Q1 2025 Arcos Dorados Holdings Inc Earnings Call
Good morning, everyone and thank you for joining our first quarter 2025 earnings webcast.
With us today are Marcello rubber, our Chief Executive Officer, Luis talk on outdoor Chief operating officer, and Mariano Tannenbaum, our Chief Financial Officer.
Todays webcast, which is being recorded 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 IR Dot Arcos Dorado is dot 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&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 acceptable 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 today's earnings press release and conference call presentation as well as the unaudited financial statements filed today with the SEC on form 6K.
Marcelo: I will now turn the call over to our CEO Marcelo <unk>.
Speaker Change: Thank you Dan.
Marcelo: Everyone and thank you for joining us.
Marcelo: On our last earnings call. We said, we expected the first quarter of 2025 to be the low point of the year.
Marcelo: That outlook still holds.
Marcelo: Operating performance improved sequentially during the first quarter.
Marcelo: The best results coming in March.
Marcelo: Importantly, the strongest months, albeit so far has been a privilege.
Marcelo: We remain uniquely positioned within Latin America skews, our industry, given the strength of our brand <unk>.
Marcelo: The success of our strategy the Julian ethic diversification of our operating footprint and the numerous competitive advantages of our business model.
Marcelo: These strengths are among the reasons, we believe articles with Atlas will best navigate their relatively volatile and challenging market conditions, we have seen so far this year.
Marcelo: Let's get into the details of our results and talk about the quarter's operating context.
Marcelo: Total revenue reached $1.1 billion.
Marcelo: <unk> equal to last year.
Marcelo: By focusing on the factors, we control we gained market share versus the prior year quarter.
Marcelo: We were able to offset three important categories.
Marcelo: A lower you are setting industry gas volumes in the period.
Marcelo: Regarding the comparisons with leap day on Holy week in last year's results and the strong depreciation of our three main currencies in the last 12 months.
Marcelo: Importantly constant currency revenue remained solid.
Marcelo: Built on 11, 1% higher systemwide comparable sales.
Marcelo: Each was in line with blended inflation for the period.
Marcelo: First quarter consolidated adjusted EBITDA.
Marcelo: 91 $3 million down.
Marcelo: Down versus last year, due mainly to weaker local currencies on marching brochure in Brussels.
Marcelo: This was partially offset by stronger performance in slot.
Marcelo: Argentina, and Chile drove better U S dollar results for the division.
Marcelo: Our study sheet, you said bulk providing guests with an omnichannel experience.
Marcelo: Allowing them to choose when where and how they enjoy their favorite Mcdonald's menu items.
Marcelo: As a result.
Marcelo: Even as consumers pulled back on eating out of home during the quarter off premise John has remained resilient.
Marcelo: Generating about 43% of total system wide sales in the quarter.
Digital sales rose six 3%.
Marcelo: Thanks to almost 19 million monthly average mobile app users.
Marcelo: Digital channels accounted for almost 60% of system wide sales in the first quarter.
Marcelo: No double say strength in loyalty mobile ordering embay on delivery on self order kiosks.
Marcelo: The loyalty program had $18 8 million registered members and guests.
Marcelo: Available in five markets as of the end of the first quarter.
Marcelo: <unk> offers the ratios most diverse set of assays China's.
Marcelo: <unk> modernized restaurant base with 68% of restaurants already converted to the <unk> format.
Marcelo: This is why our results have continued to our China competition no matter the operating context.
I will now turn it over to Luis.
A look at the first quarter safety performance in each division.
Luis: Thanks, Marcelo and good morning, everyone.
Luis: <unk> total revenue in constant currency grew five 5% in the first quarter.
Luis: Addition to a tough comparison after several years of strong growth Brussels restaurant sector also faced a relatively soft operating environment with a reduction of out of home dining.
Luis: I'll get a hand, according to third party research Mcdonalds brand preference increased during the quarter and value share.
Luis: <unk>, a new record for the trailing 12 month period through March.
Luis: <unk> for almost 47% of the country's <unk> industry sales.
Luis: Almost 70% of system wide sales were generated by digital channels.
Boarded by sponsorships of the beat rather Breasseale reality, TV show and the loyal Appaloosa Music Festival.
