Q2 2025 Arcos Dorados Holdings Inc Earnings Call

Speaker #2: Hello, and thank you for joining Arcos Dorados' second quarter 2025 earnings webcast. With us today are Luis Raganato, our Chief Executive Officer, and Mariano Tannenbaum, our Chief Financial Officer.

Dan Schleiniger: Hello, and thank you for joining Arcos Dorados Holdings Inc. Q4 2025 earnings webcast. With us today are Luis Raganato, our Chief Executive Officer, and Mariano Tannenbaum, our Chief Financial Officer. Today's webcast, which is being recorded, will consist of prepared remarks from our leadership team, which will be accompanied by a slide presentation also available in the Investor section of our website, ir.arcosdorados.com. To better follow the presentation, please note that you can set your view to full screen on the webcast platform. Additionally, you can submit your questions at any time during the presentation using the Q&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. I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC.

Speaker #2: 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 investors' section of our website, ir.arcosdorados.com.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Dan Schleiniger: 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 today's earnings press release and conference call presentation, as well as the unaudited financial statements filed today with the SEC on Form 6K. With that, I will now turn the call over to our CEO, Luis Raganato.

Speaker #2: 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.

Speaker #2: As well as the unaudited financial statements filed today with the SEC. On form 6K. With that, I'll now turn the call over to our CEO, Luis Raganato.

Speaker #3: Thank you, Dan. Good morning, everyone, and thank you for joining us. Before getting into the quarter's results, let me take a moment to thank our executive chairman, Ms. Dayton, and the entire board of directors for their confidence in appointing me CEO of Arcos Dorados.

Luis Raganato: Thank you, Dan. Good morning, everyone, and thank you for joining us. Before getting into the quarter's results, let me take a moment to thank our Executive Chairman, Luis Dayton, and the entire Board of Directors for their confidence in appointing me CEO of Arcos Dorados. I am honored to continue the work of my predecessors, each of whom took the company to new operational and customer experience heights by working collaboratively with all stakeholders of the Arcos Dorados and McDonald's Systems. I would also like to congratulate all members of the team who are taking on new roles as part of this management change. We always said that Arcos Dorados has a deep bench of talented executives.

Speaker #3: I am honored to continue the work of my predecessors, each of whom took the company to new operational and customer experience heights by working collaboratively, with all stakeholders of the Arcos Dorados and McDonald's systems.

Speaker #3: I would also like to congratulate all members of the team who are taking on new roles as part of this management change. We always said that Arcos Dorados has a deep bench of talented executives.

Speaker #3: This includes Carlos Gonzalez, who is taking on the role of Chief Operating Officer bringing very significant management experience and a demonstrated ability to bridge, cultural, and generational gaps to drive strong performance.

Luis Raganato: This includes Carlos Gonzalez, who is taking on the role of Chief Operating Officer, bringing very significant management experience and a demonstrated ability to bridge, control, and generational gaps to drive strong performance. I look forward to working with him and the entire team to exceed our guest expectations and generate value for all stakeholders. Moving now to the key highlights of the quarter, we generated solid results in very dynamic macroeconomic and operating environments. Total revenue reached $1.1 billion. Constant currency revenue remains solid, built on 12.1% higher system-wide comparable sales, which was above blended inflation for the period. Comp sales growth was particularly strong in NOLA and SLED, growing well above blended inflation in each division. The same calendar effect that impacted NOLA's results in the first quarter helped boost the division's results in the second quarter.

Speaker #3: I look forward to working with him and the entire team to exceed our guest expectations and generate value for all stakeholders. Moving now to the key highlights of the quarter, we generated solid results in very dynamic macroeconomic and operating environments.

Speaker #3: Total revenue reached $1.1 billion. Constant currency revenue remained solid, built on a 12.1% higher system-wide comparable sales, which was above blended inflation for the period.

Speaker #3: Com sales growth was particularly strong in Noled and Slad, growing well above blended inflation in each division. The same calendar effect that impacted Noled's results in the first quarter helped boost the division's results in the second quarter.

Speaker #3: Marketing and digital initiatives focused on value and brand strength across sales channels and product categories. Additionally, the loyalty program continued to drive an increasing percentage of sales, by bringing members back to our restaurants more often.

Luis Raganato: Marketing and digital initiatives focused on value and brand strength across sales channels and product categories. Additionally, the loyalty program continued to drive an increasing percentage of sales by bringing members back to our restaurants more often. These efforts helped support robust market share gains in many markets. More on that later. We generated $110.1 million in adjusted EBITDA in the second quarter. Excluding last year's labor contingency reduction in Brazil, adjusted EBITDA grew by more than 7% and margin expanded by about 40 basis points. The growth plan for 2025 remains on target, and we opened 20 new Experience of the Future restaurants in the second quarter. This brings total openings for the first half of the year to 32 sites, and the plan remains to deliver 90 to 100 this year.

Speaker #3: These efforts helped support robust market share gains in many markets. More on that later. We generated $110.1 million in adjusted EBITDA in the second quarter. Excluding last year's labor contingency reduction in Brazil, adjusted EBITDA grew by more than 7%, and the margin expanded by about 40 basis points.

Speaker #3: The growth plan for 2025 remains on target, and we opened 20 new experience of the future restaurants in the second quarter. This brings total openings for the first half of the year to 32 sites, and the plan remains to deliver 90 to 100 this year.

Speaker #3: In addition to adding new restaurants to openings, we are excited to announce that last month we added a 21st market to the Arcos Dorados family.

Luis Raganato: In addition to adding new restaurants to openings, we are excited to announce that last month we added a 21st market to the Arcos Dorados family. We acquired three existing restaurants and the exclusive franchise rights to St. Martin in the Caribbean. The choice of Arcos Dorados as the new operator in St. Martin is a testament to our operational excellence and commitment to growth in the region. Marketing and digital campaigns drove strong comparable sales growth in NOLA and SLED during the quarter, while also helping to protect market share within a challenging consumer environment in Brazil. The digital ecosystem that accounted for about 60% of sales in the quarter supported campaigns designed to stay close to guests and adapt to changing consumer preferences. This included the Big Fest, which celebrated card favorites at a compelling value. The results were clear.

Speaker #3: We acquired three existing restaurants and the exclusive franchise rights to St. Martin in the Caribbean. The choice of Arcos Dorados as the new operator in St.

Speaker #3: Martin is a testament to our operational excellence and commitment to growth in the region. Marketing and digital campaigns drove strong comparable sales growth in Noled and Slad during the quarter, while also helping to protect market share within a challenging consumer environment in Brazil.

Speaker #3: The digital ecosystem that accounted for about 60% of sales in the quarter supported campaigns designed to stay close to guests and adapt to changing consumer preferences.

Speaker #3: This included the big fest, which celebrated core favorites at a competing value. The results were clear: brand preference rose to almost twice that of the nearest competitor across the region.

Luis Raganato: Brand preference rose to almost twice that of the nearest competitor across the region. Brand attributes related to value, taste, and trust saw significantly higher favorable gaps versus the nearest competitor as well. App downloads and loyalty program membership increased strongly during the campaign. The digital loyalty program is now available in six countries, with a seventh market currently in its pre-launch phase. The program already covers two-thirds of the restaurant portfolio, and we expect it to be available in 90% of all restaurants by the end of this year. Loyalty program members visit us at a much higher rate than non-loyalty guests, and they represented almost 23% of total sales in the six available markets during the second quarter. In Brazil, where the consumer environment has been challenging this year, we took steps to remain close to guests.

Speaker #3: Brand attributes related to value taste and trust saw significantly higher favorable gaps versus the near competitor as well. An add downloads and loyalty program membership increased strongly during the campaign.

Speaker #3: The digital loyalty program is now available in six countries, with a seventh market currently in its pre-launch phase. The program already covers two-thirds of the restaurant portfolio and we expect it to be available in 90% of all restaurants by the end of this year.

Speaker #3: Loyalty program members visit us at a much higher rate than non-loyalty guests, and they represented almost 23% of total sales in the six available markets during the second quarter.

Speaker #3: In Brazil, where the consumer environment has been challenging this year, we took steps to remain close to guests. For example, the Mekidodia campaign offered one menu favorite per day at a competing value.

