Q3 2025 Arcos Dorados Holdings Inc Earnings Call
Hello. And thank you for joining Arcos. Third quarter 2025 earnings webcast with us today are loose, our chief executive officer and my anatomy are Chief Financial Officer.
Today's webcast, which is being recorded, will consist of prepared remarks from our leadership team.
Which will be accompanied by a slide presentation. That is also available in the investor section of our website irco dorado.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 statement section of our earnings release and recent filings with the SEC.
We assume no obligation to update a revise, any forward-looking statements to reflect new, or change 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 reduce the reconciliation of these non-gaap Financial results as compared with gap results, which can be found in today's earnings, press release and conference call presentation, as well as the UN audited financial statements filed today with the SEC on form. 6K.
I'll now turn the call over to our CEO. Who is talking about.
Thank you, Dan, good morning, everyone. And thank you for joining us.
Today, we will take you through our third quarter 2025 results, which included balance us out of Revenue growth with solid profitability.
We successfully navigated challenging consumer dynamics in a couple of our largest markets as well as for assistance in input cost pressure, especially in Brazil.
As I mentioned in August, we are focused on exceeding guests expectations in today's business, while modernizing and improving our growth processes to support higher Returns on investment. And to ensure out of Dorados maintains its leadership position went into the future.
In the near term, operating conditions remain challenging, but we believe we are well positioned to resume more normalized topline and EBITDA growth across the business when the consumer and macroeconomic environments improve.
Let's move now to the key highlights of consolidated results for the third quarter.
Total revenue reached 1.2 billion dollars a new high for a single quarter with balance US dollar growth across the 3 divisions.
Systemwide comparable sales Rose, 12.7% in line with Blended inflation for the period.
typically Argentina and selected Nolan markets such as Mexico and the French within this
Our jet growth dropped the result, more than upsetting a long single digit decline in gas traffic versus the prior year.
Marketing and digital have been an important differentiator for the McDonald's brand, throughout the Archos footprint.
This has allowed us to protect or expand market, share, almost without exception. In the markets where we operate, which should help us sustain strong performance, over the long run.
We generated more than 200 million dollars in adjusted between the third quarter.
This result included the net impact of a federal tax credit in Brazil.
Excluding the impact on the quarter's results and the recovery of social contributions from the prior-year period, U.S. dollar adjusted a bit down, declining by about 3%, mainly due to continued food and paper cost pressure.
We opened 22 restaurants with more than half of the quarters Capital expenditures invested in new restaurant growth.
With all remaining restaurants and the construction, we are on track to deliver this year's 90 to 100 openings guidance.
Let's take a look at a few of the initiatives. We used to generate sales growth in the quarter.
Digital channel sales, Rose more than 11% versus the prior year and generate 61% of existing wide sales in the quarter with continued strength in delivery and self-order kiosks.
We are encouraged by the positive impact of the sales order kiosk. Since it demonstrates the relevance of the on premise restaurant experience and the value gets see in our Omni Channel offerings, convenient, restaurant, locations, and industry-leading service. The only we can offer
Digital sales growth was strongest in residents life where Argentina capitalized on a motorized restaurant base and it takes Savvy consumer to drive growth.
The Loyalty program is now available in 7 countries and we expect it to be offered in about 90% of all restaurants, by the end of 2025,
The program had 23.6 million members at the end of the third quarter growing by nearly 50% versus the end of 2024.
As the program grows in membership and active users, we expected to help support more sustainable, Topline growth in the long term.
Marketing in the quarter focused on brand strength across all platforms.
We deepened the emotional connection with the brand and created memorable experiences for families with the Hello Kitty and Tiny licenses.
Value platform offered good value for money to guests and remain the Strategic priority, giving the operating environment.
Several markets, Leverage, The Misty chicken platform to introduce new sandwiches and bundles in these key growth categories.
The desert category also support the guest traffic with locally relevant material flavors and the popular. Hello Kitty license.
Finally, we Leverage The Exclusive Regional sponsorship agreement with Formula 1 to drive sales and strength and brand, love in several markets.
Over to you, Maya.
Thank you.
And good morning, everyone.
Brussels total revenue grew 4.9% in the third quarter, including a sequential Improvement income sales performance.
we believe this is an early indication that the worst is over in Brazil in terms of sales growth,
Especially since guest volumes were down slightly less than during the second quarter.
Importantly, according to third-party measurements, we maintained significant market share leadership in Brazil through the first 9 months of 2025 despite the challenging environment for the entire restaurant industry.
