Arcos Dorados (ARCO) Q4 2025 Earnings Transcript

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DATE

Thursday, March 19, 2026 at 10:00 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Luis Raganato
• Chief Financial Officer — Mariano Tannenbaum
• Head of Investor Relations — Dan Schleiniger

TAKEAWAYS

• Total Revenue -- $1.3 billion with 10.7% growth, supported by 16% higher systemwide comparable sales closely matching inflation in the company’s 21-market footprint.
• Adjusted EBITDA -- $172.7 million for the quarter, up 17.2% with an 80 basis point margin expansion, reflecting a net tax benefit in Brazil and improvement in cost management.
• Systemwide Comparable Sales -- Grew in line with blended inflation for the year, including especially strong results in Mexico, Argentina, and SLAD (South Latin America Division).
• Digital Sales Penetration -- Reached 62% of total sales; digital channel sales rose 18.7% year over year, with significant contribution from self-order kiosks, delivery, and loyalty.
• Loyalty Program Membership -- Ended the year at 27.2 million registered users, now covering more than 90% of the company’s restaurant base after full 2025 rollout.
• Restaurant Expansion -- 102 new restaurant openings raised the modernized portfolio to 73% of total locations, surpassing previous guidance without increasing capital intensity.
• Food and Paper Cost Trends -- In Brazil, food and paper costs as a percentage of revenue declined in the quarter, marking the first such improvement during the year.
• Payroll and G&A Efficiency -- Payroll expenses as a percentage of revenue in Brazil improved by 90 basis points, and G&A cost base was permanently reduced by more than $10.0 million annually after a completed headcount reduction initiative.
• Tax Benefits Impact -- A net tax benefit in Brazil contributed $106.1 million to adjusted EBITDA and $52.9 million as interest income, totaling $159.0 million P&L impact for the year; annual cash benefit projected at $30.0 million over the next five years.
• New Bank Debt & Liability Management -- The company’s Brazilian subsidiary secured $150.0 million in new bank debt (maturing 2029) at a synthetic U.S. dollar cost of 2.53%, using proceeds to repurchase $135.0 million in 2029 sustainability-linked bonds (6.8% rate), enhancing capital structure efficiency and increasing tax deductibility.
• Dividend Announcement -- Board declared a $0.28 per share cash dividend, up from $0.24, to be paid in equal quarterly installments during 2026.

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RISKS

• Management cited a challenging consumption environment in Brazil and some NOLAD countries, particularly in early 2025, with industry volumes down mid- to high-single digits impacting guest traffic and volume growth.
• Brazil experienced margin compression of about 160 basis points (excluding tax impacts), primarily related to the higher royalty rate in Brazil.
• Food and paper costs rose due mainly to significantly higher beef costs in Brazil, up roughly 30% year over year, affecting restaurant margins despite offsetting efficiency gains elsewhere.
• Fourth quarter NOLAD margins were challenged due to sales growing below blended inflation, resulting in deleverage in several fixed cost lines and some food and paper cost pressures.

SUMMARY

Management guided for 2026 capital expenditures between $275.0 million and $325.0 million, targeting 105 to 115 new restaurant openings and enhanced ROI via improved cash margins and lower per-unit costs. The effective tax rate for 2025 was 37.7%, a decline of five percentage points, with 2026 ETR expected to remain stable and no structural changes anticipated. The company’s “Make It Friday” campaign and menu innovation, including value platforms and licensed promotions, were reported as key drivers for digital engagement and protecting market share, particularly during periods of lower volume. SLAD recorded 49.5% comparable sales growth and almost two percentage points of margin expansion, with U.S. dollar EBITDA growth of 26.1%. FX appreciation in the Brazilian real and Mexican peso versus prior-year periods added incremental reported U.S. dollar revenue growth, contributing to stronger headline results.

• CFO Tannenbaum explained, in 2025, approximately 80% of the total CapEx was allocated to development CapEx and 20% to non-development CapEx that includes mainly technology.
• For 2026, management anticipates approximately 85% of CapEx will go to development, with 15% directed to technology and other initiatives, reflecting a continued focus on modernizations and digital capabilities.
• CEO Raganato described the economic value platform in Brazil as a shield to protect market share, maintaining a competitive advantage over the nearest competitor despite sector volume declines.
• The loyalty program achieved full rollout across all core markets in 2025, now available to more than 90% of the total restaurant base.
• SLAD’s margin rose from 10.8% to 12.6%, a 180 basis point improvement driven by leverage in payroll, royalties, and other operating expenses according to management.