Luis Raganato: For example, the Makey Dodgea campaign offered one menu favorite per day at a compelling value. Across the operating footprint, the Minecraft Happy Meal also strengthened ties with our guests. The game has significant crossover appeal to both kids and adults, which we optimized by offering a unique adult Happy Meal with chicken McNuggets. We also used the regional Formula One sponsorship to strengthen ties with families and guests of all ages. Capitalizing on the appeal of Formula One, the movie, we introduced a limited edition sandwich and a collectible race car exclusive to McDonald's restaurants. The campaign was extremely successful, selling out in just a matter of days or weeks, depending on the market. Finally, the dessert category has become increasingly competitive, so we kept the entry-level cone price at an attractive price point.

Speaker #3: Across the operating footprint, the Minecraft Happy Meal also strengthened ties with our guests. The game has significant crossover appeal to both kids and adults, which we optimized by offering a unique adult Happy Meal with Chicken McNuggets.

Speaker #3: We also used the regional Formula One sponsorship to strengthen ties with families and guests of all ages. Capitalizing on the appeal of Formula One, the movie, we introduced a limited edition sandwich and a collectible race car exclusive to McDonald's restaurants.

Speaker #3: The campaign was extremely successful. Selling out in just a matter of days or weeks, depending on the market. Finally, the dessert category has begun increasingly competitive, so we kept the entry-level compressed at an attractive price point.

Speaker #3: We also innovated by leveraging a favorite McDonald's character with the grimace shake and by adding more local flavors to the McFlurry platform. Over to you, Mariano.

Luis Raganato: We also innovated by leveraging a favorite McDonald's character with the Grimace Shake and by adding more local flavors to the McFlurry platform. Over to you, Mariano.

Speaker #3: Thanks, Luis. And good morning, everyone. Brazil's total revenue in constant currency grew 2% in the second quarter, including positive com sales despite operating within a context of negative industry volumes.

Mariano Tannenbaum: Thanks, Luis, and good morning, everyone. Brazil's total revenue in constant currency grew 2% in the second quarter, including positive comparable sales, despite operating within a context of negative industry volumes. We were able to offset volume pressure with higher average checks with a combination of targeted pricing and product mix. Importantly, market share remained steady versus the prior year, and the brand attributes we tracked are as strong as we have ever seen. This undoubtedly positions us well for when consumer trends improve in the country. More than 70% of system-wide sales were generated by digital channels, and the McDonald's app loyalty program surpassed 18 million members who accounted for 26% of the division's total sales. NOLA's total revenue rose 6.9% in constant currency. U.S. dollar revenue growth was impacted mainly by the year-over-year depreciation of the Mexican peso. Comparable sales rose 1.8 times blended inflation in the period.

Speaker #3: We were able to offset volume pressure with higher average checks, achieved through a combination of targeted pricing and product mix. Importantly, market share remained steady compared to the prior year, and the brand attributes we track are as strong as we have ever seen.

Speaker #3: This undoubtedly positions us well for when consumer trends improve in the country. More than 70% of system-wide sales were generated by digital channels, and the meal-making loyalty program surpassed 18 million members, who accounted for 26% of the division's total sales.

Speaker #3: Noled's total revenue rose 6.9% in constant currency. U.S. dollar revenue growth was impacted mainly by the year-over-year depreciation of the Mexican peso. Comparable sales rose 1.8 times blended inflation in the period.

Speaker #3: This included 12.4% com sales growth in Mexico, much higher than all main competitor brands. Digital sales penetration remained steady in Noled, where we offer the loyalty program in Costa Rica, and we are in the test phase in Puerto Rico.

Mariano Tannenbaum: This included 12.4% comparable sales growth in Mexico, much higher than all main competitor brands. Digital sales penetration remains steady in NOLA, where we offer the loyalty program in Costa Rica, and we are in the test phase in Puerto Rico. We believe digital sales performance will ramp up in the division as we expand the loyalty program to additional markets by the end of this year. SLED's revenue rose 37.8% in constant currency, with comparable sales up 1.4 times blended inflation in the period. Market share expanded strongly in several markets, including Argentina and Chile. Argentina built on last year's market share gains to boost its continued rebound from 2024. Digital sales penetration in SLED surpassed 60%, and loyalty generated 17% of total sales from the four SLED markets currently offering the program. Let's shift now to profitability and capital allocation during the second quarter.

Speaker #3: We believe digital sales performance will ramp up in the division as we expand the loyalty program to additional markets by the end of this year.

Speaker #3: Slad's revenue rose 37 point 8% in constant currency, with comparable sales up 1.4 times blended inflation in the period. Market share expanded strongly in several markets, including Argentina, and Chile.

Speaker #3: e. Argentina built on last year's market share gains, to boost its continued rebound from 2024. Digital sales penetration in Slad surpassed 60%, and loyalty generated 17% of total sales, from the four Slad markets currently offering the program.

Speaker #3: Let's shift now to profitability and capital allocation during the second quarter. Adjusted for last year's labor contingency reduction in Brazil, second quarter consolidated EBITDA grew very solidly in US dollars, despite currency headwinds.

Mariano Tannenbaum: Adjusted for last year's labor contingency reduction in Brazil, second quarter consolidated EBITDA grew very solidly in U.S. dollars, despite currency headwinds. While food and paper remained pressured due to higher beef prices in Brazil, improvements in all other restaurant expense lines supported a solid EBITDA performance. Similar to the first quarter, Brazil's margin contraction was mainly due to higher food and paper costs from rising beef prices in the market. As you already know, the royalty fee this year is higher in Brazil due to the normalization of the royalty rate across the three divisions. Excluding last year's labor contingency reduction, the net result of the remaining expense lines had a positive margin impact in Brazil. NOLA's margin included improved performance in all restaurants' expense lines, except food and paper, which rose modestly versus last year as a percentage of revenue.

Speaker #3: While food and paper remained pressure due to higher beef prices in Brazil, improvements in all other restaurant expense lines supported a solid EBITDA performance.

Speaker #3: Similar to the first quarter, Brazil's margin contraction was mainly due to higher food and paper costs from rising beef prices in the market. As you already know, the royalty fee this year is higher in Brazil due to the normalization of the royalty rate across the three divisions.

Speaker #3: Excluding last year's labor contingency reduction, the net result of the remaining expense lines had a positive margin impact in Brazil. Noled's margin included improved performance in all restaurants' expense lines, except food and paper, which rose modestly versus last year, as a percentage of revenue.

Speaker #3: Royalties were lower due to the normalization of rates across the three divisions, and the result also included a gain from a sub-franchisee restaurant transaction in Mexico during the quarter.

Mariano Tannenbaum: Royalties were lower due to the normalization of rates across the three divisions. The result also included a gain from a self-franchisee restaurant transaction in Mexico during the quarter. Margin performance was strong in nearly all the divisions marketed in the period. SLED delivered another strong quarter of margin expansion, with lower costs and expenses in nearly all line items. Notably, last year's EBITDA included a positive impact from a self-franchised restaurant transaction. Adjusting for that impact, SLED's margin expanded by about 260 basis points versus the second quarter of 2024. With these results, Arcos Dorados' balance sheet remains strong, and we continued making investments in future cash flow growth. As of the end of the second quarter, our debt was concentrated in two long-term bonds, the 2029 and 2032 notes, with an average U.S. dollar cost of 6.28% and an average duration of almost six years.

Speaker #3: Margin performance was strong in nearly all the divisions' market in the period. Slad, delivered another strong quarter of margin expansion, with lower costs and expenses in nearly all line items.

Speaker #3: Notably, last year's EBITDA included a positive impact from a sub-franchised restaurant transaction, adjusting for that impact Slad's margin expanded by about 260 basis points versus the second quarter of 2024.

Speaker #3: With these results, the company's balance sheet remained strong, and we continue making investments in future cash flow growth. As of the end of the second quarter, our debt was concentrated in two long-term bonds, the 2029 and 2032 notes, with an average US dollar cost of 6.28% and an average duration of almost six years, after receiving an upgrade to investment grade from Fitch in January last month, S&P assigned an initial rating of triple B minus to our debt.

Mariano Tannenbaum: After receiving an upgrade to investment grade from Fitch in January, last month, S&P assigned an initial rating of triple B minus to our debt. As a result, Arcos Dorados' debt is now considered to be full investment grade, which should help support future capital market transactions. At the end of the second quarter, net debt to adjusted EBITDA ratio was a comfortable 1.4 times, and we expect it to remain near this level for the remainder of the year. Our growth strategy remains intact, and during the second quarter, we added 20 EOTF restaurants to the portfolio. As has been the case for the last five years, most openings were freestanding units, and the majority were opened in Brazil. We invested $55.3 million in capital expenditures, including more than $26.8 million in growth CapEx associated with new restaurant builds.