Luis: These marketing activities increased guest engagement with the brand and drove amplified awareness of the mill, making loyalty program.
Luis: Menu innovation in the quarter included New limited time, only flavors of the chicken sandwich and receipt of the popular Mcfee's sandwich, a promotional platform focused on weekdays and a few new different flavors to delight guests.
Luis: No less total revenue was flattish in constant currency declined in U S dollars, mainly due to the depreciation of the Mexican peso.
Luis: Comparable sales were positive in Mexico, which is impressive considering the comparison with leap day, and how impactful Holy week is in that country.
Luis: These was offset mainly by lower comparable sales in Panama.
Luis: In Costa Rica.
Luis: Guess in Nolette adopted mobile order and pay in increasing numbers and one delivery achieved remarkable growth in the first quarter.
Digital campaigns were key drivers of downloads and customer engagement.
These included the <unk> universe very campaign that celebrated anniversary of our mobile app in the region.
Speaker Change: No, let's marketing activities aimed at staying close to the consumer in a challenging macroeconomic environment by focusing on value platforms across markets.
Speaker Change: Puerto Rico launched a bold breakfast campaign.
Speaker Change: So on the Mcdonald's that.
Speaker Change: Fitfully showcase the brand's iconic breakfast menu.
Speaker Change: No led also brought food news truecar extensions and several markets introduced new flavors to their desired menus as well.
Speaker Change: Flat comp sales rose 38, 7% in the first quarter or more than 10% excluding Argentina.
Speaker Change: Argentina rebounded strongly versus last year results, which were significantly impacted by government measures to stabilize the economy.
Speaker Change: Uruguay, Venezuela, Aruba, and Curacao also contributed strongly to comp sales performance in the quarter.
Speaker Change: Digital channels in the slab rose by about 33% in U S dollars, which was the main driver for the growth we generated at the consolidated level.
Speaker Change: Digital sales penetration for the division was about 60% with Argentina, and Uruguay, both reaching 70% digital sales penetration in the quarter.
Speaker Change: Identified sales grew more than 50% year over year and now represents about 26% of slots system wide sales.
Speaker Change: We expect this to grow with the recent launch of loyalty in both Argentina, and Colombia, which have seen promising early results.
Speaker Change: Similar to Brazil, and know that we have universally campaign in NOLA Palooza sponsorship contributed to loyalty program adoption as well as to growth of own delivery and mobile order and pay on the company's mobile app.
Speaker Change: Most of flat celebrated core favorites with a beat Mike extension campaign to boost brand February deason among guests.
Speaker Change: Additionally, several markets supported the premium Burger and dessert segments with compelling new flavors.
Mariano: Mariano over to you.
Mariano: Thanks, Luis and good morning, everyone.
Mariano: The challenges that impacted revenue growth also led to lower profitability in the quarter.
Mariano: Fortunately so far operating conditions are getting better in the second quarter.
Mariano: Additionally, Brazil, and Mexico as currencies have been stronger.
Mariano: Argentina's currency remains stronger than expected in real terms.
Mariano: This should help improve performance.
Mariano: Year progresses.
Mariano: The declining first quarter EBITDA margin came mainly due to higher food and paper.
Mariano: <unk> and other expenses and G&A versus last year as a percentage of revenue.
Mariano: As expected.
Mariano: The underlying payroll expense pressure of the last few quarters has subsided.
Mariano: We still expect consolidated EBITDA margin to be about flat versus last year.
Mariano: Adjusted for the payroll expense reverses and credits in Brazil.
Mariano: Mercy margin contraction was mainly due to higher food and paper costs from rising beef prices in the market.
Mariano: Over the course of the year, we will continue working to mitigate this increase with pricing product mix channel mix.
Mariano: Our negotiations and all other tourists at our disposal.
Mariano: Softer sales and the challenging comparison also led to fixed cost deleveraging.
Mariano: Finally, <unk> margins throughout 2025 will include about 100 basis points higher royalty fee.
Mariano: Compared with last year.
Mariano: Since the new MSA eliminated the growth support incentive.
Mariano: However.
Mariano: Since the royalty fee was reduced by 100 basis points in the contract both know led and flat.