INDUSTRY GLOSSARY

• SLAD (South Latin America Division): Segment comprising operations in Argentina, Chile, Uruguay, and other southern markets within the company’s footprint.
• NOLAD (North Latin America Division): Segment including Mexico, Puerto Rico, Panama, Costa Rica, and other key northern markets managed by Arcos Dorados Holdings Inc..
• Development CapEx: Capital expenditures related directly to opening new restaurants, expanding capacity, or materially upgrading existing locations.

Full Conference Call Transcript

Luis Raganato: Thank you, Dan, and good morning, everyone. The 2025 marked a solid finish to the year with double-digit revenue growth, expanded margins, and strong adjusted EBITDA growth despite ongoing cost and consumer pressures in certain markets. Importantly, we exited the year with improving trends, particularly in Brazil, as well as continued momentum in Mexico and SLAD. Mariano and I will take you through the highlights of the financial results for the fourth quarter and full year 2025, as well as how we see 2026 developing.

As I have mentioned in prior calls, our focus remains centered on three priorities: optimizing the performance of today’s business, maximizing returns on capital investments—especially those related to growth—and preparing the company for tomorrow’s business trends. The fourth quarter demonstrated progress across all three areas. Our teams executed with discipline on pricing, cost control, and marketing relevance while continuing to invest in high-return restaurant development and digital capabilities. Total revenue reached $1.3 billion, representing 10.7% growth. Revenue growth was supported by 16% higher systemwide comparable sales, in line with the blended inflation of the 21 markets in the Arcos Dorados Holdings Inc. footprint.

Comparable sales growth was primarily driven by average check, reflecting disciplined pricing, effective promotional execution, and the continued strength of our digital and loyalty platforms. Guest traffic trends were generally stable compared with the third quarter. Adjusted EBITDA totaled $172.7 million, up 17.2% year over year, representing an 80 basis point expansion of the adjusted EBITDA margin. This included a net taxes benefit in Brazil that Mariano will explain in more detail. For the full year, systemwide comparable sales growth was in line with the company’s blended inflation rate, with particularly strong performance in Mexico, Argentina, and several other SLAD markets.

Brazil and a couple of NOLAD markets faced a challenging consumption environment last year, but we began to see some improving trends toward the end of the year. Total revenue in 2025 grew by almost 5% in U.S. dollars. Full year adjusted EBITDA was the highest in the company’s history. Boosted by the net tax benefits we recognized, together with strong U.S. dollar growth in both SLAD and NOLAD, this tax benefit more than offset the impact of higher food and paper costs, and lower consumption in the Brazilian market. The strength of our marketing, digital, and loyalty platforms has helped differentiate us from the competition by enhancing the brand experience across all channels.

We also expanded the brand’s presence in 2025 by opening 102 restaurants and bringing the modernized percentage of the portfolio up to 73% at year end. Let us take a look at a few of the initiatives we used to generate sales growth in the quarter. Marketing activities strengthened consumer connections with the brand through a series of campaigns and initiatives. The highlight for most markets was a fully integrated menu strategy leveraging the cultural relevance of the Stranger Things Netflix series, which boosted sales, drove high levels of engagement, and meaningful brand conversations among consumers. Several markets also offered compelling value platforms, including Economic in Brazil and Mac Parmenos in Chile, both of which performed well with price-sensitive consumers.

Menu innovation in the quarter included a new chicken sandwich in Colombia and limited-time flavors within the dessert category, such as Ovomocini in Brazil. Finally, Happy Meal sales were a bright spot for several markets. During the quarter, we ran engaging campaigns for all ages, built around popular licenses such as Friends, Zootopia 2, and Business Vivints. Digital penetration reached its highest level with 62% of total sales coming from digital channels—mobile app, delivery, and self-order kiosks. Digital channel sales grew 18.7% versus the prior year quarter, with self-order kiosks, delivery, and loyalty showing particularly strong performance. Sales growth in delivery has been strong for several years, which is why the strong performance in self-order kiosks is so important.