Speaker #3: As a result, Arcos Dorados' debt is now considered to be full investment grade, which should help support future capital market transactions. At the end of the second quarter, the net debt to adjusted EBITDA ratio was a comfortable 1.4 times, and we expect to remain near this level for the remainder of the year.

Speaker #3: Our growth strategy remains intact, and during the second quarter, we added 20 EOTF restaurants to the portfolio. That has been the case for the last five years; most openings were freestanding units, and the majority were opened in Brazil.

Speaker #3: We invested 55.3 million dollars in capital expenditures, including more than 26.8 million dollars in growth capex associated with new restaurant builds. We expect to continue making prudent investments in growth, as we remain convinced this is the best way to increase free cash flow generation in the long term.

Mariano Tannenbaum: We expect to continue making prudent investments in growth, as we remain convinced this is the best way to increase free cash flow generation in the long term. As Luis Raganato already mentioned, after the quarter ended, we acquired the three existing restaurants in St. Martin and the exclusive franchise rights for that market, which will be subject to the same terms as our existing master franchise agreement with McDonald's. St. Martin will be managed by NOLA and will be included in the division's result beginning in Q3 2025. We do not expect a material change in consolidated results from this acquisition. Back to you, Luis.

Speaker #3: As Luis already mentioned, after the quarter ended, we acquired the three existing restaurants in St. Martin and the exclusive franchise rights for that market.

Speaker #3: Which will be subject to the same terms as our existing master franchise agreement with McDonald's. St. Martin will be managed by Noled, and will be included in the division's results beginning in the third quarter of 2025.

Speaker #3: We do not expect a material change in consolidated results from this acquisition. Back to you, Luis. I would like to touch on a topic that remains at the core of everything we do at Arcos Dorados.

Luis Raganato: I would like to touch on a topic that remains at the core of everything we do at Arcos Dorados Holdings Inc. We recently published the 2024 Social Impact and Sustainable Development Report for Arcos Dorados Holdings Inc. In it, you can learn more about the initiatives we advanced within the Recipe for the Future framework. This ESG platform is built on six pillars. Climate change, which saw us reach 50% renewable energy, allowing us to reduce energy costs while also meeting our targeted Scope 1 and 2 emissions reduction. Circular economy, which includes recycling of both packaging and used cooking oil. Sustainable sourcing, which supports local economies through local sourcing. Youth opportunity, which includes over 50,000 employees younger than 24 years. Family and well-being, which supports young people in partnership with local NGOs.

Speaker #3: We recently published the 2024 Social Impact and Sustainable Development Report for Arcos Dorados. In it, you can learn more about the initiatives we advance within the recipe for the future framework.

Speaker #3: This ESG platform is built on six pillars: climate change, which saw us reach 50% renewable energy allowing us to reduce energy costs while also meeting our targeted scope one and two emissions reduction.

Speaker #3: Circular economy, which includes recycling of both packaging and used cooking oil. Sustainable sourcing, which supports local economies through local sourcing. Youth opportunity, which includes over 60,000 employees younger than 24 years.

Speaker #3: Family and well-being, which supports young people in partnership with local NGOs. And diversity and inclusion, which ensures a welcoming work environment and restaurant experience for collaborators and guests from all backgrounds.

Luis Raganato: Diversity and inclusion, which ensures a welcoming work environment and restaurant experience for collaborators and guests from all backgrounds. You can access the full report at recipe4thefuture.com. Before we open the call up for questions, let me tell you about my priorities as Chief Executive Officer. To begin with, I helped design and implement the current strategy, so I do not expect to change the big picture. With that in mind, I would say that I have three main strategic priorities or pillars of focus. First, today's business, the organic business. In other words, everything that goes into exceeding customer expectations today. That means the experience we offer through menu, quality, service, and cleanliness inside our restaurants, in customers' homes, and in the digital ecosystem. Second, growing the business, our development strategy.

Speaker #3: You can access the full report at recipe4thefuture.com. Before we open the call up for questions, let me tell you about my priorities as CEO.

Speaker #3: To begin with, I helped design and implement the current strategy, so I do not expect to change the big picture. With that in mind, I would say that I have three main strategic priorities or pillars of focus.

Speaker #3: First, today's business, the organic business. In other words, everything that goes into exceeding customer expectations today. That means the experience we offer through menu, quality, service, and cleanliness inside our restaurants in customers' homes and in the digital ecosystem.

Speaker #3: Second, growing the business—our development strategy. I am challenging the entire team to revisit every element of our development process to further modernize and improve the way we grow.

Luis Raganato: I am challenging the entire team to revisit every element of our development process to further modernize and improve the way we grow. To increase our cash flow generation and create more value for our shareholders, we need to ensure that every dollar invested brings the best possible return. Third, tomorrow's business. We will work to answer the question of where Arcos Dorados Holdings Inc. will be in 10 years. We need to begin preparing now to meet future customer expectations, and we'll do whatever it takes to maintain our leadership position beyond 2035. This is to say this will be a collaborative effort within Arcos Dorados Holdings Inc., with McDonald's, with our suppliers, and with our self-franchisees. As we often say, there's nothing we can't accomplish if we work together.

Speaker #3: To increase our cash flow generation and create more value for our shareholders, we need to ensure that every dollar invested brings the best possible return.

Speaker #3: And third, tomorrow's business. We will work to answer the question of where Arcos Dorados will be in 10 years. We need to begin preparing now to meet future customer expectations and will do whatever it takes to maintain our leadership position beyond 2035.

Speaker #3: This is to say, this will be a collaborative effort. Within Arcos Dorados, with McDonald's, with our suppliers, and with our sub-franchisees. As we often say, there's nothing we can't accomplish if we work together.

Speaker #3: I look forward to speaking with all of you over the coming months and years, as I am certain the best is yet to come for Arcos Dorados.

Luis Raganato: I look forward to speaking with all of you over the coming months and years, as I am certain the best is yet to come for Arcos Dorados Holdings Inc. Thank you for joining today's call. Dan, back to you.

Speaker #3: Thank you for joining today's call. Dan, back to you.

Speaker #2: Thanks, Luis. We will now begin the Q&A session. You can submit your questions using the Q&A function on the bottom of the screen. Please limit yourselves to one or two questions so that I can read understand and convey them to our speakers.

Dan Schleiniger: Thanks, Luis. We will now begin the Q&A session. You can submit your questions using the Q&A function on the bottom of the screen. Please limit yourselves to one or two questions so that I can read, understand, and convey them to our speakers. We will now pause briefly to compile your questions. Okay, great. We have actually quite a few questions already in the queue and a number that are related to the same topic or similar topics. Bear with me as I go through a few of these, and then we will start with you, Luis, actually, on this first set of questions. First, Giacomo DeLucci from Goldman Sachs. Good morning, everyone. Thank you for taking our questions. It is always a pleasure to engage with the team.

Speaker #2: We will now pause briefly to confide your questions. Okay, great. So we have actually quite a few questions already in the queue, and a number that are related to the same topic or similar topics.

Speaker #2: So bear with me as I go through a few of these. And then we'll start with you, Luis, actually on this first set of questions.

Speaker #2: First, Jaguar Board to Lucy from Goldman Sachs. Good morning, everyone. Thank you for taking our questions. It's always a pleasure to engage with the team.

Speaker #2: Before we begin, we would like to once again express our gratitude to Marcelo for his openness and constructive dialogue during his tenure. And we wish Luis Francisco, and Carlos, continued success in their extended responsibilities.

Dan Schleiniger: Before we begin, we would like to once again express our gratitude to Marcelo for his openness and constructive dialogue during his tenure. We wish Luis Raganato and Carlos Gonzalez continued success in their extended responsibilities. Regarding the results, they have three questions. The first two of the first three I will combine here. This is number one, how do you assess the balance between foot traffic, pricing, product mix, and profitability in Brazil? Additionally, what internal initiatives should we anticipate for you to potentially reignite same-store sales growth in the back end of the year? Continuing with that concept, they also ask, do you have any preliminary insights on demand trends in July for Brazil and Mexico? Related to Giacomo's question, we have a question from Eric Welling from Santander. He asks, Brazil's sales remain quite subdued in the second quarter of 2025.