Mariano: Lower percentage throughout 2025.
Mariano: Resulting in a slightly lower consolidated royalty fee.
Mariano: <unk> was last year's effective rate.
Mariano: No less margin in the first quarter was flat versus the prior year period, with lower food and paper costs and royalty fees.
Mariano: Offset by higher occupancy and other operating expenses as a percentage of revenues.
Mariano: We began to see the benefits of the new restaurants scheduling system with flattish payroll expenses in the division. Despite the continuation of minimum wage increases above inflation in both Mexico and Puerto Rico.
Mariano: Slash strong margin expansion in the quarter.
Mariano: Clearly lower costs and expenses across nearly all line items, including notably better payroll productivity.
Mariano: Argentina's profitability rebounded from last year's difficult first quarter and was complemented by stronger year over year results in all the divisions main market.
Louise: Back to you Louise.
Louise: Let's look at how digital delivery and drive thru performed in the quarter.
Louise: Digital sales were up more than 6% in U S dollars and more than 23% in constant currency, demonstrating the breadth and strength of the company's platform.
Louise: Loyalty self order kiosks, mobile order and pay and own delivery one of the standouts in the quarter keeping sales penetration identified sales and active users at very healthy levels.
Louise: Driven primarily by one delivery total delivery sales grew by 21% in constant currency during the quarter, including 12, 5% in Brazil, and 50% and flat.
Louise: And we are working to strengthen the own delivery service, we generated 13% of total delivery sales in the quarter up from less than 10% in the prior year quarter.
Drive through has more overlap with the on premise consumption location. So performance in the quarter was impacted by the reduction in total <unk> and Brazilian noted during the quarter.
Louise: Even so it is evident that off premise channels have made the business more resilient in periods of softer consumption.
Louise: We began the year with the loyalty program running in Brazil, Costa Rica in Uruguay.
Louise: Our members generated 19% of total sales in the first quarter.
Louise: During the quarter, we introduced it might mcdonalds program to Argentina, and Colombia with very promising early results.
Louise: As of the end of the quarter, we had 18 8 million members across the five countries.
Louise: Since then we have surpassed 20 million members and we added another country to the program with the April launch of my Mcdonald's Scenic weather.
Louise: We now have the loyalty program activity in two thirds of all restaurants in our footprint and we remain focused on taking these frequency and value boosting program to all mid market by year end 2025.
Louise: There is utilization of articles that Atlas is an ongoing process and some benefits are easily miss rebels.
Louise: More recently you can seed in the continued growth of the own delivery channel or better payroll expense management.
Louise: Over the last several years operating performance improved thanks to self order kiosks e-commerce on the mobile app more efficient delivery execution and so many other parts of the operation.
Louise: Well, we look at few layers deeper we also see improvements that we have longer lasting impact on the business.
Louise: Operating metrics and brand attributes are stronger than ever.
Louise: And it is worth remembering that all the growth metrics are calculated from a base that is already Q2 to three times higher than the closest competitor.
Louise: So while we are prepared to navigate a short term period of volatility.
Louise: Are the best positioned restaurant, operator to benefit from an improvement in operating and macroeconomic conditions.
Louise: Let's turn now to our capital structure and investments.
Louise: Both total debt and cash ended the quarter higher.
Louise: Due to the liability management transaction, we initiated in January and completed in early April of this year.
At the end of the second quarter, you should expect to see lower total debt made up primarily of the 2029 and 2032 notes.
Louise: We would also have less cash on the balance sheet since we redeemed the remaining portion of the 2027 notes that did not participate in the January tender offer.
Louise: With that said, we expect to maintain a net debt to adjusted EBITDA ratio of about one four times throughout this year.
Louise: It is worth repeating that we now have an investment grade rating from Fitch.
Louise: No material debt maturities until 2029.
Louise: This allows us to focus on our strategy to generate long term shareholder value.
Louise: We added 12, new restaurants to the portfolio during the quarter, including 10 freestanding units.
Louise: As the year progresses, the pace of openings will accelerate so that we can meet this year's new restaurants guidance.
Louise: During the quarter, we invested $48 $8 billion in capital expenditures, including more than $21 million in growth Capex.
