Arcos Dorados Earnings Call: Growth Amid Cost Pressures

Arcos Dorados ((ARCO)) has held its Q4 earnings call. Read on for the main highlights of the call.

Arcos Dorados closed 2025 on a confident note, pairing double-digit revenue and adjusted EBITDA growth with record full-year profitability and rapid digital adoption. Management acknowledged pockets of pressure, particularly in Brazil and NOLAD, but stressed that cost discipline, capital structure moves and store expansion are setting up a healthier trajectory into 2026.

Revenue Growth and Comparable Sales Momentum

Arcos Dorados posted Q4 2025 revenue of $1.3 billion, up 10.7% year over year, underscoring resilient demand despite macro headwinds in key markets. Systemwide comparable sales rose 16% in the quarter, broadly matching blended inflation across 21 countries and driven by higher average checks, pricing discipline, effective promotions and the growing contribution from digital and loyalty channels.

Strong Adjusted EBITDA and Record Full-Year Performance

Adjusted EBITDA reached $172.7 million in Q4, up 17.2% versus a year earlier and delivering an 80 basis point margin expansion, or roughly 30 bps excluding tax-related items. For 2025 overall, revenue grew nearly 5% in dollars and adjusted EBITDA reached the highest level in the company’s history, aided by sizeable tax-related benefits that management cautioned are non-recurring.

Digital and Loyalty Drive Sales Mix

Digital penetration hit a record 62% of total sales in Q4, while digital channel sales grew 18.7% compared with the prior-year quarter, highlighting the shift toward app-based and self-service ordering. The loyalty program now boasts 27.2 million registered members, is active in all main markets and covers more than 90% of restaurants, offering a powerful tool for personalization and traffic stimulation.

Restaurant Expansion and Modernization Strategy

The company opened 102 restaurants in 2025, surpassing its own guidance and underscoring confidence in long-term demand for the McDonald’s brand in Latin America and the Caribbean. By year-end, 73% of the estate was modernized, with around half of annual capital expenditures directed to new openings, supporting a more efficient, digitally enabled “Experience of the Future” footprint.

Regional Outperformance in SLAD and Mexico

The SLAD division, led by Argentina, delivered standout results with Q4 comparable sales soaring 49.5% and full-year EBITDA in dollars rising 26.1%, coupled with about 200 basis points of margin expansion. Mexico also performed well, posting Q4 comparable sales growth of 5.6%, roughly 1.5 times local inflation, and acting as a key pillar of NOLAD’s overall performance in an otherwise mixed regional picture.

Capital Structure Optimization Lowers Funding Costs

Arcos Dorados’ Brazilian subsidiary secured $150 million of local bank debt at an estimated 2.53% dollar cost and used the proceeds to tender $135 million of 2029 sustainability-linked notes carrying a 6.8% coupon. This refinancing reduced the average cost of long-term dollar debt and improved the company’s interest deductibility, supporting future net income and cash generation.

Cost Discipline and G&A Restructuring

Management completed a headcount and G&A streamlining initiative that will generate more than $10 million in ongoing annualized savings, though it carried a one-time restructuring charge of $8.7 million added back in EBITDA reconciliation. Payroll expenses are now among the lowest in the company’s history as a percentage of sales, with roughly 60 basis points of improvement excluding Brazil’s tax benefit, bolstering operating leverage.

Growing Returns to Shareholders

Reflecting confidence in cash flow and balance sheet strength, the board approved a cash dividend of $0.28 per share for 2026, up from $0.24 in the prior year. The higher payout signals a willingness to share gains from EBITDA growth, digital scale and liability management with investors, even as the company continues to fund aggressive development and technology investments.

Brazil’s Weak Traffic and Margin Headwinds

Brazil remained a soft spot in 2025, with industry traffic declining all year and volumes down mid- to high-single digits amid a challenging consumption environment, which constrained top-line momentum. Excluding tax effects, Brazil’s full-year adjusted EBITDA rose only about 3% in dollars while margins compressed by roughly 160 basis points, pressured by a higher royalty rate and rising input costs.

Food and Paper Cost Inflation Squeezes Margins

Beef inflation in Brazil was a major drag, with prices climbing around 30% over 12 months and feeding directly into higher Food and Paper expenses at the restaurant level. NOLAD also faced elevated Food and Paper costs in the second half, contributing to margin pressure as sales growth lagged inflation and cost deleverage intensified across the region.

Tax Benefits and One-Offs Cloud Comparability

Reported 2025 results were boosted materially by tax-related benefits in Brazil, including other operating income and interest that together added $159 million to the full-year income statement, with $33.8 million recognized in Q4 alone. Management emphasized that these discrete items are not indicative of recurring profitability, urging investors to focus on underlying trends in revenue, margins and cash flow.

Tax Volatility and NOLAD Margin Pressure

Q4 tax expense was elevated due to one-off adjustments in Chile and Colombia and higher tax charges in Argentina linked to currency and inflation dynamics, even though the full-year effective rate improved to 37.7%. NOLAD’s margins deteriorated in the quarter as sales lagged blended inflation, leading to deleverage in fixed costs and added pressure from Food and Paper and G&A, only partly offset by a 100 basis point tailwind from royalty changes.

Currency and FX Volatility Risks

The recent appreciation of the Brazilian real and some local currencies has flattered early 2026 reported dollar results, providing a short-term lift to revenue and earnings translated into U.S. dollars. However, management flagged rising foreign-exchange volatility across its markets, warning that future swings in the real and other currencies could introduce further variability into reported numbers despite stable underlying operations.

Forward-Looking Guidance and Strategic Priorities

For 2026, Arcos Dorados plans to open 105 to 115 restaurants and deploy $275 million to $325 million of capital spending, with about 85% dedicated to development and 15% to technology, advancing its push toward a more than 90% modernized estate. Management expects to utilize Brazil’s 2025 tax credit over five years, maintain an effective tax rate similar to 2025’s 37.7%, and deliver higher gross and adjusted EBITDA margins supported by cost savings, cheaper funding and sustained digital and loyalty momentum.

Arcos Dorados’ latest earnings call painted a story of solid operational execution, digital-led growth and proactive balance sheet management, offset by localized cost and tax volatility. For investors, the key takeaways are resilient cash generation, a growing dividend and a clear commitment to expansion and modernization, even as Brazil’s traffic, input inflation and FX swings remain important risks to monitor.