Speaker #2: Regarding the results, they have three questions. The first, two of the first three, I'll combine here. And this is number one, how do you assess the balance between foot traffic, pricing, product mix, and profitability in Brazil?

Speaker #2: Additionally, what internal initiatives should we anticipate from you to potentially reignite same-store sales growth in the back end of the year? Continuing with that concept, they also asked, do you have any preliminary insights on demand trends in July for Brazil and Mexico?

Speaker #2: Related to Jaguar's question, we have a question from Eric Huang from Santander. And he asks, Brazil's sales remain quite subdued in the second quarter of '25.

Speaker #2: How has the company perceiving the consumer environment as we turn into the second half of '25? And how are the revenue management initiatives expected to help in sales momentum ahead?

Dan Schleiniger: How is the company perceiving the consumer environment as we turn into the second half of 2025? How are the revenue management initiatives expected to help in sales momentum ahead? Finally, Melissa and Bob Ford from Bank of America ask, with respect to Brazil also, can you discuss consumption dynamics during the second quarter and in July/August? Was weather a factor in the second quarter deceleration? With all of that as background, Luis, I will turn it over to you.

Speaker #2: And finally, Melissa and Bob Ford from Bank of America ask, with respect to Brazil also, can you discuss consumption dynamics during the second quarter and in July/August?

Speaker #2: Was weather a factor in the second quarter deceleration? So with all of that as background, Luis, I'll turn it over to you.

Speaker #3: Thank you, Dan, and thank you, David, Eric, and Melissa. Let me I'm going to cover everything. First, about the context: the market continues to face a challenging macroeconomic environment.

Luis Raganato: Thank you, Dan. Thank you, David, Eric, and Melissa. Let me try to cover everything. First of all, the context: the market continues to face a challenging macroeconomic environment, uncertainty, and weakening consumer confidence. Given this context, even though various sources point to a drop in the flow of basics in the Q2 market, we managed to deliver positive cone sales. We offset a drop in traffic with a combination of targeted price increases and product mix. The contribution to sales came more from average checks than volume. What we are trying to do here is to balance between the sales growth and profitability. We were trying to increase our margin. Regarding channels, Melissa, the impact on weather was mainly in the digital center. We do have a more aggressive competition mainly in Brazil. We are addressing that with a plan.

Speaker #3: Uncertainty and weakening consumer confidence. But given this context, even though various sources point to a drop in the flow of visits in the QSR market, we managed to deliver positive com sales.

Speaker #3: We offset a drop in traffic with a combination of targeted price increases and product mix. So the contribution to sales came more from average check than volume.

Speaker #3: What we're trying to do here is to balance between the sales growth and profitability.

Speaker #2: All All right, what we're trying to increase our margins. And regarding channels, Melissa, the impact on weather was mainly in the district center. But you know, and we do have a more aggressive competition, mainly in Brazil, we are addressing that with a plan.

Speaker #2: But the good news is that the strongest performance was through our front counter. And this is very good news for us, because it is proof that our brand and our on-premise are aspirational.

Luis Raganato: The good news is that the strongest performance was through our front counter. This is very good news for us because it is proof that our brand and our on-premise is aspirational. That on-premise experience is going to be very important. The most important marketing actions that we had in the market were first, Makey Dodgea, a recent planning campaign, and the Makey Flip digital campaign. Those were very successful and helped increase visit frequency and drive a 15% increase in identified sales. You know that for us, identified sales are very important. We had 26% in the region, but in Brazil in particular, 32%, which is that share in June specifically. Even though we are trying to seal our market share by being prudent with pricing, we do have a comprehensive plan, which includes those short-term initiatives, more transactional.

Speaker #2: And it's going to be that the on-premise experience is going to be very important. One of the most important marketing actions that we had in the market was first, Mekidodia; it is a value campaign.

Speaker #2: And the Mekifest digital campaign. Those were very successful, and helped increase visit frequency and drive a 50% increase in identified sales. Do you know that for us, identified sales are very important.

Speaker #2: We had 26% in the region, but in Brazil in particular, 32%, which is that share in June specifically. So even though we're trying to shield our market share by being prudent with pricing, we do have a comprehensive plan, which includes those short-term initiatives, more transactional, but you know, we complement that with long-term focus because we want to build on the brand's aspirational aspect.

Luis Raganato: We complement that with long-term focus because we want to build on the brand's aspirational aspect. That is why we have, for example, the license of Minecraft in the Happy Meal, or for example, the launch of the Grimace Shake, or even the Formula One action that reaches all socioeconomic groups and builds on the coolness of the brand. As a result, and very important, our market share in the market remains steady. We are leading our leaders' competitors by a factor of 2.2. Attributes like favorite brand and brand awareness are at the highest scores according to internal research. We are today in a position of strength.

Speaker #2: And that's why we have for example, the license of Minecraft in the Happy Meal, or for example, the launch of the grimace shake, or even the Formula One action.

Speaker #2: That reaches all socioeconomic groups. And builds on the coolness of the brand. As a result, and very important, our market share in the market remains steady, we're leading our nearest competitor by a factor of 2.2.

Speaker #2: And attributes like favorite brand and brand awareness are at the highest scores according to internal research. So we are today in a position of strength, and despite seeing that the challenging macroeconomic environment will remain during the third quarter and maybe during the second semester, we are confident because we have a solid marketing plan.

Luis Raganato: Despite we see that the challenging macroeconomic environment will remain during the third quarter and maybe during the second semester, we are confident because we have a solid marketing plan. We are going to keep on working with our affordability platform to drive traffic, to shield our market share, like I said, and we will remain close to our customers, building on the love of the brand because we are going to be having cool launches too. Regarding Mexico, Mexico had a very strong quarter with like 12% in sales. It was the highest in the market and the market in the QSR and the entire industry. The good news is that it was driven by digital centers, by delivery, and by front counter. We are seeing a similar trend in the beginning of the third quarter. Dan.

Speaker #2: We're going to keep working with our affordability platform to drive traffic, shield our market share, and, like I said, we'll remain close to our customers, building on the love of the brand.

Speaker #2: Because we're going to be having cool launches too. Regarding Mexico, Mexico had a very strong quarter with plus 12% in sales. And you know, it was the highest in the market.

Speaker #2: And not only in market, in the QSR and the entire industry in the good news is that it was driven by business centers, by delivery, and by front counter.

Speaker #2: We're seeing a similar trend in the beginning of the third quarter. Dan? Thank you, Luis. So now over to you, Mariano, and again, this will be a combination of questions.

Dan Schleiniger: Thank you, Luis. Now over to you, Mariano. This will be a combination of questions. To be fair, we received questions from Jack Aitorcello Ambro, asking for more detail on the Brazil division and consumer demand. Julia Rizzo from Morgan Stanley also asked about same-store sales trends in Brazil, which I think you just answered, Luis. I am not going to come back to those. I just wanted to recognize both Jack and Julia. Now I will move to Mariano and start with one of the questions that came in from Giacomo from Goldman Sachs, combined with a question from Melissa and Bob at Bank of America, and also Freulan at J.P. Morgan. Bear with me again, Mariano, please. From Giacomo, could you elaborate on which regions and specific actions contributed most significantly to top line and margin performance in NOLA?

Speaker #2: Actually, to be fair, we received questions from Jack Andertale and Ambro, asking for more detail on the Brazil division and consumer demand. Also, Julia Rizzo from Morgan Stanley asked about same-store sales trends in Brazil, which I think you just answered, Luis.

Speaker #2: So I'm not going to come back to those. I just wanted to recognize both Jack and Julia. So now I'll move to Mariano and start with one of the questions that came in from Jaguar from Goldman Sachs.

Speaker #2: Combined with a question from Melissa and Bob at Bank of America, and also Freiland at JP Morgan. So bear with me again, Mariano, please.

Speaker #2: From Jaguar, could you elaborate on which regions and specific actions contributed most significantly to top line and margin performance in Noled? I think associated with that is Freiland's question from JP Morgan.

Dan Schleiniger: I think associated with that is Freulan's question from J.P. Morgan. I think I am confusing myself here. Yes, I am confusing myself. Freulan asked, how much of the 12% same-store sales growth in Mexico was driven by positive calendar effects? How sustainable is this going into the second half? Melissa and Bob from Bank of America asked, additionally, can you comment on the underlying sales and margin performance of Mexico, specifically excluding the Holy Week impact? This is a general NOLA/Mexico question for you, Mariano.