Louise: We believe the growth opportunity is the best long term investment of our free cash flow generation, which is why we are focused on capturing the Mcdonald's brand potential.
Louise: As quickly and profitably as possible for several years to come.
Louise: Looking ahead, we expect safe performance to improve as the year progresses.
Louise: Based on a robust marketing plan for the remaining of the year.
Louise: We also expect underlying margin performance to improve in the coming quarters by continuing to take actions to mitigate or offset some of the margin pressures we faced in the first quarter.
Louise: We remain confident in our plan for the full year 2025, more importantly added cost to that as a positive long term outlook is intact.
Louise: We are focused on.
Louise: Investing in digitalization to improve guest experience and increase operating efficiency.
Louise: Operating existing restaurants better than any other competitor.
Louise: <unk>.
Louise: Opening modern and appealing new restaurants to capture additional growth.
Louise: This approach combined with a strong balance sheet should allow us to generate comparable sales growth at or above inflation and incremental margin improvements through operating leverage.
Louise: Delivering solid free cash flow growth and long term shareholder value creation.
Marcello: Marcello back to you.
Marcello: Thanks Mariano.
Mariano: In keeping with our commitment to have a positive impact on the environment and the communities we serve.
Speaker Change: Soon we will publish article hotels, 11th annual Soc.
Speaker Change: Social impact on sustainable development report.
Speaker Change: The report will include an update on the progress we made in 2024 in each of the pillars of our recipe for future program.
Speaker Change: You will be able to download the report from the IR section of our website or from recipe for our future Dot com.
Speaker Change: Sustainability is an important concept for our <unk> hotels.
Speaker Change: No Jeff as it relates to the recipe for the future, but also for generating sustainable results in a relatively volatile region.
Speaker Change: It is an important filter that guides everything.
Speaker Change: From the daily operation of our restaurants to the long term capital allocation decisions we make.
Speaker Change: The first quarter of 2025, clearly faced some important headwinds with industry guest counts under pressure.
Speaker Change: LNG calendar comparisons with the prior year.
Speaker Change: And the weaker currencies in our three largest markets among others.
Speaker Change: But the beauty of the <unk> business model is that we operate across a vast and diverse geographic footprint, we're operating and macroeconomic conditions are already improving.
Speaker Change: And we are set up for long term success.
Speaker Change: By taking advantage of the best ever brand perception scores in our history together.
Speaker Change: Together with a much structural competitive advantages that have only strengthened in the last few years.
Speaker Change: Latin America, the Caribbean remained highly underpenetrated markets for the <unk> industry.
Speaker Change: And we believe the Mcdonald's brand continues to have the highest most profitable growth potential in the region.
Speaker Change: We nearly doubled U S dollar EBITDA generation from 2018 to 2024.
Speaker Change: And we are investing our free cash flow generation in the region's growth opportunity to continue generating shareholder value for years to come.
Speaker Change: Thank you for joining today's call.
Speaker Change: Do you.
Speaker Change: Thanks, Marcelo we will now begin the Q&A session.
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 converted into our speakers.
Speaker Change: We will now pause briefly to compile your question. Please.
Speaker Change: Great. So we actually have quite a few questions here and I'm going to combine a few as we go along but we will start with the first one of a series of questions. We received from Eric Wong of Santander.
Eric Wong: Morning, and thank you for taking our questions we have a few.
Eric Wong: Could you comment on sales trends in the early second quarter of 2025, especially in Brazil, and Noah under a more normalized quarter in terms of calendar effects and.
Eric Wong: And in both Brazil, and knowing how much of the week comp sales in the first quarter of 'twenty five is attributable to the negative calendar effects and how much would be attributed to the weaker consumption environment in each region.
Speaker Change: Start with you Marcello.
Speaker Change: Great. Thanks for the questions I'll start.
Speaker Change: With NOLA and maybe Luis.
Speaker Change: Later talk about Brazil in the case of NOLA I'm talking specifically about the first quarter, we saw reduced traffic in the U S. Our industry, particularly in Mexico, Panama and Costa Rica. So we faced some headwinds in that sense in those three markets, particularly.
Speaker Change: On a we're not recall that.
Speaker Change: Mexico.