It demonstrates the continued relevance of the on-premise restaurant experience in the Latin American QSR industry. The loyalty program had 27.2 million registered members at year end and is now available in all main markets, completing the planned 2025 rollout and covering more than 90% of all restaurants in the Arcos Dorados Holdings Inc. footprint. At the divisional level in the fourth quarter, we saw continued strength in SLAD with sequential improvements in both Brazil and NOLAD, contributing to consolidated top-line growth. In Brazil, where restaurant industry traffic was down all year, we saw modest sequential improvement in comparable sales growth.

We also maintained a significant market share advantage versus all competitors by leveraging the strength of the digital platform and popularity of the loyalty program. Almost three out of every four transactions were generated through digital channels, and about 30% of total sales came through the loyalty platform. These results were supported strongly by the annual Make It Friday campaign, which capitalizes on the popularity of the Black Friday shopping day to drive mobile app downloads and digital engagement. It is worth noting that the relative strength of the Brazilian real versus the prior year quarter also contributed to U.S. dollar revenue growth in the period.

In NOLAD, comparable sales grew 1.7% versus the prior year quarter, with strong guest traffic growth in several markets. As was the case in the first nine months of the year, Mexico was the main contributor in the fourth quarter, with comp sales growth of 5.6%, or 1.5 times the country’s inflation. Importantly, we began seeing improved trends in several other NOLAD markets and also benefited from the stronger Mexican peso and Costa Rican colón versus the prior year quarter. SLAD’s comparable sales increased by 49.5% versus the prior year quarter, or 1.2x blended inflation, driven by strong execution in Argentina. We also saw continued momentum in other markets such as Colombia and the Dutch West Indies.

Digital channel penetration reached a new high, and market share gains were particularly strong in Argentina and Chile where guests responded well to the quarter’s marketing campaigns. Over to you, Mariano.

Mariano Tannenbaum: Thanks, Luis, and good morning, everyone. Consolidated adjusted EBITDA in the fourth quarter grew by more than 17% versus the prior year quarter as reported. While both periods benefited from tax-related items, even excluding these items, adjusted EBITDA grew by almost 14% in U.S. dollars year over year with a 30 basis point margin expansion. For the first time in 2025, the fourth quarter included lower Food and Paper costs as a percentage of revenue in Brazil. This is a sign that our marketing strategies and supplier negotiations are working as they were designed. The main impact on consolidated Food and Paper costs in the quarter related to some mix shifts in NOLAD and higher beef costs in Argentina.

Payroll expenses were up as a percentage of revenue due to the comparison with last year’s quarterly result, which included the tax benefit in Brazil. Excluding this benefit, payroll expenses improved by about 60 basis points as a percentage of revenue. It is worth noting that over the last few years, certain markets have experienced elevated labor costs, but we have been implementing initiatives and technologies that have successfully offset these pressures. Currently, payroll expenses are among the lowest in our history as a percentage of sales. As you have heard on recent calls, we are very focused on capturing efficiencies at every level of the business, not just in the restaurants.

With that, we made the difficult decision to reduce our G&A expenses through a reduction in headcount. This process, which was completed during 2026, was designed to focus resources on the projects and investments we believe will generate the most shareholder value. Our adjusted EBITDA definition excludes reorganization and optimization charges, so you will see an $8.7 million add-back associated with this initiative in the EBITDA reconciliation. Finally, the fourth quarter included a net tax benefit in Brazil arising largely from the same items we recognized during the third quarter. We recorded a benefit of $20.5 million mainly as other operating income, and below the line we recorded $13.3 million of interest income.

With that, the full P&L impact of this net tax benefit was recognized in 2025. As a reminder, full year adjusted EBITDA includes $106.1 million and interest income includes $52.9 million from this benefit, for a total impact of $159.0 million in 2025. Importantly, we have already begun to apply the credit to tax liabilities in 2026. We expect to utilize the tax credit over the course of the next five years with an annual cash benefit of around $30.0 million.

In terms of full year 2025 results, we are encouraged that even though Food and Paper costs rose due mainly to significantly higher beef costs in Brazil, we were able to fully compensate the impact on restaurant margins by capturing efficiencies in payroll, and occupancy and other operating expenses. In Brazil, excluding the tax impacts from both 2024 and 2025, adjusted EBITDA grew 3% in U.S. dollars with margin compression of about 160 basis points. The margin decline was primarily related to the higher royalty rate in Brazil in 2025—remember that royalties were equalized starting in 2025, with a higher royalty rate in Brazil more than offset by a lower royalty rate in NOLAD and SLAD.