Speaker #2: Can you give us some sense on sorry, I think I'm confusing myself here. Yeah, I am confusing myself. And then Freiland asked, how much of the 12% same-store sales growth in Mexico was driven by positive calendar effect?

Speaker #2: How sustainable is this going into the second half? Additionally, Melissa and Bob from Bank of America asked, can you comment on the underlying sales and margin performance of Mexico, specifically excluding the Holy Week impact?

Speaker #2: So this is kind of a general Noled/Mexico question for you, Mariano.

Speaker #3: Perfect, good morning everyone, and thanks Tiago, Melissa, and Freiland for the question. We're very pleased with the performance of Noled during the second quarter of this year, and of course on the first half of this year.

Mariano Tannenbaum: Perfect. Good morning, everyone, and thanks, Tiago, Melissa, and Freulan for the question. We are very pleased with the performance of NOLA during the second quarter of this year and, of course, on the first half of this year. First, we have seen NOLA's sales increasing at 1.8 times inflation. As Luis Raganato already mentioned, Mexico stands out in this performance. It is true, and we mentioned in Q1 that Holy Week has a strong impact in Mexico, and that we were expecting good results for Q2. If you consider the first half of the year, Mexico is performing much better and is growing above inflation compared with the first half of 2024. In terms of impacts in margins, NOLA is showing in this quarter an improvement of 450 bps compared to the same quarter of last year.

Speaker #3: First, we have seen in Noled sales increasing at 1.8 times inflation, and as Luis already mentioned, Mexico stands out in this performance. So it is true, and we mentioned in the first queue that Holy Week has an impact in Mexico's strong impact, and that we were expecting good results for the second queue.

Speaker #3: But if you consider the first half of the year, Mexico is performing much better and is growing above inflation compared with the first half of 2024.

Speaker #3: In terms of impact on margins, Noled is showing in this quarter an improvement of 450 bps compared to the same quarter of last year.

Speaker #3: And this, the good news here is that this is due first, despite additive variation of the effects. Because the Mexican peso in the quarter averaged this quarter 19.5, versus 17.3 last year.

Mariano Tannenbaum: The good news here is that this is due first, despite a deterioration of the effects because the Mexican peso in the quarter averaged this quarter 19.5% versus 17.3% last year. So despite the devaluation of the Mexican peso, we are seeing a much better margin in Mexico and in the division. This is due to a better payroll, a better service fee, as we already explained, the new MFA, better occupancy and other expenses with better margins in delivery. In this particular quarter, we are seeing as well a better other operating income given the transaction on the restaurants acquired in Mexico. All that together is improving the margin in NOLA by 450 bps. Of course, when we see sales in the division growing at almost two times inflation, we see leverage in all the fixed cost lines, and that is also reflecting, of course, in the results.

Speaker #3: So despite the devaluation of the Mexican peso, we are seeing a much better margin in Mexico and in the division. And this is due to a better payroll, a better service fee, as we already explained the new MFA.

Speaker #3: Better occupancy and other expenses, with better margins in delivery. And in this particular quarter, we are seeing as well a better operating. Other operating income given the transaction on the restaurants acquired in Mexico.

Speaker #3: So, all that together is improving the margin in Noled by 450 bps. Of course, when we see sales in the division growing at almost twice the rate of inflation, we see leverage in all six cost lines, and that also reflects, of course, in the results.

Speaker #2: Great, thanks Mariano. The next question comes from Freiland from JP Morgan. And although we've talked about ticket and traffic trends with Brazil specifically, he asks, for a view on a regional basis, and this question will be for you, Luis.

Dan Schleiniger: Great. Thanks, Mariano. The next question comes from Freulan from J.P. Morgan. Although we've talked about ticket and traffic trends within Brazil specifically, he asks for a view on a regional basis. This question will be for you, Luis.

Speaker #3: All right, thank you, Freiland, for the question. In general, what we saw in the region was volatility and challenging market conditions. But despite that, we believe we have the best position to face this current situation or any that may arise.

Luis Raganato: All right. Thank you, Freulan, for the question. In general, what we saw in the region was volatility and challenging marketing conditions. But despite that, we believe we have the best position to face this current situation or any that may arise. The sales performance was solid in local currency and consolidated comparable sales were in line with the company's blended inflation within the context of each division. I already talked about Brazil. In NOLA, our cones were up 1.8 times blended inflation with a low single-digit contribution from traffic. So the contribution to sales, if you do the math, were two-thirds from average checks. Like I said, Mexico stood out and is keeping that performance in this third quarter. By channel, in NOLA, the sales strength was driven by front counter, dessert centers, and delivery in local currency with positive volume growth in all three segments.

Speaker #3: The sales performance was solid in local currency, and consolidated comparable sales were in line with the company's blended inflation. Within the context of each division, I already talked about Brazil.

Speaker #3: In Noled, our comps were up 1.8 times blended inflation, with a low single-digit contribution from traffic. So the contribution to sales, if you do the math, was two-thirds from average check.

Speaker #3: Like I said, Mexico stood out, and is keeping that performance in this third quarter. And by channel, in Noled, the sales strength was driven by front counter, dessert centers, and delivery in local currency.

Speaker #3: With positive volume growth in all three segments. In Slad, coms were they were up 1.4 times blended inflation, with a mid-single-digit contribution from traffic.

Luis Raganato: In SLED, cones were up 1.4 times blended inflation with a mid-single-digit contribution from traffic and average checks in line with inflation. So in general, all markets had a very good quarter, and we are seeing a similar performance in the beginning of this third one. By channel, the sales growth was strong across all the channels in the quarter. For the remainder of the year, we are going to keep on focusing on the factors that we control, of course, the brand, the 4G strategy, and taking advantage of the footprint and geographic diversification.

Speaker #3: And average check is in line with inflation. In general, all markets had a very good quarter, and we're seeing a similar performance in the beginning of this third one.

Speaker #3: In by channel, the sales growth was strong across all the channels in the quarter. For the remainder of the year, we're going to keep on focusing on the factors that we control.

Speaker #3: Of course, the brand, the 4G strategy, and taking advantage of the footprint and geographic diversification.

Speaker #2: Thanks, Luis. Okay, the next one for Mariano again, this will be a series of questions all of them related to the beef cost trends in Brazil.

Dan Schleiniger: Thanks, Luis. Okay, the next one for Mariano again. This will be a series of questions, all of them related to the beef cost trend in Brazil. Freulan from JP Morgan, can you please give us color as to the beef trend in Brazil? Eric from Santander, could you please elaborate on your expectations for margins, especially in Brazil, and how are you seeing beef prices impacting margins in the upcoming quarters? Alvaro Garcia from BTG Pactual, how does management see beef prices evolving in the second half of the year in Brazil? Geronimo de Guzman from Inca Investments asked about, can you comment more on the beef cost pressures you're seeing in Brazil? Have you seen any changes? Do you still think you can maintain margins of stable ex-one-offs on a consolidated basis for full year 2025? Multi-part question that I'll turn over to you, Mariano.

Speaker #2: So Freiland from JP Morgan, can you please give us color as to the beef trend in Brazil? Eric from Santander, could you please elaborate on your expectations for margins, especially in Brazil, and how are you seeing beef prices impacting margins in the upcoming quarters?

Speaker #2: Alvaro Garcia from BTG Pactual, asks, how does management see beef prices evolving in the second half of the year in Brazil? And Herónimo de Guzmán from Inca Investments asked, about can you comment more on the beef cost pressures you're seeing in Brazil?

Speaker #2: Have you seen any changes? And do you still think you can maintain margins stable, excellent ops on a consolidated basis for a full year, 2025?

Speaker #2: So, multi-part question. I'll turn it over to you, Mariano.

Speaker #3: Perfect, and thanks everybody for the questions related to the beef prices in Brazil. Beef prices in Brazil, as I mentioned, impacted our results during the first half of the year.

Luis Raganato: Perfect. Thanks, everybody, for the question related to the beef prices in Brazil. Beef prices in Brazil, as I mentioned, impacted our results during the first half of the year. We have seen price increases of around 30% in the last 12 months. Here we have good news, and that is that we do not expect further significant cost pressures versus current levels in the second half of this year. On top of that, for the other items in the food and paper line in Brazil, we have seen so far a devaluation of the Brazilian real that, of course, impacted the costs on imported goods. What we have seen or what we are expecting now in July, we have seen an appreciation of the Brazilian real to below 5.4 reais to the dollar. Actually, today, the last time I checked was at 5.39.