This is a testament to the dynamic approach. We have taken in Brazil with competitive pricing, designed to balance sales growth and profitability.
Of systemwide sales.
With notable strength in the delivery and self order kiosk.
Additionally.
30% of Brazil's systemwide sales involved. May make a loyalty program members.
No less total revenue, Rose 6.1% in US dollars.
With strength in Mexico, Costa Rica and the French West Indies.
In fact.
Mexico's, con sales Rose 6.3% for 1.8 times, the country's inflation rate.
And 2 to 4 times higher than the main competitors' brands.
In Nolan, Costa Rica, Puerto Rico, are seeing excellent guests engagement with the Loyalty program, which is also being piloted in Mexico.
we expect the program to have Drive higher, digital sales, penetration and guests frequency in 2026,
Flat US dollar Revenue grows 4.9% supported by comparable sales at 1.3 times the division Splendid inflation in the period.
Argentina. Safe, Scrolls remains strong in the quarter and the division's sales also benefited from good performance in markets, like, Colombia and Uruguay.
Digital sales penetration in flat was 61.5% during the third quarter, supported by a strong performance from the Loyalty program, which was available in Argentina, Colombia, Ecuador, and Uruguay.
Third quarter, profitability, remained solid despite below installation comparable, sales growth, in Brazil and Noland.
And as we mentioned, the quarters result, included, the net impact of a federal tax credit in Brazil.
Let me take you through the details.
We generated more than 200 million dollars in adjusted debt, which included the net benefit of 85.6 million related to a federal tax credit in Brazil.
The credit which also includes 39.6 billion in interest arose from the treatment of certain government related. Tax incentives for the period 2016 to 2023.
We expect the 125.2 million net credit to have a positive cash impact since we plan to use it to offset federal tax obligations beginning in 2026.
We expect to recover the taxes over the next five years.
As a reminder.
Last year's result included a $5.6 million recovery related to Social Security contributions in Brazil.
Excluding these impacts from both periods results adjusted if that decline by about 3% in US Dollars due to modest margin pressure.
The main margin had within the third quarter was elevated food and paper costs.
The domestic price of beef in Brazil Rose significantly. At the end of 2024,
But we were able to leverage our supplier relationship and significant purchase volume to delay, the impact of the price increase until the first quarter of this year.
By generating operational efficiencies during the third quarter.
We were able to partially offset the food and paper cost pressures with greater labor productivity, as well as leverage in occupancy and other operating expenses.
This translating into stable margin performance sequentially in the third quarter and we expect to capture additional efficiencies moving forward.
Knowledge margin included, improved, payroll and lower royalties more than offset by margin pressure from food and paper occupancy and other operating expenses in GNA.
Flat has been the bright spot all year. Generating strong quarterly, adjusted Visa growth in US Dollars, and merging expansion in each of the first 3 quarters of 2025.
Adjusting the Visa grew more than 30% versus the prior year supported by a 2.2%, such Point margin expansion.
Rate more than offset food and paper cost pressure.
Our balance sheet is strong. And as I mentioned in the coming years, our cash flows are expected to benefit from the gradual utilization of the federal tax credit in Brazil.
At the end of the third quarter,
the net debt to adjust, it will be the ratio was a comfortable 1.2 times.
We believe this, together with the extra flexibility provided by the new indicated revolving credit facility.
Gives us plenty of room to support our medium-term growth plans.
Through the first 3 quarters of 2025, we opened 54 restaurants, including 34, in Brazil, with more than half the periods capex invested in openings.
By the end of the year, there should be more than 2,500 restaurants in the articles that others footprints.
We are revising every element of our development processes with a focus on identifying and implementing initiatives. Be assigned to improve operational, efficiency and generate more consistent Returns on investment.
From each of these assets.
Performance has been strongly shared in Argentina and Mexico sled. No less largest markets.
And we believe this is sustainable going into next year.
As we mentioned, we believe we are well positioned to return to healthier sales growth in Brazil moving forward.
With our 3 largest markets aligned operational, profitability and cash flow. Generation should also improve
We know this is the best way to create shareholder value, and we have the entire team.
Working toward that goal.
But to you, Luis?
Thanks, Mauro. Let me wrap up with a few final thoughts.
As you have heard before 1 of the pillars of the recipe for the future platform is Youth Opportunity.
Part of providing first time, formal job opportunities to young people is making sure they have a positive experience in that first job.
This is why it is so satisfying to be recognized by great place to work as 1 of the top employers or to see corporate reputation continued to climb the rankings in several other markets where we operate.