Speaker Change: <unk> of the calendar comparison.
Speaker Change: Really talking about the Holy week is huge.
Speaker Change: So that was the main driver in the case of NOLA.
Speaker Change: The.
Speaker Change: Slowing.
Speaker Change: Comp sales for the first quarter.
Speaker Change: We saw the reverse of that in April.
Speaker Change: In April Mexico hub.
Speaker Change: An excellent months in terms of both the comp sales on profitability. So.
Speaker Change: Against the dollar we are very pleased with the trend that division hub in recent quarters, we see these.
Speaker Change: First quarter of 2025 plus points out of the curve.
Speaker Change: Again, the good news is that the start of the second quarter was very strong for the division I'm talking specifically about Mexico, which is more than 50% of the restaurants of NOLA or in Mexico.
Speaker Change: So.
Speaker Change: Mexico has been the fastest growing.
The market in terms of sales for alcohol in recent years, and we continue to see a huge opportunity in.
Speaker Change: In this market to improve our results to improve our penetration on bringing the Mcdonald's brand to an even more.
Speaker Change: Successful position than the first today. So we've got a positive outlook for the NOLA division in coming quarters.
Speaker Change: And talking about Brazil.
Speaker Change: We clearly had an impact due to the to the calendar, but regarding the context.
Speaker Change: Third party estimates, indicating that the <unk> visits were down in the low to mid single digits in the quarter and this was due to lower purchasing power among consumers in that context.
Speaker Change: We chose to remain cautious with pricing.
Speaker Change: But we did make some adjustments to certain menu items at the segment level or channels label.
Speaker Change: EBIT was the strongest performer and continue to surpass our our expectations.
Volume growth was with high single digit.
Speaker Change: From Governor also remained resilient with mid single digit volume growth and Unfortunately drive through only service centers fell below our expectations in terms of volumes has performance, but the good news is that our marketing plan includes includes sold.
Speaker Change: Activations across several product lines.
Speaker Change: Includes for example, they make the minecraft property in the happy meal that we just had and that you will hear more about on our next earnings call. But we are also working with the Brazilian team to make other adjustments to generate improved performance. We expect for the rest of the year and unfortunately were.
Speaker Change: Operating with our highest.
Speaker Change: However market share and we have the strongest ever been brand metrics, which we're confident will lead us to better results us vignette progresses.
Speaker Change: Thanks, Louise Eric's second question.
Speaker Change: As similar to questions. We received from <unk> Mendez of Jpmorgan over Rasia of BTG Pactual.
Bob Ford: Bob Ford from Bofa and.
Speaker Change: From my side I have numbers from times square capital and it all relates.
Speaker Change: Starting with profitability, so I'm going to read through some of these.
Speaker Change: It's all going to go to market, but bear with me here as I read some of these questions.
Speaker Change: Eric on the food and paper side. This was the biggest defender results margin how does the company see competition, passing the higher beef prices into prices and when should we start seeing a recovery in EBITDA margins in the region.
Speaker Change: Similar question from Freud.
Speaker Change: At Jpmorgan can you give color on how the costs, mainly beef impacted Brazil margins in the first quarter and how they're behaving so far in the second quarter. What you expect through the year. Although those question similar Brazil beef given expectations of continued high beef prices in Brazil into the second half of 'twenty five have you considered changing your pricing strategy in the past a bit more pricing into the <unk>.
Bob Ford: Can I have Bob asked how should we think about pricing across markets. So.
Bob Ford: Related to what we just heard and <unk> can you clarify your comments on the outlook for EBITDA margin for the rest of the year.
Bob Ford: Did you say that you expect consolidated EBITDA margin in full year 'twenty five to be flat year over year, so lots to think about their mariano.
Bob Ford: I think.
Bob Ford: We can take a step by step.
Bob Ford: Okay.
Bob Ford: Thank you everybody good morning, and.
Bob Ford: I will try to answer all the questions.
Bob Ford: First regarding the.
Bob Ford: Margin outlook on what happened during the first quarter of 2025.
Bob Ford: Nearly during this first quarter, we faced the increase in beef prices as I mentioned in the opening remarks in Brazil.