The other restaurant-level cost and expense line items in Brazil improved versus the prior year. NOLAD generated solid U.S. dollar EBITDA growth in the quarter despite some margin pressure in Food and Paper costs as well as G&A. Meanwhile, SLAD delivered another strong quarter to close out a very good year, which included 26.1% U.S. dollar EBITDA growth and almost two percentage points of margin expansion. In addition to operating efficiencies, we are implementing certain projects to improve the efficiency of our capital structure and capital allocation decisions, including the recent liability management transaction, completed during 2026. In December, our Brazilian subsidiary secured $150.0 million in new bank debt that matures in 2029.

This is why you see the increase in total financial debt as well as cash and cash equivalents at the 2025 year end, but a stable leverage ratio versus year end 2024. We entered into certain derivative instruments to hedge the interest rate and maintain the foreign currency exposure of our long-term debt. As a result of these transactions, the new bank debt has an estimated U.S. dollar cost of 2.53%. The proceeds of the new debt were used to fund a tender offer for $135.0 million of our 2029 sustainability-linked bond, which has a 6.8% interest rate. The tender was completed earlier this month.

Among the benefits of the transaction are a reduction of the average U.S. dollar cost of our long-term debt and the more efficient capital structure both at the consolidated level and in Brazil. Additionally, moving forward, this new local debt increases the deductibility of our interest expenses. In terms of capital allocation, last year, we exceeded openings guidance by adding 102 restaurants to our footprint while deploying less total capital expenditures versus the prior year. Importantly, about half the total CapEx in 2025 was used to fund restaurant openings.

For 2026, openings guidance is for 105 to 115 restaurant openings and total capital expenditures between $275.0 million and $325.0 million, with a goal of improving returns on investments through better cash margins and lower per-unit opening CapEx. Also for 2026, the Board of Directors has declared cash dividends of $0.28 per share, up from $0.24 last year, payable in equal installments on a quarterly basis this year. Although it is early, we began the year with good momentum by focusing on factors we control. We expect the underlying profitability trends of the fourth quarter to continue. Importantly, we are seeing the potential for a higher gross margin this quarter and throughout 2026.

When sales growth normalizes, we believe this focus on cost and expense discipline will generate incremental margin improvement opportunities in other lines of the P&L as well. Back to you, Luis.

Luis Raganato: Thanks, Mariano. Let me wrap up with a few final thoughts. We are encouraged by business momentum entering 2026 and confident we are positioned to deliver sustainable growth, expand profitability, and create long-term shareholder value. Our priorities remain unchanged: disciplined execution, improved returns on invested capital, and continued strengthening of the McDonald’s brand into the future. As Mariano mentioned, early results in 2026 have been relatively strong. Although current events have introduced some uncertainty, we believe in the resilience of the Arcos Dorados Holdings Inc. business model. We see a more normalized consumer environment as the year progresses, and we have a strong marketing plan to strengthen the bond with consumers across income levels.

In the short term, we are monetizing the significant market share advantage we built over the last several years. There is no other QSR operator in Latin America and the Caribbean capable of delivering the omnichannel experience guests prefer in an increasingly digitalized world, and we believe longer-term sales trends will recover and we will have even more opportunities to generate value. Thank you for joining today’s call. Dan, back to you.

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 yourself to one or two questions so that I can read, understand, and convey them to the speakers. We will now pause briefly to compile your questions. Great. Okay. We have several questions already in the queue. We will try to get to all of them if we can. Good morning again, everyone.

Froylan Mendez, JPMorgan: Can you please explain the higher taxes paid during the quarter and if we should expect this higher level going forward?

Eric, Santander: Good morning all. Thanks for taking our questions. This quarter income tax was quite elevated. Could you help us understand the moving parts behind such high levels? And how should we think about this line in 2026, especially following the capital structure optimization?