All 6 pillars of the recipe for the future platform are good for business and good for the social environmental and economic impacts. We make throughout Latin America and the Caribbean.
Since beginning my tenure as CEO 4 and a half months ago, I have worked to refocus the team and the company on 3D priorities.
Optimizing the performance of today's business.
Maximizing the return on investment from Capital expenditures and ensuring the companies preparing itself for the long term.
With that mindset, we're pushing to have a solid finish to the year while positioning ourselves for a stronger performance next year.
We are excited about our marketing plans for the remaining 7 weeks of 2025. And we believe next year's plan is among the strongest ever.
Once spoiler I can give you is that next year's marketing calendar includes McDonald's sponsorship of the FIFA World Cup which is the most popular and impactful sporting event in all the markets where we operate,
No doubly next year's World Cup will include alcohols 3 largest markets.
Argentina, the defending champion.
Brazil, the winningest team in the tournament's history and Mexico 1 of the 3 host Nations.
Last week we reviewed the plans for 2026 with the team.
And each of the country level managing directors, divisional, presidents and corporate leaders is targeting sustainable Topline growth and improved operational efficiency to drive profitability generate free cash flow and create shareholder value.
Thank you for joining today's call.
Then back to you.
Thanks Lewis. We will now begin the Q&A session.
You can submit your questions using the Q&A function on the bottom of the screen.
All your questions.
Okay, great. Um, we have a few questions to get through here in the queue already and we'll start with Alexandro Charles from Samu.
And he says, good morning, just a question on the tax benefit and ibida. If I adjust out the tax credit from ibida, then it was down year-over-year, was that related to food and paper costs? And could you give some color on that? Thank you and I'll start with you my down on that 1.
Okay, thank you. Good morning everyone. And thanks. Alexandra for your question. Uh, you're right. Uh, basically, if we remove the 1 off, we can see that we have margin contraction, many related to food and paper and mainly related to the increase in beef costs in Brazil of, uh, 35%, uh, over over over the year and in a much, lesser extent, uh, in in, uh, increases in net. There is also some, uh, DNA increased many related to timing and appreciation of the Argentine peso and the Brazilian Royale.
uh, this, uh,
this, uh, forces were partially offset by a very relevant, uh, increase or, uh, uh, better payroll, uh, of 60, uh, leaps year on year. And we can see this, uh, increase in payroll or this better payroll in mainly the, in in the 3 divisions, in Brazilian known as and slabs were very, very pleased with those efficiencies. And also, there are games in occupancy and other operating expenses of 20 beeps and royalties on, uh, 10 Pips approximately.
Great. Thank you. Um, we now have 3 questions from Eric. Hang from Santan there. Um, I'll...
Give this next 1 to you, Louise.
And Eric asks, in Brazil, how was the company's market share evolved in the previous quarter and how is competition? Been moving given its a still challenging macro backdrop in the country.
You further goes on to ask does management for some potential additional initiatives to boost revenues or is the balance between market share protection and and or gain versus profitability protection at comfortable levels again over to you l
All right. Uh, thank you Eric for the question. Good morning everyone. Uh, first, let me give you a little bit of context, uh, traffic in Brazil are the main, uh, and remains challenging especially due to factors related to disposable income. Consumer confidence is still down and uh, out of consumption is negatively impacted. Uh, we believe in general consumers, uh, particularly lower income, consumers are being more rational with their spending power. And this, uh,
Has had a, a, you know, uh, we we we we we've seen an impact in in reduced uh case traffic in the sector in in general. So, for this reason, it was very important to remain focused on offering a compelling value proposition. We don't pay the pricing and try to deliver a great experience. Through all the channels, our customers today are only challenge so we have to deliver the the good, excellent operation in all of them. And what we have seen regarding the, the our competitors is that the industry in general, continue to focus on promotional activities. They they have been more uh transactional uh trying to just uh Drive traffic. We
On a more comprehensive plan that complements actions targeted to increase traffic and shield our market share, we also have options that aim to build the love for the brand. For example, we have just launched, by the end of the third quarter and the beginning of this fourth quarter, economically in Brazil, a national value platform where customers can get a poor item menu for $2.9. You have eyes on about $4.2.
The question that was asking about our market share, uh, our visit share remains strong.
We are record highs and maintaining a positive Gap versus our other main competitors. We are comfortable with, uh, that position. Uh, the main goal in Brazil is to recoup uh, margins. So our main focus is going to be uh, on that. And um, we think that we are in a position of strength, you know, you know to to capture the rebound of the uh of the economy when when it starts to to you know, to to come back.