Speaker #3: We have seen price increases of around 30% in the last 12 months. Here we have good news: we do not expect further significant cost pressures versus current levels in the second half of this year.

Speaker #3: On top of that, for the other items in the food and paper line, in Brazil, we have seen so far a devaluation of the Brazilian real that of course impacted the costs on imported goods.

Speaker #3: What we have seen or what we are expecting now in July, we have seen an appreciation of the Brazilian real to below 5.4 reais to the dollar, actually today, last time I checked was at 5.39.

Speaker #3: And this could have, if this trend persists, a positive impact on the gross margin for the rest of the year. So, of course, the outlook, and what we know so far, is that we are not expecting significant cost pressures from beef from the current levels.

Luis Raganato: This could have, if these effects trend persist, a positive impact on the gross margin for the rest of the year. Of course, the outlook and what we know so far is that we are not expecting significant cost pressures from beef from the current levels.

Speaker #2: Thanks, Mariano. Actually, I think you addressed it, but Eric also asked if the tariffs on Brazil's exports have prompted an improvement in commercial terms and prices of beef in the countryside?

Dan Schleiniger: Thanks, Mariano. Actually, I think you addressed it, but Eric also had asked, are the tariffs on Brazil exports that prompted an improvement in commercial terms and prices of beef on the company side? You already sort of addressed the beef trends, so I just wanted to mention that. The next question will be for Luis. I will let you catch your breath, Mariano, because the next one will be for you. The next one is from Jack Gator at JL Ambro, and he asks if we can expand on the changing competitive landscape in desserts. What is the margin of dessert centers and what percentage of sales does this contribute to the total? We will give that one to you, Luis.

Speaker #2: You've already sort of addressed the beef trends. So just wanted to mention that. So the next question will be for Luis. I'll let you catch your breath, Mariano, because the next one will be for you.

Speaker #2: And the next one is from Jack Gator at JO Hambro. And he asked if we can expand on the changing competitive landscape in desserts.

Speaker #2: What's the margin of dessert centers, and what percentage of sales does this contribute to the total? And we'll give that one to you, Luis.

Speaker #3: All right, thank you, thank you for the question. Dessert centers, as of the end of 2024, represented almost 10% of total sales. The segment has significantly higher margins, you know, in percentage.

Luis Raganato: All right. Thank you. Thank you for the question. Dessert centers, as of the end of 2024, represented almost 10% of total sales. The segment has significantly higher margins in percentage, in productive numbers. What we are seeing in the landscape is that we are seeing an increasing competition in general in the region, mainly in Brazil. We have already implemented a solid plan regarding aggressive pricing and with innovations, like for example, as I said, the Grimace Shake. Back to you.

Speaker #3: In relative numbers. And what we are seeing in the landscape is that we're seeing an increasing competition in general in the region, mainly in Brazil.

Speaker #3: But we have already implemented a solid plan regarding aggressive pricing and innovations. Like, for example, as I said, the Grimace Shake. Yeah? Back to you.

Speaker #2: Okay. Thanks, Luis. And now another multi-part for you, Mariano. Starting with Melissa from Bank of America. How are you thinking about pricing and your ability to offset higher costs in the context of softer demand?

Dan Schleiniger: Okay. Thanks, Luis. Now, another multi-partner for you, Mariano Tannenbaum. Starting with Melissa from Bank of America, how are you thinking about pricing and your ability to offset higher costs in the context of softer demand? I presume that is mostly a Brazil question, but in general. Geronimo de Guzman from Inca asks a similar question. Given your focus on affordability and prudent pricing to drive traffic and protect market share, what does this mean for margins, and do you still think you can maintain margins stable ex-one-offs on a consolidated basis? That second part I had already said, but the piece about pricing versus margins, I think, is the crux here. We will give that to you, Mariano Tannenbaum.

Speaker #2: I presume that's mostly a Brazil question, but in general. And then Herónimo de Guzmán from Inca asks a similar question. Given your focus on affordability and prudent pricing to drive traffic and protect market share, what does this mean for margins and do you still think you can maintain margins stable excellent offs on a consolidated basis?

Speaker #2: So that second part I'd already said, but the piece about pricing versus margins, I think, is the crux here. And I'll give that to you, Mariano.

Speaker #3: Perfect, thanks Melissa, and Herónimo for the question. Related to pricing to offset costs as we have seen in the first half of the year, additive variation of margins in Brazil.

Luis Raganato: Perfect. Thanks, Melissa and Geronimo, for the question. Related to pricing to offset costs, as we have seen in the first half of the year, a deterioration of margins in Brazil. In fact, we will continue with our strategy to increase prices in line with inflation. We are not going to, in order to pursue quick gains in margin gains, increase prices well above inflation because this will be maybe something that will have a positive impact in the short term, but it is not going to be sustainable in the mid to long term. As an example, we have done that in Argentina last year. Argentina in 2024 experienced an important devaluation of the currency, an impact in the whole economy.

Speaker #3: In fact, we will continue with our strategy to increase prices in line with inflation. We are not going to in order to pursue a quick gains in margin gains, to increase prices well above inflation, because this will be maybe something that will have an impact positive impact in the short term, but it's not going to be sustainable in the mid to long term.

Speaker #3: As an example, we did that in Argentina last year. Argentina in 2024 experienced an important devaluation of the currency, impacting the whole economy.

Speaker #3: We have been very prudent with pricing in Argentina, and we are seeing the results this year, with very, very good results in terms of sales, traffic, and margin recovery.

Luis Raganato: We have been very prudent with pricing in Argentina, and we are seeing the results this year with very, very good results in terms of sales, traffic, and margin recovery. Argentina is going to be one of the key contributors to EBITDA growth during 2025. In Brazil, we are not expecting to do anything different from our strategy. We will continue increasing prices in line with inflation, and when the consumer environment starts recovering, we are confident that our margins will start recovering, and we will see much better margins than what we have seen in the first half of the year. Going to the second part of Geronimo's question, how do we see the EBITDA margin for this year, excluding one-off? First, during this quarter, we are very pleased with the EBITDA margin.

Speaker #3: And Argentina is going to be one of the key contributors to EBITDA growth during 2025. In Brazil, we are not expecting to do anything different from our strategy.

Speaker #3: We will continue increasing prices in line with inflation, and when the consumer environment starts recovering, we are confident that our margins will start recovering, and we will see much better margins than what we have seen in the first half of the year.

Speaker #3: And going to the second part of Herónimo's question, how do we see the EBITDA margin for this year excluding one-offs? First, during this quarter, we're very pleased with the EBITDA margin. We have seen that, excluding labor contingencies from last year, we increased the EBITDA margin by 40 basis points during the quarter, compared, of course, to the same quarter of last year.

Luis Raganato: We have seen that excluding labor contingencies from last year, we increased EBITDA margin by 40 basis points during the quarter, compared, of course, to the same quarter of last year. For the full year 2025, we expect to have an EBITDA margin close to 2024, excluding, of course, the one-off related to labor contingencies in Brazil. As I explained, we are not expecting further deterioration on the gross margin line. For example, during this quarter, we have seen gains in the payroll line, with excluding one-off, 50 bps better than last year. We have also seen improvements in the occupancy and other expense line of 70 bps during this quarter.

Speaker #3: For the full year 2025, we expect to have an EBITDA margin close to 2024, excluding of course the one off related to labor contingencies in Brazil.

Speaker #3: As I explained, we are not expecting further deterioration on the gross margin line, and for example, during this quarter, we have seen gains in the payroll line, with excluding one off 50 bps better than last year.

Speaker #3: We have also seen improvements in the occupancy and other expense line of 70 basis points during this quarter. If we continue focusing on cost efficiencies and looking at our entire cost structure to minimize those increases, we are confident that we will be able to maintain or be very close to the EBITDA margin that we achieved in 2024, which was a record for the company.

Luis Raganato: If we continue focusing on cost efficiencies and trying to look at all the cost structure and trying to minimize those increases, we are confident that we will be able to maintain or to be very close to the EBITDA margin that we achieved in 2024 that was record for the company.