Mariano Tannenbaum: Thank you, Dan. Good morning, everybody, and thanks, Froy and Eric, for the question. Regarding the ETR, remember that we analyze the effective tax rate on a full-year basis, not on a quarter-by-quarter. For the full year 2025, it is important to note that the ETR of Arcos Dorados Holdings Inc. was 37.7%, an improvement of almost five percentage points versus 2024, and reasonably close to the regional statutory rates. This reflects the mix of earnings across countries and some discrete impacts, particularly in Brazil. Going to the fourth quarter, the rate was high compared to 2024, but this was in line with our projections.

The quarter includes some one-off adjustments—in this case, in Chile and Colombia—higher tax charges in Argentina related to FX and inflation. But it is important to note that there are no structural changes behind that number. So, again, if you go to the full year, 37.7%, five percentage points better than in 2024. Looking ahead, 2026, we expect a full-year ETR in line with what we had for the full year in 2025. Of course, again, there may be quarterly variability, particularly early in the year, but the annual profile remains stable, and we are not seeing any structural changes on our ETR.

Of course, during the year, we will continue to look for efficiencies and to look into ways to reduce that number.

Dan Schleiniger: We will stick with you before I send a couple of other questions that I think will be yours as well. Can you give more color on the drivers of margin expansion in Brazil and SLAD?

Mariano Tannenbaum: Perfect. First of all, we are very pleased with margins in Brazil, specifically with the gross margin. As we have been mentioning during 2025 in the previous calls, the impact of the increase in beef in Brazil was very high and impacted us, particularly in the first half of the year. Now in the fourth quarter of 2025, for the first time in the year, we are seeing an improvement—small, of 10 bps—but we are seeing an improvement that we expect will continue during 2026 in Brazil and in the other two divisions, and we have a favorable outlook for the rest of the year.

But it does not end here—the margin expansion or the improvements we have seen in Brazil during the quarter. Excluding the one-off related to payroll in 2024, we have seen an improvement in payroll of 90 bps, mainly due to productivity and headcount, and also an improvement in occupancy and other operating expenses, mostly driven in this case by improving delivery margin. So we are very pleased when you exclude the one-offs related to payroll in 2024 and you exclude the impact of the gross-up of royalties also in 2024. The expansion in Brazil—we are very pleased with that.

Regarding SLAD that you also asked about, Froy, payroll expenses, royalties, and other expenses—we saw leverage in all of those lines, having a better other operating income as well, and a flattish G&A in the division. But SLAD has seen an improvement of 180 bps regarding the same quarter of 2024, from 10.8% in 2024 to 12.6% in 2025. Sorry.

Froylan Mendez, JPMorgan: Given the recent depreciation of Latin currencies, does this change your outlook for top line and margins versus the time you shared guidance?

Mariano Tannenbaum: Well, if we look at the average for the two main currencies, let us go to the Brazilian real and the Mexican peso. In 2026 so far, and we are almost approaching the end of the quarter, the Brazilian real had an average of 5.2 versus 5.86 for the same period of last year, and the Mexican peso an average of 17.4 compared with an average of 20.4 in the first quarter of last year. So we are seeing an appreciation of the currency that, adding the inflation rate, the real appreciation is even higher. We are not seeing that depreciation of the currencies.

Of course, in January, at some point, the real was a bit more appreciated than what it is now, which, of course, given the worldwide events that we are experiencing, we are seeing an increase in volatility, but the FX are performing much better than everybody expected at the end of last year and even at the beginning of this year. And you know that when Latin currencies are appreciated and, on top of that, with modest levels of inflation, we are seeing real appreciation of the currencies that, at the end, have a positive impact in our results.

Eric, Santander: Secondly, how should we think about Brazil’s comp sales throughout 2026, bearing in mind all of the initiatives undertaken by the company, and the additional resources from the increase in income tax rate exemption level in Brazil?

Luis Raganato: Okay. Thank you very much, Eric, for the question. And to answer that, I have to go a few steps into 2025, where the market had a very challenging year, with industry volumes down mid- to high-single digits versus 2024, and this happened since the first quarter of the year, with the additional pressure of the increase in beef costs that somehow made us make an adjustment in our strategy. And the pressure to consumption came especially, or was related to, factors related to disposable income. And, however, given this context, throughout the fourth quarter and full year, we managed to deliver positive comp sales and better margins.