Thank you. Thank you. Um,
the second question from Eric that will take care is given the potential for dividend Taxation and Brazil starting in 2026. Does the company see any potential impacts on its operations when it comes to the repatriation of results from the Brazilian entity to the parent company or the holding uh company? And so I'll give that 1 over to you madam.
Perfect. Thanks. Uh, Eric, for the question. Well, first of all, this...
This taxation has not been approved yet.
Uh, but we can mention that, uh, we deal with similar rules.
All over. Uh, the countries we we operate, we have a very efficient cash management structure. And on top of that, we have very relevant uh, expansion plan in uh, Brazil. But uh, if the the law is approved, we will comment on that uh, later.
Thank you.
Great. Thanks Mariano. Um, now I'm actually going to take Eric's third question and combine it with the question that we see we received from furland Mendes of JP Morgan.
so first from Eric, um, entering 2026, if this office and consumer conditions in both Brazil and to some extent Mexico persists,
How does management think about expansion? Would it be an opportunity to perhaps scale down openings and accelerate the renovations, especially in Mexico for example um
so,
on some level that's associated with
What's going into 2026? The question is on the side of renovations. Freud asked a similar question with a different, uh, punchline. Also, what are your initial thoughts on pricing versus affordability in 2026? Are you considering a strategy to gain market share here in 2025 to recover pricing in 2026? So maybe what we should do is...
focus on what we're seeing for 26 and then we can talk about the expansion side. Um, after that,
Over to you, loose.
Okay. Uh, I mentioned my focus uh, or our Focus uh for the pricing in 2026 is that we're going to be, uh, we're going to remain close to uh our customers having a compelling uh, value proposition. Uh, trying to Shield our market share and we're going to be laser focused trying to capture any opportunity that that we have to, uh, improve our margins. Uh, the, the objective, uh, for, for next year is to expand the ebit, the margin versus this year.
And regarding the, the growth uh plan, right? Yeah. Uh, yeah, let me first tell you that. Uh, our growth plan is aligned with our long-term Vision that is to unlock. Uh,
McDonald's full potential in, in, in the region.
It already incorporates market opportunities and funding strategies to support this expansion.
But let me tell you that, we're going, we're going to be flexible. If conditions change, we are going to be flexible to adjust the bass and the focus of Investments, not just in Brazil and Mexico in the whole region. As we have done in the past, we're going to prioritize, prioritize the most, profitable markets, and restaurants formats. Um, in fact, as I said, uh, in our calling in August, we're in the process of revisiting every element of our development process.
Uh, in the first quarter of, of next year, as we have done historically.
I think I covered the the sports. Yeah, thanks Luis. Um, next question for you, Mariano staying with Fran Mendes from JP Morgan uh, should we expect lower input cost pressure and result already in the fourth quarter, given the recent beef trends,
perfect. Thank you for again, for the for the question. Let me elaborate a bit on the, on the gross margin of the paper cost in in received that were mainly impacted, by this inflation. Uh, which Remains the primary pressure point, uh, in the last 12 months, they have increased more than 35% as I already mentioned.
uh, however, we believe that the second quarter was the lowest point of the year and we're confident that we will continue to recover, gross margin going forward,
In addition, let me point out, uh, that the current appreciation of the Brazilian reality is also positive for our imported products. So we also can see an improvement related to the appreciation of uh, of the currency. And of course, all the tools that we uh actively use in order to mitigate impacts like the ones we saw in in beef, through pricing mix Supply and negotiations our scale operational efficiencies and so forth.
On top of that, what we can say is that overall and the early very early uh numbers that we are seeing for the last quarter, we are seeing some signs of improvement in this costs in in, in Q4. And for sure, we are not expecting uh, additional pressures as we have seen in the last, uh, 12 months.
Thanks Mariano. Um, now we have a a few questions from alvo Garcia from btg part 12.
um, I will start with
Uh, a bigger picture question. He has on Brazil, he says you're clearly not losing market share so I wanted to get your take on consumer weakness. What are your thoughts on the impact of sports betting or glp-1 drugs uh might be having on your sales and I'll give that 1 to you Louis.