Bob Ford: Into consideration that gross margin was down in Brazil, but was up in NOLA and flat. So let me emphasize and I want to highlight the benefits of the regional footprint that that of course, let us.
Bob Ford: So.
Bob Ford: In terms of in terms of outlook.
Bob Ford: Although the environment remains volatile we are not expecting so far further gross margin deterioration in Brazil.
Bob Ford: And we are also expecting the positive trends that we are seeing in the other two divisions.
Bob Ford: We are seeing this that as the year progresses and with the ability to increase prices in line with inflation.
Bob Ford: Together, we revenue management initiatives negotiations with suppliers, we expect to stabilize our gross margin throughout the rest of the next three quarters of the year.
Bob Ford: So that's the expectation we have.
Speaker Change: On the gross margin, you're also asking about general outlook and on margins of course and regarding other lines in the P&L.
Speaker Change: Please remember that the first quarter and this one in particular as Marcelo explained about.
Speaker Change: What happened on the leap year and on the on the on the Holy Week is this is seasonally the lowest in terms of in terms of sales. So would we expect that happens every year for the next three quarters is to have some dilution in fixed costs related to sales that could also help in.
Speaker Change: With the margins.
Speaker Change: We will continue working on the payroll line and I will.
Speaker Change: <unk> into the specifics for the question that you asked about.
Speaker Change: About payroll, but we are we'll continue working on the perrot line to maintain or even increase efficiencies we gained so far.
Speaker Change: Our scheduling system.
Speaker Change: And in addition, we could expect some tailwind regarding effects for what we have seen so far in the quarter remember that the year started.
Speaker Change: Sharp devaluations of currencies and.
Speaker Change: Especially in the last months, we have seen some appreciation in the in the in the main currencies and that could give us also some positive trends.
Speaker Change: So in summary.
Speaker Change: I need.
Speaker Change: A fight.
Speaker Change: Summarize what.
Speaker Change: Everything I just mentioned.
Speaker Change: In a very volatile environment. Because this is what we are facing now and with the information we are seeing and we have so far we expect the margin for 2025 will be similar to 2024, excluding for the positive impact we had last year on the parent expense reversals and credits in.
Speaker Change: So that will be our margin outlook for 2025 I expect that.
Speaker Change: Horrified.
Speaker Change: Regarding.
Speaker Change: The specific question on payroll.
We are very pleased with the evolution on the payroll line under scheduling system and also the benefits of the off premise sales and digital sales that we are seeing.
Speaker Change: In the last years and Thats why we are seeing.
Speaker Change: Positive.
Speaker Change: Spansion on the payroll line of 30 bps that we'll see in Brazil.
And flat.
Speaker Change: And in addition in <unk>, where we have seen flattish favorable line. Please take into consideration that we have seen wage increases above inflation and above our pricing.
Speaker Change: Even with that we are seeing no lead.
Speaker Change: Flat favorable line and overall in the company.
Speaker Change: We are seeing.
30 bps gain in that line, which is of course very relevant in our DNA.
Speaker Change: Lastly, I think I have the question on pricing, what we are planning to do.
Speaker Change: On pricing.
Speaker Change: <unk>.
Speaker Change:
Speaker Change: In Brazil for the second quarter, I think Eric asked that question.
Speaker Change: And in General I think that Bob asked about pricing and advisory.
Speaker Change: In this regard.
Speaker Change: We are very careful and we will continue increasing prices in line with inflation.
Speaker Change: We believe that protecting traffic is the best strategy for creating shareholder value and we will keep to that.
Speaker Change: Two.
Speaker Change: That strategy.
Speaker Change: <unk>.
Speaker Change: But as the year progresses, and we don't see.
Speaker Change: More.
Speaker Change: Pressures on the cost side.
Speaker Change: That means that pricing will be catching up and we will see some margin improvement.
Speaker Change: I think I answered all the questions and please right.
Speaker Change: <unk> mentioned a few.
Speaker Change: Have further once regarding margins.
Speaker Change: Great. Thanks Mariano.
Speaker Change: Very complete answer.
Speaker Change: Last one for merit and that on slab.
Speaker Change: Continued to see improving sales trends, especially on the back of Argentina's recovery. However, the company's perception.