Speaker #2: Thanks, Mariano. We have one more question from Álvaro García from BTG Pactual. And this one is going to be for you, Luis. He asks about Argentina traffic trends in the quarter relative to the 2023 baseline.

Dan Schleiniger: Thanks, Mariano. We have one more from Alvaro Garcia from BTG Pactual, and this one is going to be for you, Luis. He asks about Argentina traffic trends in the quarter relative to the 2023 baseline.

Speaker #3: All right, thank you, Alvaro, for the question. What is happening in Argentina this year, since the second semester of last year, is that it is showing a more stabilized macroeconomic environment.

Luis Raganato: All right. Thank you, Alvaro, for the question. What is happening in Argentina this year since the second semester of last year is that it is showing a more stabilized macroeconomic environment. The inflation is dropping, and the recovery of the economy is happening, but showing mixed behavior across different sectors. If we compare with 2023, we are mostly in line with that performance. What I want to highlight here is that in this context, in the concept of that recuperation of the economy, our business is very solid with a strong evolution. We have a local team that is doing a great job harvesting the investments that they did last year. Last year, they stayed close to the customers. They increased market share.

Speaker #3: The inflation is dropping, and the recovery of the economy is happening, but you know, showing mixed behavior across different sectors. If we compare with 2023, we are mostly in line with that performance.

Speaker #3: But you know, what I want to highlight here is that in this context, in the context of that recuperation of the economy, our business is very solid.

Speaker #3: With a strong evolution, and we have a local team that is doing a great job, harvesting the investments that they did last year. Last year, they stayed close to the customers, they increased market share, and those gains that we had during 2024 are driving a strong results this year.

Luis Raganato: Those gains that we had during 2024 are driving the strong results this year. That is why it is so important that we keep, and we are focusing on keeping that strategy in other markets that have this similar challenging environment. In Argentina today, we continue to be very prudent with pricing. We are trying to take, like across the region, all the opportunities possible to improve margins. We had, for example, the tasty fifth quarter, the highlights of market action or the Formula One action that is important in the market too. According to internal research, these actions helped us further increase our market share. We are out-getting all players in the market. In Argentina, the difference is of three times the size when we compare with our main competitors. Another great news is that we are improving strongly the brand attributes.

Speaker #3: That's why it's so important that we keep and we are focusing on keeping that strategy in another markets that have this similar, you know, challenging environment.

Speaker #3: And so, in Argentina, today we continue to be very prudent with pricing. We're trying to take, like across the region, all the opportunities possible to improve margins.

Speaker #3: And you know, we had the, for example, the Tasty Fit quarter as a highlight of marketing action, or the Formula One action that is important in the market too.

Speaker #3: According to internal research, this actions helped us further increase our market share, we are outgaining all players in the market, and in Argentina the difference is of three times the size what we compare with our main competitors.

Speaker #3: And another great news is that we are improving strongly the brand attributes. We are seeing a similar trend now in the third quarter of the year.

Luis Raganato: We are seeing a similar trend now in the third quarter of the year.

Speaker #3: Dan?

Dan Schleiniger: Dan, back to you. Okay, thanks, Luis. The next one will be for you, Mariano. This question comes from Julia Rizzo from Morgan Stanley. She says that CapEx was well below expectations. Could the company end the year with CapEx below initial expectations? What are the gains and improvements we are noticing in vending?

Speaker #2: Back to you. Okay, thanks, Luis. The next one will be for you, Mariano, and this question comes from Julia Rizzo from Morgan Stanley. She says that CapEx was well below expectations.

Speaker #2: And could the company end the year with CapEx below initial expectations? What are the gains and improvements we're noticing, if any?

Speaker #3: Perfect, thanks Julia for the question. We actually maintain our 2025 openings guidance of between 90 to 100 EOTF restaurants. With a CapEx guidance of between three hundred million to 350 million dollars.

Luis Raganato: Perfect. Thanks, Julia, for the question. We actually maintain our 2025 openings guidance of between 90 to 100 Experience of the Future (EOTF) restaurants with a CapEx guidance of between $300 million to $350 million. The CapEx this year, as usual, is a bit more back-ended. We expect for the full year to keep on and maintain our guidance. In terms of improvements, we are always looking at improvements and ways to reduce the cost of each opening. We are doing that all the time. We are looking at efficiencies. We are looking at reducing costs, at localizing the core packages to reduce the impact of currency movements. My team and the development team are continuing focusing on these improvements and cost reductions to make our investments more profitable.

Speaker #3: The CapEx this year is usually a bit more back-ended. So we expect for the full year to keep on and maintain our guidance.

Speaker #3: In terms of improvements, we are always looking at ways to enhance efficiency and reduce the cost of each opening. We are doing that all the time.

Speaker #3: We are looking at efficiencies, we are looking at reducing costs, and localizing the core packages to reduce the impact of currency movements. So, you know, my team and the development team are continuing to focus on these improvements and cost reductions to make our investments more profitable.

Speaker #2: Great. Thanks, Mariano. The next question comes from Max Joseph. This one will be for you, Luis. He goes, "Congratulations on the promotions and the strong results."

Dan Schleiniger: Great. Thanks, Mariano. The next question comes from Max Joseph. This one will be for you, Luis. He goes, "Congratulations on the promotions and the strong results. Luis, could you share more about how you're challenging the team to ensure that every dollar in growth generates the best possible return? Where do you see the biggest opportunities to further maximize those results?" I think maybe you can get started. Of course, Mariano, if you have anything to add there, please feel free.

Speaker #2: Luis, could you share more about how you're challenging the team to ensure that every dollar in growth generates the best possible return? Where do you see the biggest opportunities to further maximize those results?

Speaker #2: And I think maybe you can get started and of course, Mariano, if you have anything to add there, please feel free.

Speaker #3: Yeah, I think you. Thank you very much for the message, Max, and for the question. Yeah, well, as I said, I'm going to have those three priorities: today's business, tomorrow's business, and the development strategy.

Luis Raganato: Thank you. Thank you very much for the message, Max, and for the question. As I said, I am going to have those three priorities: today's business, tomorrow's business, and the development strategy. As I said in the opening remarks, what we are doing is reducing the whole process, starting with people, the teams, and how we look in the field for the sites and how we build the sites, and working as a team with Mariano Tannenbaum, how we measure those returns. I would say that we would like to focus on the modernization of the process and implementing new, innovative, and more sophisticated tools like artificial intelligence. So we better estimate our sales. We better manage the whole construction and measuring the process afterwards with finance when we already have the outcome of the performance. Mariano Tannenbaum, if you want to add.

Speaker #3: As I said in the opening remarks, what we are doing is revisiting the whole process. Starting with people, the teams, and how we, you know, look in the field for the sites, how we build the sites, and working as a team with Mariano on how we measure those returns.

Speaker #3: I would say that we would like to focus on the modernization of the process, and implementing you know new innovative and more sophisticated tools like you know artificial intelligence.

Speaker #3: So we better estimate our sales, we better manage the whole construction, and you know measuring the process afterwards with finance when you know we already have the outcome of the performance.

Speaker #3: I don't know, Mariano, if you want to add. What

Speaker #2: No.

Luis Raganato: What Luis Raganato just mentioned, and I also mentioned in the previous question from Julia, return on investment is one of our top priorities. We are, as a team, looking at ways always to reduce costs and make our investments more profitable, driving a better and a higher shareholder return in terms of investments. We are focused. This is one of our top priorities. Yes, that would be my add to Luis Raganato's answer.

Speaker #3: Luis just mentioned, and I also mentioned in the previous question from Julia. Return on investment is one of our top priorities, and we as a team are always looking for ways to reduce costs and make our investments more profitable, driving a better and higher shareholder return in terms of investments.

Speaker #3: So we are focused this is one of our top priorities, and yes, that's that would be my add to Luis answer.

Speaker #2: Great, thanks, Mariano. We have a question from Lorena Rice from Lucor Analytics. And actually, it's, let's call it a four-parter. I'll take the first one, which is: Why did we stop releasing detail by region?

Dan Schleiniger: Great. Thanks, Mariano. You have a question from Lorena Rice from Lucor Analytics. Actually, it is a, let's call it, a four-parter. I will take the first one, which is, why did we stop releasing detail by region? Lorena, I think if you take a look at our earnings release, what you will find is that what we eliminated was redundancies from the previous version. The information by region or by division is still in the release. Toward the end, you will find all of the sales, EBITDA, operating income, same-store sales information that has always been in the release. What we did is just eliminate that redundancy that was in the document previously. Our discussion of both sales growth as well as EBITDA performance at the consolidated level includes commentary on the divisional performance.