Okay. Yes. Uh, as I said, we were seeing uh, you know, a a an impact in in the consumption. In as I said, it's related to disposable income
And mainly in lower income, uh, consumers. Uh, the best for sure are having a, a big impact in in, you know, to purchase your power of uh in general in, but mainly in lower income uh you know, so economic uh levels and the glp1. Uh today regarding that uh, we're not seeing yet an impact in
Consumed in consumption due to this kind of treatment in the region. And we really do not believe that it will have a material impact in the future.
Okay. Thanks Louise.
Um, the next question from Alvaro and this 1 will be for you Mariano.
Double checking on 125 million tax credit in Brazil. Can you share how those savings might be phased over the next 5 years and is 125 million. The fair number of gross savings to use going forward on federal tax benefits in Brazil.
Perfect. Thanks. Alo. Uh,
Yes, uh 125 is the third number and the credit will be gradually compensated with federal taxes over the next 5 years. We are currently building our compensation strategy of course, in full compliance with the law, but we can assume it will be evenly distributed in the next, uh, 5 years.
Great. Thanks. Uh Mariano and Albert has another question and this 1. I I'll give it to you, Louis.
um,
Completely accepted by by our customers and that are gaining share uh order after quarter the growth will be and is being gradual but it will be consistent. Uh we're you know, giving uh but but it's you know, if it's going to be uh, relevant for us in in the in the near future we do have room for Innovations. For example, we have every year windows that uh we bring Innovation with, for example, spicy chicken. Uh that is a flavor that is very, very well accepted in in the region or for example in this order in Brazil, we we lost the chicken bacon ranch and, uh, that is going to be important for us, not only in the Top Line, uh, as as you're seeing and and saying, in the question is going to be important for us? In the, in the bottom line, important to say that we still have a huge opportunity to keep on growing with the category like make
That is, uh, an asset for us. Um, and that, you know, within the, the chicken category, uh, is, is is strength uh, for, for our business. So for sure this is going to be a strategic pillar, uh, in the coming years.
Okay. Um,
Liz. I'm sorry to do this to you, but we actually have 3 more questions. All right? I'm going to going to give you, um, and it could be a combination of questions.
Uh first from Jaguar to Luchia Goldman Sachs. Uh, Thiago asks could you please expand on your same store? Sale foot, traffic performance, in Brazil, Mexico and Argentina and Brazil. How did traffic share evolve aligned with that? We have from Alejandra Fuchs ali. Uh, first question is for Luis, same for sales or Brazil, because you provide some thoughts on competitive environment today and how have other markets and Nola performed, especially against Mexico. So I think it's another same store sales, question related to that. And I know that it was man from Inca Investments asked if we can comment on a recent sales, Trends are you seeing a recovery so far on the fourth quarter? So maybe a little bit of of the third quarter performance in terms of the same store sales with the 3 biggest markets and then a little bit of recent Trends as well. Perfect. Dan bear with me. I'm going to start with uh Brazil because I already uh said a few things. Uh, as you even though we did see a challenging situation in
In the market, uh, because we know for for a fact that the qsl market is down in visits. We managed to deliver positive con sales
And, uh, even though, uh, there isn't a lot of room for higher pricing. We're working through a combination of pricing and mix to increase our check because we need to offset that volume. Uh, decline that, uh, you know, is related to, to the market. And, uh, we need to offset the the pressure that we have in in margins. So, the contribution to sales in the market came more from average. Check than volume, we are seeing that. That is, uh, improving in the beginning, uh, regarding traffic, uh, in the beginning of this quarter, uh, and we're doing that because we're trying to reach a balance between sales growth and, uh, profitability and to give you a little bit more, more color, uh, about you know, what, what is happening in in the different channels. Uh, the strongest channel was delivery in Brazil, uh, that kept on growing in sales supported by positive guest traffic from counter.
Remains roughly flat.
For us, it's very good because it is proof of how aspirational our brand and the on-premise experience continues to be uh, important and um, very relevant to the business sense. Uh, you know, channel are recovering as a result of better operational, execution, right pricing and relevant Innovation. Uh, for example, we have the Hello, Kitty under the Hello, Kitty platform.
Platform and license in the Happy Meal. We did have some Innovation with sauna and Maris. So um in detail we still have room to to grow and improve and the goal is to achieve pre-pandemic volume. So, um, regarding the um, knowledge and and make I said, in Brazil. We think that we are in a position of strength and ready to capture. And rebounding, the economic activity regarding uh Mexico,
Or internally there have there have been you know, some conversations about proposed reforms. If any of this happens we don't see that it's going to maturely impact our business. But despite the uncertainty that I was talking about, uh, the food service sector shows resilience. And from our business perspective, we were able to deliver 6.3% growth in comparable sales.