So, about the consumption, we believe that consumers, particularly lower-income consumers, are being more rational with their spending power, and even though there is not a lot of room for higher pricing, we are working through a combination of pricing and mix to increase average check, trying to offset those volume declines, protecting our margins. So what happened in the fourth quarter was that the contribution to sales came more from average check and channel shifts than volume, because, as I said, we are trying to strike a balance between sales growth and profitability. And what we are seeing today, these first months of the year, is that we are seeing similar consumption trends.

And our performance in the first quarter is about in line with our expectations, and what we expect from the second quarter and on is that consumption levels are going to normalize. Still, our focus during this quarter and the rest of the year is going to be to build healthy comparable sales. Dan, back to you.

Jonathan Schwartz, ION Group: In addition to a lower rate and no longer needing to hedge part of the U.S.-denominated debt into Brazilian reals, are there any other monetary benefits of raising debt in Brazil or in BRL, i.e., lowering pretax accounting results that lowers tax, avoidance of taxes for taking money outside the country, etcetera?

Mariano Tannenbaum: Johnny, how are you? Thanks for the question. I will walk you through the transaction, and I will try to answer your several questions here. Why did we do, in this case, this liability management exercise? We identified a market opportunity to lower the cost of our debt. You will start seeing that, of course, during the full year 2026. We structured, in this case, three bilateral loans with three different banks and coupled them with derivatives to synthetically maintain our debt in U.S. dollars. Avoiding, of course, paying the cost of carry in Brazil was key in these transactions, and we ultimately repaid our 2029 U.S. dollar denominated debt.

In this case, the resulting cost of these transactions ended in an estimated pretax cost of 2.53% on an annual basis—that is the interest rate—which compares, in this case, with the 6.18% coupon of the senior notes 2029. And, on top of that, in January, we launched the tender offer and successfully repaid $135.0 million of these notes. And this transaction, going to your second part of your question, enabled us to capture an even larger tax shield, therefore having advantages from a tax perspective as well. So I hope that with this flow your questions are answered.

Alvaro Garcia, BTG Pactual: On Brazil sales, Economy, are you seeing any interesting behavior from cohorts buying the Konamiqi, i.e., adding other items to their order or increased traffic?

Luis Raganato: Thank you, Alvaro, for the question. Good morning. As I said, the situation in Brazil regarding volumes is directly related with the slowdown that we see in the consumption. So this value platform, the economic value platform that is a national value platform, is giving us the chance to somehow shield or to protect our market share. For those who do not know about this, it offers a very attractive price point and it gives the opportunity to our guests to build their own menu, and it has a very good margin. So, so far, the platform has very good results. And, yes, we do have some add-ons. The value platform is still going on during the first quarter.

And, most importantly, what it did is that we were able with that kind of actions, even though the sector is down, we were able to maintain our market share, leading our nearest competitor by a factor of two. We were able to maintain that gap. This is going to position us very well when the operating environment improves, and we expect that to be around the second quarter and on into 2026.

Alvaro Garcia, BTG Pactual: Headcount reduction: can you give more color on the headcount reduction—both financial impact and strategically why it makes sense for the organization?

Froylan Mendez, JPMorgan: Can you quantify the impact of the headcount reduction going forward in terms of SG&A reduction, as a percent of sales or any other metric that we can use to understand the impact?

Melissa, Bank of America: Can you provide some additional information on the restructuring charge, including drivers of the decision, areas impacted, and anticipated savings?

Mariano Tannenbaum: Thank you, and thanks, everybody, for the question. In this case, maintaining strong discipline over G&A expenses continues to be one of Arcos Dorados Holdings Inc.’ top priorities and is aligned with Luis’ message when he assumed his position. We consistently pursue initiatives aimed at improving efficiency and optimizing our G&A structure, always supporting the needs of the business. In full year 2025, G&A as a percentage of revenues remained flat excluding one-off items that affected 2024. Notably, and this is relevant, during 2025 we delivered a 50 basis point improvement in G&A over revenues, also excluding those one-offs.

But, in line with our commitment to long-term shareholder value creation and enhanced cash generation, and supported by efficiency gains from technology investment, we implemented a G&A reduction over the last few months that is already completed. The objective in this case was to preserve operational excellence while better aligning resources with activities that are more critical to sustaining growth and strengthening our platform for the future. In terms of numbers, our ongoing cost base has been reduced by more than $10.0 million on an annualized basis and, in this case, positions us to generate operating leverage in 2026.