Speaker Change: On recent consumption trends what is the company's perception in terms of recent consumption trends in Argentina, and how can we think about the regions outlook for 2025, and I'll pass that one over to you Louise.
Speaker Change: Okay. Thank.
Speaker Change: Thank you for the question.
Yes, it is like that slabs guest traffic rose and sales increased almost 38% and more than 10%.
Speaker Change: <unk>, Argentina, so in general all markets.
Speaker Change: Have a very good start of the year and this is with operations and marketing indicators of course, we had a very strong rebound in Argentina due to the depressed economy environment that we had in 2024.
Speaker Change: Our growth in the countries sustained and healthy in volumes in sales and <unk>.
Speaker Change: Margins were being able to take advantage of a more stable economy and effects and the marketing team is doing an excellent excellent job and.
Speaker Change: We expect this to continue for the rest of the year in Argentina and in Chile.
Speaker Change: Dan.
Speaker Change: Mike.
Speaker Change: Please.
The next question comes from Fred Mendes at J P. Morgan his second question of the day.
Fred Mendes: Can you expand on why you only expect a 10 basis point decline in the royalty expense on a consolidated basis shouldnt the balance of NOLA and slide declining more than offset Brazil decline and what does this mean for your midterm view of consolidated EBITDA margin and I think this was.
Speaker Change: One for you.
Speaker Change: Okay. Thanks for your question, Yes, what we saw in the first quarter of 2025, yes.
Speaker Change: The thing that we are expecting for the rest of the year because we.
Speaker Change: As we announced.
Speaker Change: When we signed the new MSA with Mcdonalds.
Speaker Change: On December 32024.
Speaker Change: The new MSA.
Speaker Change: Yes.
Speaker Change: 6%.
Speaker Change:
Speaker Change: Contract world through royalty rate exactly.
Speaker Change: <unk> eliminated the concept of the growth support so Brazil that wolf resilient annuity in 2024, the growth support now in Spain, 2% of sales on the other hand, NOLA and flatter than it used to be 7% in 2024.
Speaker Change: <unk>, 6% this year. So the combined effect of those movements between divisions is that we should be seeing 10 basis points.
Speaker Change: Production in the royalties that we are payments we are paying.
Speaker Change: Mcdonald's So the same 10 basis points of leverage that we saw in the first quarter of this year, we should see the same the rest of the year.
Speaker Change: On the going forward.
Speaker Change: More or less our expectation.
Speaker Change: So there is a small positive impact in our EBITDA margin.
Speaker Change: Coming from royalties.
Speaker Change: Great. Thanks Marcella.
Speaker Change: We have a couple from Alvaro Garcia also one is I think we've already answered Argentina any color on Standalone same store sales performance and traffic performance in Argentina, and what to what degree do you see a recovery in profitability in Argentina I think.
We've actually just cover that and so I'll go to our next question also for you loose on promotions in Brazil, and taking a longer term view to what degree are you reducing promotions in Brazil into 2025.
Speaker Change: Okay right. Thanks again.
Speaker Change: <unk>.
Speaker Change: We're not going to be reducing the pressure on promotion of course, we will be very prudent and take any price opportunities.
Speaker Change: That we that we made to try to protect our margins are important to say that.
Speaker Change: We measured that guys had reduced guest traffic in Brazil, but this was due to the.
Speaker Change: The deterioration of the purchasing power.
Speaker Change: Of the consumers.
Speaker Change: Q.
Speaker Change: Traffic was in specifically there curious how sector during the first quarter and the competition remains rational with an increase of promotional activities in some regions of the country. So that's why we remain focused and we're going to remain focused on offering a compelling value proposition.
Speaker Change: The competitive pricing, we our strategy is to be close to our our customers and of course trying to deliver the best experience in the in the restaurants that he is going to be our main competitive advantage.
Chris: Thanks, Chris.
Speaker Change: Next one from Bob Ford his second question.
Bob Ford: Are there any offsets to the FX impact on your central administrative expense I assume that youre talking about our corporate expenses with the significantly or significant exposure to.
Speaker Change: The Argentine economy, So I'll turn that one over to you might have.
Speaker Change: Perfect. Thanks, Paul for the second question.