This was driven by growth in guest traffic that uh we know that outperformed this sector uh regarding the channels, the business centers were the main growth engine on the other channels. Had a solid performance that is very good for us.
And uh what is happening in Mexico. And then the the Improvement in performance that we're having is that uh
You know, besides the launches and and the Innovations, uh, we are adding an operations Improvement that is being going on for the last years and everything is uh is been working on under the the umbrella of of a brand campaign that is called Mexico. Well, this is bringing a very strong Improvement in brand attributes and market share games according to internal research. We know that the market share Gap. Versus our main competitor is almost 3 times more in comparable Footprints, and we are consolidating our leadership position, uh, in the industry.
And now I will go to, uh, Argentina.
Argentina was the main driver of the division results.
Um, the the flat division results, the context remained during the third quarter challenging due to the macroeconomic instability. Um,
This instability had a negative impact on the levels of of uncertainty and it had a negative impact on private consumption. Uh what was notable in the portal is that despite the low evaluation that we had uh, during the the quarter inflation remains stable and almost 2% per month. And this indicates that we do have limited pass through to Consumer prices. But despite of this, the good news is that our business remains solid and continue to show strong performance. The local team has done a terrific job, uh, they were able to capitalize on last year's Investments to try to maintain themselves close to to their customers, the market share gained. We were able to maintain the market share this year, but the market share that we gained last year, also helped, uh, to, you know, helped us drive strong results, we were able to maintain the gap of more than 3 times. The market share of our main, uh,
Competitor and uh, in Argentina, even though the market will remain disciplined on pricing, they will also be focused on capturing every opportunity to improve, uh, margins. And I think I, although of the question, then was about the the trends in this quarter, right? Yeah. And actually, um, I'll add 1 more because chago's second question is associated with that as well. He says, what are your general expectations for the fourth quarter performance, in Brazil and what gives you confidence? Uh, if what are your expectations for for order and what gives you confidence and sequentially better Trends? So okay um okay.
All right, uh, first, I mean we're going to be finishing this year, uh, even though we've had a challenging, you know, macroeconomic, uh, and social situation across the region in a position of strength, uh, shielding and protecting our leadership position with excellent. Uh, brand scores. And uh, as you know, going into this fourth quarter, historically the second half of the fourth quarter is the strongest. Uh, it's the strongest part of the year. We are excited about the marketing plans that, uh, we have for the remaining weeks. Uh, we think that, uh, these actions will help us push for a solid and of the year, the whole team is working uh on that specifically in Brazil uh sales performance stabilized between the second and the third quarter. And we believe we can
Improve on those results, in the fourth quarter, you know that uh no electronics to see a challenging environment. Uh, we, we were seeing this in several markets like um, for example, in Panama Panama faced, a challenging comparison, uh, this year with, with strong sales growth, during the first half of the year,
Immediate situation in Costa Rica that has also been dealing with the weaker consumer environment and reduced industry volumes. And, uh, what we see, uh, in in, in know that is that Mexico, uh,
Has been very resilient, it's going to have a good end of the year and we believe, uh, we're taking the right steps in the rest of the markets to resume, uh, more normalized, uh, growth and regarding flat, uh, Flats results have been strong on the year. And we believe, uh, it will end the year with another strong quarter. And, uh, I think with that, then I covered everything. Hey, thank you very much. Well, as I said it's it's a, a long, uh, uh, set of questions here. Maybe you want to glass water but just 1 more for you before we switch back to Mariano. Okay. Um, and this 1 is also from Chicago uh from Goldman Sachs where he asks how has McDonald's a value Gap, evolved versus food away from home and versus other Burger. Qsrs in Brazil, where is it today? And where do you want it to be, um, and head on over to Gooseman from Inca Investments? Asked a similar question. How much pricing have you taken in Brazil? As a result of input input cost pressures? What's been the
Traffic and how are you thinking about pricing, going forward to protect margins versus uh traffic? I you know again I think this is a the pricing question um between the 2 of them.
Okay, so I I already talked about, uh, the the main objective that we have we have in, in in Brazil. Uh, again, we're going to, uh, try to be close to our customers. We already, uh, launched. Uh, National very convenient value platform, uh, called economic, uh, in that context. We're going to Shield our market share but we aim to uh, improve uh, our margin. So in this Con, in this context, we increase prices about inflation, uh, this year.
um,
We did it with the goal to, to mitigate the most impression that we had in, in Brazil and, uh, having said that we maintain promotions and affordable prices to, to try to, to remain affordable. Uh, according to internal research, uh, in the brand attribute value for money. We have reached a a, you know, a record high this year and um,
So far, we have been able to maintain our market share, as I said, to maintain the gap versus our main competitor. And again, we believe that we are in a position of strength and ready to capture the rebound of the economy.