Of course, then there are other moving parts that affect the G&A, as you all know, like FX movements and share price movements, but, in this case, the core cost base is $10.0 million less in the payroll line. And this restructure has been made in the three divisions and at the corporate level.

Melissa, Bank of America: Why was CapEx for 2025 below initial guidance despite a higher number of openings? Is this FX-related? And how does investment per unit and ROI for recent openings compare with previous vintages?

Max Joseph, Investor: Can you provide more detail on 2025 CapEx outside of new restaurant openings, and how much was allocated to restaurant modernizations, technology initiatives, maintenance, and other categories?

Mariano Tannenbaum: Thanks, Melissa and Max, for the question. In 2025, we remained focused on optimizing capital spending while fully executing our planned openings and modernization program. It is important to note that we did not obtain the savings by switching to cheaper restaurant formats. We maintained—indeed, we exceeded—the guidance, and we maintained the number of freestanding openings that we planned at the beginning of the year. In the second half of the year, we accelerated initiatives to be more efficient with localized suppliers.

We did rightsizing of the restaurants—so a lot of focus on the construction phase—coupled with FX movements that had some benefits on imported elements that go inside the restaurant, specifically at the kitchen level, but all those allowed us to reduce the per-unit cost without, as I mentioned before, compromising quality or scope. This area, it is important to note, has been a main focus for the entire finance and development teams during 2025, and the objective was to maximize return on investments while maintaining the quantity of our restaurant openings.

So, as a result of all these, we were able to surpass the plan—opening 102 restaurants instead of the guidance that was 90 to 100—but with lower capital intensity, and we are very pleased with the results we obtained that contributed to increase and improve the free cash flow of the company. Dan, you were going to ask about 2026.

Melissa, Bank of America: What is the allocation of your 2026 CapEx budget across restaurant openings, reimaging, technology, and other areas?

Max Joseph, Investor: Are you planning to increase modernization rate to hit your year-end goal of Experience of the Future of 90-plus percent?

Mariano Tannenbaum: Perfect. Just as a reference, in 2025, approximately 80% of the total CapEx was allocated to development CapEx and 20% to non-development CapEx that includes mainly technology. For 2026, given that we increased a bit the guideline of openings, our expectation is—and also because we are going to finalize and modernize more restaurants—we are expecting that from the total guidance we gave you in January, approximately 85% will be allocated to development and 15% will be allocated to technology and other types of investments.

Julia Rizzo, Morgan Stanley: Are there already signs of same-store sales recovery in 2026 in Brazil and NOLAD? And when do you expect same-store sales to reach inflation levels according to the company’s algorithms?

Luis Raganato: Thank you, Julia, for the question. And, I mean, our plan is designed to deliver comparable sales growth about in line with inflation level as the year progresses. And we do have a strategic marketing plan that is very robust, not only in Brazil and NOLAD, but in SLAD also. You saw that in the fourth quarter, for example, we have in Brazil actions, like I was telling just a few minutes ago, about EconoMakie that drives volume, but we also had the Stranger Things action that brings the love for the brand. So we think that the situation in Brazil is going to last for a while. We are prepared for that.

And, as I said, our challenge is to build healthy comp sales. And, in the case of NOLAD, we had a slightly different case because even though we did have a challenging and a highly competitive environment across most markets, comparable sales grew 1.7% with positive volume. This was supported by a slight shift in product mix and competitive pricing strategies. Overall, sales growth was driven more by volume than by average check. And the highlight of the fourth quarter was Mexico and Puerto Rico. And looking ahead, we remain confident because Mexico is going to sustain the trend and we believe that Panama and Costa Rica are taking the right actions to rebalance average check and guest traffic trends.

So we expect to see that reaching that inflation or about in line with inflation for the second semester.

Julia Rizzo, Morgan Stanley: Can we explain NOLAD’s margin fall despite the royalty rate being 100 basis points better? And what should we expect for NOLAD margins in 2026?

Mariano Tannenbaum: Perfect. Thanks, Julia, for the question. Well, margins in NOLAD during the last quarter of last year were challenged due to sales growing below blended inflation, and as we always mention, when we have sales growing below inflation, then you start having deleverage in several fixed cost lines. On top of that, we have seen some Food and Paper cost pressures during the last quarter. Remember that during the full year 2025, NOLAD did not experience Food and Paper pressures in the first half of the year, but started having some pressures in the second half of the year.