Speaker #2: Actually, Lorena, I think if you take a look at our earnings release, what you'll find is that what we eliminated was redundancies from the previous version.

Speaker #2: The information by region or by division is still in the release. Toward the end, you'll find all of the sales, EBITDA, operating income, same-store sales, and information that has always been in the release.

Speaker #2: What we did is just eliminate that redundancy that was in the document previously. And our discussion of both sales growth as well as EBITDA performance at the consolidated level includes commentary on the divisional performance.

Speaker #2: And I'm sure you saw in today's presentation, we further explained some of those details. So I think that the information is still there; it's just in a little bit different format.

Dan Schleiniger: As I am sure you saw in today's presentation, we further explained some of those details. I think that the information is still there. It is just in a little bit different format. The second question from Lorena has also, I think, already been answered, which is related to Julia's question around CapEx and store openings, which is, do you expect to reach the annual guidance for store openings? Mariano, you just answered that, so we are good. We have two more from her, and these are a little bit of a quick fire, and they will be for you, Mariano. The first one is, what is the amount paid for St. Martin acquisition?

Speaker #2: The second question from Lorena is also, I think, already been answered, which is related to Julia's question around CapEx and store openings, which is do you expect to reach the annual guidance for store openings?

Speaker #2: Mariano, you just answered that, so we're good. And then we have two more from her, and these are a little bit sort of quick-fire, and they'll be for you, Mariano.

Speaker #2: The first one is, what's the amount paid for St. Martin acquisition?

Speaker #3: Yes, thanks, Lorena, for the question. The cash payment for the rights to St. Martin was not a material sum. Within the context of our consolidated cash flow, this payment will be reflected within the investing activities in our statement of cash flows by the end of September 2025.

Luis Raganato: Yes. Thanks, Lorena, for the question. The cash payment for the rights to St. Martin was not a material sum within the context of our consolidated cash flow. This payment will be reflected within the investing activities in our statement of cash flows by the end of September 2025.

Speaker #2: Great. And then another question that relates, I guess, to our cash flow statement. Can you provide more detail on the acquisition of short-term investments of $106 million in the investment cash flow, if that's good for you, Mariano?

Dan Schleiniger: Great. Another question that relates, I guess, to our cash flow statement. Can you provide more detail on the acquisition of short-term investments of $106 million in the investment cash flow? That is again for you, Mariano.

Speaker #3: Yes, this is simply a time deposit executed with relationship top-tier banks, and was done in order to minimize the current cost of the new money funds raised on our latest bond issuance in January of this year.

Luis Raganato: This is simply time deposits executed with relationship top-tier banks and was done in order to minimize the current cost of the new money funds raised on our latest bond issuance in January of this year.

Speaker #2: Okay, and then we have a thank you, Mariano. We have a question for you, Luis. This one comes from Anónimo de Guzmán from Inca Investments.

Dan Schleiniger: Okay. Thank you, Mariano. We have a question for you, Luis. This one comes from Geronimo de Guzman from Inca Investments. Can you please give us an update on the competitive environment in Brazil? Are you seeing any significant changes given the softer consumer environment?

Speaker #2: Can you please give us an update on the competitive environment in Brazil? Are you seeing any significant changes given the softer consumer environment?

Speaker #3: Yeah, thank you. Herónimo for the question. What we are seeing in Brazil is that there is reducing guest traffic in the sector. We saw that in the second quarter.

Luis Raganato: Thank you, Geronimo, for the question. What we are seeing in Brazil is that there is reducing guest traffic in the sector. We saw that in Q2. For this reason, for us, it is very important to remain focused on offering a compelling value proposition with competitive pricing and delivering a great experience through all the channels. In general, in the industry, the competition continues to focus on promotional activities. We had a comprehensive plan that complements actions targeted to increase traffic and gain or shield our market share, like Makey Dodgea, with aspirational aspects like Minecraft and the Formula One menu. That is why you are seeing as a result of that, regarding to Crest, we are being able to maintain our market share and keeping the difference, the distance that we have in market share when we compare with our nearest competitor, that difference is of 2.2 times.

Speaker #3: For this reason, is that for us is very important to remain focused on offering a compelling value proposition. With competitive pricing and delivering a great experience through all the channels.

Speaker #3: In general, in the industry, the completion continue to focus on promotional activities. We have a comprehensive plan that complements actions, targeted to increase traffic and gain or shield our market share like you know Combo Dojia.

Speaker #3: With aspirational aspects, like Minecraft, and the Formula One menu. So that's why you're seeing as a result that regarding to crest, we are you know being able to maintain our market share and keeping the difference, the distance that we have in market share when we compare with our nearest competitor, that difference is of 2.2 times.

Speaker #3: So what we are trying to do is you know combine that healthy com sales near restaurant openings with a much healthier margin. And you know we are convinced that we are in a position of strength here in Brazil to face any the current situation and any situation that may arise.

Luis Raganato: What we are trying to do is combine that 30-pound sales new restaurant openings with a much healthier margin. You know we are convinced that we are in a position of strength here in Brazil to face the current situation and any situation that may arise.

Speaker #3: Dan?

Dan Schleiniger: Yeah. Thanks, Luis. We actually had a question from Max Joseph, a follow-up question. I think we have already answered it. Just to recognize you, Max, I know you asked about our perspective on pricing strategy and how we think about raising prices in line with inflation, risks keeping them below inflation to drive traffic. I think we have touched on that. We have one more question here, and it is from Alvaro Garcia from BTG Pactual. This one will be for you, Luis. He says, I am not sure if this has been asked or answered already, but I would like to ask about Francisco Stevens' new role as Chief Strategy Officer. What is the nature of his new role?

Speaker #2: Thanks, Luis. We actually had a question from Max Joseph, a follow-up question. I think we've already answered it. Just to recognize you, Max, I know that you asked about our perspective on pricing strategy and how we think about raising prices in line with inflation.

Speaker #2: We're keeping them below inflation to drive traffic. I think we've touched on that. We have one more question here, and it's from Alvaro Garcia from BTG Pactual.

Speaker #2: This one will be for you, Luis. And he says, "I'm not sure if this has been asked or answered already, but I'd like to ask about Francisco Staton's new role as Chief Strategy Officer."

Speaker #2: What is the nature of his new role?

Speaker #3: All right, thank you, Alvaro, for the question. Francis has been with us for more than 10 years now. In increasingly senior leadership positions, we believe his uniquely qualified to help develop a long-term strategy for every aspect of the business.

Luis Raganato: All right. Thank you, Alvaro, for the question. Francis has been with us for more than 10 years now, increasingly senior leadership positions. We believe he is uniquely qualified to help develop a long-term strategy for every aspect of the business. He has supported brand building and sales generation in Brazil and Mexico. He gained experience leading operations in Colombia as Managing Director, not only in Colombia, but Colombia, Curazao, Aruba, and Trinidad at the time. He gained experience as Divisional President for SLED also. I can tell you that I am already working with Francis very close in the pillar of especially tomorrow's business.

Speaker #3: He has supported brand building and sales generation in Brazil and Mexico, and he gained experience leading operations in Colombia as managing director, not only in Colombia, but Colombia, Curaçao, Aruba, and Trinidad, at the time.

Speaker #3: And he gained experience as divisional president for Slad, also. So I can tell you that I am already working with Francis very close in the pillar of especially tomorrow's business.

Speaker #3: Dan?

Speaker #2: Thanks, Luis. And thanks, everyone, for participating today. A longer than usual Q&A session, but I'm very happy to see all the engagement. This is the end of the Q&A session, and I'd like to thank you for your interest in joining the call today.

Dan Schleiniger: Thanks, Luis. Thanks, everyone, for participating today. A longer than usual Q&A session, but very happy to see all the engagement. This is the end of the Q&A session. I would like to thank you for your interest for joining the call today. We look forward to speaking with you again in the middle of November on our Q3 2025 earnings webcast. Until then, stay safe and have a great day.

Speaker #2: We look forward to speaking with you again in the middle of November on our third quarter 2025 earnings webcast. Until then, stay safe and have a great day.

Speaker 1: Goodbye.