Great. Thanks Luis. Um,
Back to you Mariano, question from Alexander, folks.
Uh, now with more cash flow generation expected and the flexibility of the new MFA in terms of capex. How do you feel about the possibility of buybacks as a priority for capital allocation?
Okay, thank you, Alejandro. Um, in 2025, our board declared a $0.24 per share dividend.
Uh, which was declared in March of this year.
and,
We have been paying dividends in the last uh in the last few years.
But having said that the board of directors will always consider options such as buyback.
based on what they believe is best for the company and its shareholders considering our Capital allocation priorities available cash of course,
As expected, cash generation is on the table.
And uh the board will decide if this is the right uh path to go uh given that we will have more cash generation for sure next, uh, year.
Great. Thanks Mariano, um,
Actually had another question from mon from Inca, which I think Lewis is already answered. Uh, just regarding all I can you comment on is what's helping maintain strong comp sales in Mexico? On the flip side was driving lower sales. Trying to the other markets I think which is already covered that. Um, so I'm going to move now to Bob Ford who has sent us um, 4 questions, and back to you Mariano Bob's. First question, can you explain the source of the tax credit in Brazil and the rate at which you expect to monetize it over the next 5 years?
Okay, how are you both? Thank you very much for the question. Uh, well, we cannot go into all of the specifics but the case is based on the treatment of EMS subsidies within the federal tax calculations,
as I already mentioned in terms of monetizing it over the next 5 years,
Uh, we don't know yet for sure. But our best estimate is that this credit will be evenly, uh, monetized uh, in the next, uh, 5 years. That's the best we can uh our best estimation uh, right now.
Great. Thanks, man.
Um the next 1 is a 2-part and the first part will be for Louise um and then I'm going to come back to you money on this 1.
Uh, can you provide an update on your promotional strategy in Mexico, please?
And then uh and sources of margin pressure and all that given, Mexico strength, that 1, I'll move over to you, man.
All right. Uh, thank you both. Uh, hello. How are you? Um,
as I said in general, but specifically Mexico, we are going to be prudent about pricing. We want to be close to our customers but taking care of margins. So in Mexico, we have like, uh, 3 engines of of traffic growth. The first 1 is, uh, desserts that we're taking care of, uh, with right pricing and, uh, with uh, the the right, uh, operational, uh, execution.
Then, uh, having Innovations like, for example, uh, Hello Kitty, or the greimas shake that, uh, I don't know if you know that, but it's a very historic and very famous, uh, McDonald's character, uh, that launched, uh, surpassed our expectations in in the markets of desserts is 1 of those engines. Then we do have the value platform, the value platform. Uh is divided in 2. We have 1 that it begins pricing with at 99 pesos and another 1 that is called uh trespass.
That is being very, you know, uh, it's it's very being very, uh, effective and, uh, with good margins and, uh, being what we're trying to take care of the promotional activities before because some, at some point, uh, we needed to be, uh, more prudent taking, uh, inconsiderate in consideration margins. And then another, uh, engine of traffic are the the happy new licenses. Like I said, uh, August. Hello Kitty was very important and tiny tiny in September, those 2 months were the strongest for Mexico, uh, in the quarter with that Mariano. I I pass it to you so you can talk about margins.
Perfect. Uh, and the question is, uh, sources of marketing pressure in, in all that they were mainly in, uh, food and Vapor costs.
So even though Mexico is growing well above inflation, uh, in terms of uh, full and paper, we have seen some pressures during this uh, third quarter. Uh and that also applies to, I don't know that uh markets and also there was a timing effect on GNA that we expect to normalize in the coming. Uh, quarters
Right. Um, actually, speaking with you, Mariano, and you were Bob. The third question is, what is your outlook for key input costs in Brazil and other markets? And where do you see additional operating efficiencies? I think you've covered the input cost situation in Brazil. Uh, maybe you want to touch a little bit on other markets and then talk about where we see some additional efficiencies.
