where we expect to open something between 90 and 100 restaurants. This is consistent with what we have said about a gradual increase each year.
Marcelo Rabach: in the pace of openings in order to ensure acceptable ROIs, in fact, ROIs
Marcelo Rabach: in these recent years remain at or above historical average on openings and the same applies to modernizations.
Um...
Good news is that both...
We are aligned that there is a huge opportunity.
for the McDonald's brand and for our overall business.
Marcelo Rabach: in a very under-penetrated region like Latin America is. So for sure, we want to capture that big potential in the region, and we have a very robust pipeline.
Marcelo Rabach: for continued growth throughout the region. So, moving forward, we will continue to be focused on the freestanding restaurants.
Marcelo Rabach: And we each have an extremely strong return on investment because we can operate in the best way all the business segments right through delivery, those two off-premise segments that have become so relevant after the pandemic.
Marcelo Rabach: But at the same time, there are new developments in Latin America.
Marcelo Rabach: shopping malls developers have resumed growth, so at the same time we are looking for
Marcelo Rabach: opportunities in order to open restaurants in malls, mall stores, or food courts.
Marcelo Rabach: typically with an excellent return on investment since the investment in those formats is lower than in the free-trading units.
Speaker Change: I think this is very exciting looking Arco Delgado for the long term the opportunity we have to grow the business.
Speaker Change: Great, thanks Marcelo. And we have a couple of questions, a couple of additional questions from Troy Mendez of JP Morgan.
Speaker Change: I think they're both for you, Luis, but I'll actually, there's a multi-part questions, but.
I'll start with you.
Speaker Change: You mentioned that identified sales of 20 to 30 percent in all markets. Can you elaborate on what are the tangible effects of this type of sale in terms of top line or margin acceleration and are there examples elsewhere in the McDonald's system that can help illustrate what we could expect from this?
Yeah, hello, Roy.
Speaker Change: First, identified sales for the company were 25% of total sales.
Speaker Change: We have markets like Brazil that are in a 28%. We have some markets that are above that, around 30%, but most of them are around that 25% that I just mentioned.
Speaker Change: And, of course, we're learning from the global system, but we, let me tell you, we're a little bit ahead in this matter. We have three.
Speaker Change: Three main new functionalities that boost identified sales. One is on delivery. The other one is MOP or mobile order and pay.
And the last one is the loyalty program.
Speaker Change: Thus, it allows us to increase the personalization of our guest experience.
Speaker Change: and it allows us to be more efficient with our marketing efforts.
Speaker Change: What we can expect from this is that we're going to have an increase in frequency.
Speaker Change: when you see loyalty members frequencies 1.5 to 2 times higher
Speaker Change: than non-loyalty or non-identified customers, and it improves margins, too, because you have... Those transactions are new, or they have additional products, and the average check is higher.
Speaker Change: So what we can expect is to be more personalized in that experience and to increase our margins and top line.
Luis Raganato: Great. And then the final question, which is also from Freud Mendes of JP Morgan, what, in your view, is the main reason behind the large same-store sale deceleration in Brazil? And what's your view for 2025 consumption in Brazil? Again, back to you, Luis.
Luis Raganato: All right, thanks again for the question. What we are seeing is a continued growth, and I would say strong growth, in comparable sales in Brazil. In this third quarter, we had
Luis Raganato: positive volume and positive average check growth that combined allowed us to grow 1.6 times inflation.
Luis Raganato: And we were able to do this on top of a very strong quarter in 2023, that was 10.8%. So in 24 months, our growth in sales was 18%. And that for a fact is the highest growth in the sector.
Luis Raganato: And this growth allowed us to keep gaining market share. According to Crest, this growth was one plus one percentage point.
and we are outperforming the main competitor by two times.
Luis Raganato: So our focus for the future will continue to be in offering a compelling value proposition across the entire menu.
Luis Raganato: This will allow us to, we're going to focus in to improve our operations, to deliver the best experience to our customers, and to leverage the strength of our 4D strategy.
Luis Raganato: This is going to allow us to be and to keep the leadership in the sector.
Again.
Speaker Change: Thanks, Luis. Actually, we have another question from Oliver Mihailovic, who asks, when we deploy capital, do we think about ROI relative to FX assumptions, or do we simply assume that FX stays stable, or do we allow for local currency depreciation? And then he makes a comment about historically how that impacts the assumptions.
Speaker Change: So, Marc Marceau, I think you might want to address that. Thank you. Yes, and thanks, Oliver. Obviously, we cannot control effects, but first, we measure ROI, cash on cash, in dollar terms.
Speaker Change: historically, and we make decisions based on the potential we see for the McDonald's brand in each market, and we have obviously different
Speaker Change: expectations in terms of returns related with risk in different markets.
Speaker Change: And based on the success or not that the different markets of Arco Gerados have
in terms of returns on investment.
Speaker Change: We cannot control effects, but at the same time we take into account that shapes exist.
and we sell in local currencies.
and our shareholders of many.
Speaker Change: of the company's stakeholders expect returns on investment in U.S. dollars. So we take into account that and we are very serious in terms of analyzing each opportunity and how to capture them.