The good news here is that we saw improvements in occupancy and other operating expenses, and we managed to keep payroll almost in line with prior year. Recall in 2024, the payroll line was under pressure in NOLAD due to increases in minimum wages in several markets such as Puerto Rico, Panama, Costa Rica, and Mexico. So we are pleased to see that in 2025, through productivity gains, we saw leverage in this line. We are also very pleased with Mexico’s results—that is the division’s largest market—where comp sales grew well above inflation, and we expect to generate leverage during 2026.

Going back to the Food and Paper line, and as I mentioned when I was asked about Brazil, in the case of NOLAD—and let me add, in the case of SLAD as well—we have seen very good signs during the first quarter of this year that, of course, is still ongoing, but early results are showing an improvement in Food and Paper costs in the three divisions and, in the case of NOLAD, particularly in NOLAD. So the fourth quarter was not great, we agree, but we are seeing some good news starting 2026, and we are very pleased with how we have managed the payroll line.

Remember that between payroll and Food and Paper are the two most important cost lines in our income stream in our P&L.

Thiago Bortolucci, Goldman Sachs: Related to same-store sales in Brazil. At 2% same-store sales growth, I assume traffic in Brazil is at least mid-single-digit negative. How has it evolved sequentially versus the third quarter? To which factors would you attribute this evolution? What are the drivers for an eventual inflection in 2026?

Dan Schleiniger: I think Luis addressed this earlier, Thiago. I think you sent this while he was answering a similar question, so I will try not to be repetitive.

Thiago Bortolucci, Goldman Sachs: What is your base case for beef prices in Brazil in 2026? And how have you prepared your menu board for the next twelve months in the context of the costs?

Mariano Tannenbaum: Okay. Thanks, Thiago. In Brazil, the main pressure—I will try not to be that repetitive—but the main pressure on Food and Paper this year came from beef inflation, which was up about 30% over the last twelve months. The good news is that we have seen two consecutive quarters of sequential improvement and that the trend has continued into early 2026. So we feel confident in our ability to continue recovering gross margin in this respect, and the recent appreciation of the real also helps, especially for our imported items. It is important to mention that our pricing strategy remains disciplined and aligned with inflation, with CPI, so we are avoiding aggressive actions that compromise long-term health of the business.

And, as Luis mentioned, our new affordability platform is performing very well so far.

Luis Raganato: Alright. Thank you, Thiago, for the question. Good morning. The good news about our menu board is that, under one brand, we have all the categories. We do have beef, and we have our core items, our core sandwiches. We have our value platform and we do have our premium sandwiches. So in beef, we are really well covered. Then we have the chicken category that, with the launch of the McCrispy Chicken, has reinforced and is now an engine of growth. And then we have desserts. We are focused on trying to recoup the levels that we had pre-pandemic.

Then we have beverages, for example, and coffee, that many of our main competitors around the region do not have the chance to talk about all the categories. So our menu board is very healthy. We have an opportunity not only to increase our top line but to improve our margins trying to push these other categories. So I would say that, Thiago, it is important to say that in the region 2025 was challenging, and one of the great outputs of 2025 is, for example, we managed to shield our market share around the region—we gained one percentage point versus 2024—and we maintained the gap versus our main competitors two times more.

So I already talked about Brazil that had 2.2 times last year, but we have the case of Colombia, Mexico, Costa Rica, Panama. Taking into consideration our internal research, we have more than two times in those countries in comparable footprints and more than three times in markets like Argentina, Uruguay, or Chile in comparable footprints also. So, going back to the question that you had, just to give you a little bit more color, we have seen sequential improvement that is reflected in our market share, in comparable sales, and, of course, in margins. And, as we have mentioned in other calls, our target is to bring sustainable top-line growth and to improve operational efficiency.

Our focus is in every line of our P&L. This should drive profitability. This should generate free cash flow, and, of course, create shareholder value.

Dan Schleiniger: We actually have no more questions in the queue, so we have reached the end of the Q&A session. Thank you once again for your interest in Arcos Dorados Holdings Inc. and for joining today’s webcast. We look forward to speaking with you again in May on our first quarter 2026 earnings webcast. Until then, stay safe and have a nice rest of your day.

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