Perfect. Uh, yes. Well, I already mentioned as as as you said, uh, what's going on in, in Brazil, in other markets. Uh, what we are seeing is that we are, we are very pleased with efficiencies that we are, uh, observing in, in in payroll, in the 3 divisions, 60 beeps. If you recall, uh, both last year, we have seen
Uh, important minimum salary increases in many of our markets, such as Panama, Puerto Rico, Costa Rica, Mexico, and some other flat countries. Payroll was a source of pressure during 2024. What we are seeing in 2025 is that with the implementation of the scheduling system and efficiencies that we have implemented, we have seen a recovery and even much better payroll than what we had last year. So, we are very pleased with those results. Uh, then, in occupancy, another... we have been, um,
Associated with our 3POS, we are making delivery also more efficient.
So we are seeing as sources of uh, operational um, gains.
The payroll line and the other and occupancy, uh, line as well. And as I mentioned in a previous question, not from you. But, uh, from I think harun, what we are seeing in uh um, in in the fourth quarter, is that the pressures that we have seen in gross margin uh are mainly, you know, they they are they are much less now than what we have seen uh in the in the in the last 12 months. So with a better Outlook in gross margin, I think we will be able to leverage on the games and margins will improve as long as safe continue to improve as also Luis uh mentioned
Great. Thanks Mauro. Um, final question from Bob. Ford is, how do you expect the World Cup to impact traffic and other Global McDonald's marketing campaigns and or Regional efforts that you can comment on and I'll give that 1 to you, Louis? All right. Uh, thank you again Bob, uh, when you can expect, uh, it's a positive impact, uh, from the FIFA World Cup, uh, event,
Uh, it's very popular and very important for the whole region from Mexico, uh, to Argentina, you know? Brazil, uh, and, and all the geographies. So, um, what you can expect is an, A positive impact in brand in attributes, like favorite Brands and brand awareness and you can expect, uh, a positive impact in traffic. What happened and what is different today? Uh, is that, uh, comparing with, uh, the World Cup in 2022, is that we today, the the delivery channel is, uh, is trained for us. Uh, so during the the games, we're going to be able to be uh, at at at home with our customers when they uh, will be enjoying the games. And uh, we're going to have for sure, uh, marketing campaigns throughout the whole, you know, uh, period and and more uh,
That for sure. We're going to, uh, surprise you with all right. Uh, that's all that I can tell you. But yes, the the impact is going to be positive.
Great thanks Lisa. And I think we have time for for 1 more. Um, this 1 is from your own from Obama and he asked at what point do you believe operating leverage after a long? Stretch of very strong, Top Line will convincingly lead to a higher level of margins, especially taking into account further improvements in the digitalization and other efforts. Um, and maybe you both want to take this, but I'll start with you. Um, again, perfect. Thanks, uh, General, uh,
Well, as our strategy is, has been to grow sales ads or above inflation. And we have done this,
Consistently. Although in some quarters like the third quarter of this year has been tough in Brazil and in Nola given external factors as economic conditions and consumer situation. We think that by doing that we will be able to leverage on all the operational efficiencies that uh we have been working on. Uh as for example I just mentioned in Peril and other uh in or other occupancy uh expenses.
So uh, as we are seeing, for example, pressures, in gross margin, we have been working a lot in the company, in every single cost line to bring efficiencies to the business. We are doing that and I think our, you know, for for 2026 we are, uh, pretty comfortable that this strategy will yield. Uh, you know, at the end of the day, better margins better cash flow focusing in also in efficiencies in our investments, the company will have an improved uh frequent flow. And with that, we will be able to return to shareholders and invest in the business for all the opportunities that uh we have
We have just uh, implemented it. And we finished the implementation, uh, by the end of last year, uh, a new scheduling system, with the whole company that is bringing already efficiencies. And you can see that in our payroll line that it's helping us to mitigate, for example, the the cost pressure that we have in in food and paper and uh just to to to to finish the the sport of the question and and the Q&A, uh I want to, you know, just uh make sure that uh
Do you understand that our Focus, my focus, the team's focus is to, uh, try to, uh, uh, you know, deliver sustainable Topline growth and improved operational efficiency to your point because the main focus for the whole team is to drive profitability. We're working on, uh, the Returns on investments working in every line of the, uh, pnl. Because the, the main goal is to generate free cash flow, uh, to create shareholder value.
So with that then I got you thanks Lewis and and that actually was the last question that we have here in the queue. Um so that brings us to the end of the Q&A session.
Thank you. Once again for your interest in Arcos. And for joining today's webcast, we look forward to speaking with you. Again, in the middle of March on our fourth quarter 20125, earnings webcast until then stay safe and have a great holiday season everyone.