Speaker Change: In fact as a.
Speaker Change: As you know we have corporate expenses in Argentina, where right now there is a real appreciation of the Argentine peso, which has negative impact on <unk>.
Speaker Change: G&A expenses at the same time this is more than offset by the performance of the Argentine business that.
Luis: Marcello add Luis explained is doing really well, but on top of that is having the <unk>.
Positive impact of that real appreciation and the good news also in Argentina is that now we have a unified exchange rates. So it's easier to follow that those figures when only one exchange rate. So in that sense, yes, we see the offset.
Luis: On the overall on a consolidated basis is a positive impact for adequate levels.
Mariano: Thanks Mariano.
Mighty Fernandez: Have a couple more here one from Mighty Fernandez from times square.
Mighty Fernandez: She asked if there is a clear let's talk about the deceleration in same store sales and order in Brazil in the first quarter and how are we expecting same store sales to perform in the coming quarters. After adjusting for the one offs of Holy weekend leap year.
Mighty Fernandez: And also is there an underlying consumption likely to continue to decelerate.
Mighty Fernandez: Or do you see it turning around already.
Mighty Fernandez: Same store sales growth looks to be lower than inflation in both geographies I think we've covered that.
Mighty Fernandez: But you did have a second.
Speaker Change: Question, Lisa can you talk about consumption in Brazil and from your prior comments. It seems there is still no signs of improvement is that correct. This is similar to a question. We received from Julia Russo of Morgan Stanley can be more specific on the calendar impact of the first quarter of 25% of any estimate is helpful. And also can you be more specific on the second quarter sales comps in Brazil.
Speaker Change: So far lastly, why do we think that <unk> segment underperformed other retail segments in the first quarter.
Speaker Change: So.
Speaker Change: A few moving parts there and we will start with you Marcello Okay. Thanks for all the questions in terms of specific impacts coming from calendar whether the.
Speaker Change: The leap day.
Speaker Change: Around 110 basis points of impact in terms of comp sales. So you showed up one one percentage points to the comparable sales that we reported just to see what would happen. If these first quarter had the same amount of base the last year's first.
Speaker Change: So that's something that was very specific for the first quarter that we will not see that headwind.
Going forward in the case of Holy week, as I mentioned before that the impact is mostly.
Speaker Change: Concentrated in Mexico, and you will see the positive impact.
Speaker Change: Doug.
Speaker Change: Installation of the Holy week through the second quarter, when we announced results for the second quarter, but again the main impact will be in Mexico. So in NOLA.
Speaker Change: Trends are getting better.
Speaker Change: In all the geography, but we still see if volatile.
Speaker Change: Consumption environment.
Marino: That's why us as recent Marino mentioned before we've been very prudent in terms of.
Speaker Change: Our pricing strategy we've been.
Speaker Change: US aggressive as possible in terms of promotions because to build a sustainable business for the long term traffic.
Speaker Change: This is <unk>.
Speaker Change: Pieces of volume. So we are very focused in keeping as many customers as possible BCD and us instead of any other player in the region.
Speaker Change: Part of the things that I do.
Speaker Change: Explain why the U S. Our industry could be more impacted on other industries in the region. In this consumer environment is the seasonality of our <unk>.
Speaker Change: Our business compared with other ones, but <unk>.
Speaker Change: Obviously, you can have different opinions related with this.
Speaker Change: The good thing for US is when we where we have information public information from some of our peers, we compare our results with them on for example in the case with Mexico, we'd be much better than our competitors in that market in <unk>, Brazil.
Speaker Change: We're close to them in terms of comparable sales, but we gained share because we are opening restaurants on some of our complete the closing restaurants, so I think that.
Speaker Change: We continue to believe that we have a position of strength to see.
Speaker Change: Our business.
Speaker Change: Evolving in coming quarters in coming years.
Speaker Change: Yeah.
Speaker Change: Great.
Speaker Change: <unk> reached the end of the Q&A session with no additional questions in the queue. Thanks to everyone for your interest in <unk> and for joining today's webcast. We look forward to speaking with you again in the middle of August on our second quarter 2025 earnings webcast until then stay safe and have a great day.
Speaker Change: [music] Goodbye.