Arcos Dorados Reports First Quarter 2021 Financial Results
05/12/2021 - 07:30 AM
Arcos Dorados Holdings, Inc. (NYSE: ARCO) (“Arcos Dorados” or the “Company”), Latin America’s largest restaurant chain and the world’s largest independent McDonald’s franchisee, today reported unaudited results for the three months ended March 31, 2021.
First Quarter 2021 Highlights – Excluding Venezuela
Consolidated revenues totaled $559.8 million , 9.1% lower in US dollars, b ut 3.8% higher on a constant currency basis2 , versus the prior year period.
Systemwide comparable sales2 increased 2.1% versus the prior year quarter, despite ongoing operating restrictions and a difficult comparison in January and February.
Consolidated Adjusted EBITDA2 margin of 4.4% was up 30 basis points versus the prior year quarter, excluding the non-cash bad debt reserve reversal from the prior year’s result.
Basic net loss was $(0.14) per share, compared to a basic net loss of $(0.25) per share in the prior year quarter.
Net Debt to Adjusted EBITDA ratio was 7.9x at the end of the first quarter 2021, versus 7.4x at year-end 2020.
More than 98% of the Company’s restaurants were operating at least one sales segment as of the date of this release, with approximately 67% operating all sales segments.
“Our first quarter 2021 results demonstrate the strength of our Three D’s strategy, the competitive advantage of our free-standing restaurant portfolio and the benefits of our wide footprint in Latin America. This was the first time since the fourth quarter of 2019 that we generated a positive systemwide comparable sales result, despite facing government-imposed operating restrictions throughout the quarter and a challenging comparison with the first two months of last year. Growth in Drive-thru, Delivery and Digital sales showed no signs of slowing down and our free-standing restaurants surpassed first quarter 2019 sales levels in constant currency,” said Marcelo Rabach, Chief Executive Officer of Arcos Dorados.
“Revenue and profitability results were strong, with positive adjusted EBITDA again in all four divisions and positive operating cash flow at the consolidated level. SLAD and Caribbean, which include several markets operating in hard or relatively stable currencies, drove the consolidated EBITDA and cash flow results. Together with all the learnings we gained in 2020, this helped to offset a slower rebound in NOLAD and mitigate the impact of a temporary tightening of operating restrictions in Brazil, beginning in March. Notably, in Brazil, we gained more than four percentage points of market share3 , by far the largest expansion in the industry and reaching our highest level in the last five years.”
“In the early days of May, comparable sales in the Brazilian market are responding strongly to a loosening of government-imposed operating restrictions and are already back to 90% of 2019 levels. This is very encouraging especially since we are still subject to restrictions on restaurant capacity and operating hours that have significantly reduced or eliminated our ability to operate during many day parts, especially evenings and late night. Having said that, we remain optimistic that progress in vaccination programs and other measures to control the spread of the virus will allow most markets to enter a Full Revival phase sometime in the second half of 2021. In the meantime, we are proud to operate the best Brand in the restaurant industry and will continue to maximize the opportunity, irrespective of market conditions,” he concluded.
1 Excluding results of the Venezuelan operation.
2 For definitions please refer to page 14 of this document.
3 Source: CREST, a syndicated customer study conducted by the research agency The NPD Group.
First Quarter 2021 Results
Consolidated
Figure 1. AD Holdings Inc Consolidated: Key Financial Results (In millions of U.S. dollars, except as noted)
1Q20 (a)
Currency Translation - Excl. Venezuela (b)
Constant Currency Growth - Excl. Venezuela (c)
Venezuela (d)
1Q21 (a+b+c+d)
% As Reported
Total Restaurants (Units)
2,298
2,242
Sales by Company-operated Restaurants
587.5
(75.4)
26.1
(0.3)
537.9
-8.4%
Revenues from franchised restaurants
30.0
(4.2)
(2.6)
(0.0)
23.2
-22.5%
Total Revenues
617.5
(79.6)
23.5
(0.3)
561.1
-9.1%
Adjusted EBITDA
28.5
(2.4)
(2.8)
0.7
23.9
-16.1%
Adjusted EBITDA Margin
4.6%
4.3%
-0.3%
Net income (loss) attributable to AD
(52.3)
(0.8)
23.1
0.3
(29.7)
-43.2%
No. of shares outstanding (thousands)
204,070
207,266
EPS (US$/Share)
(0.26)
(0.14)
(1Q21 = 1Q20 + Currency Translation Excl. Venezuela + Constant Currency Growth Excl. Venezuela + Venezuela). Refer to “Definitions” section for further detail.
Arcos Dorados’ consolidated results may continue to be impacted by Venezuela’s macroeconomic volatility, including the ongoing hyperinflationary environment, which has historically led the Company to record significant non-cash accounting charges to operations in this market. As such, the discussion of the Company’s operating performance continues to be focused on consolidated results that exclude Venezuela.
Main variations in Other Operating Income / (Expenses), net
Included in Adjusted EBITDA : There were no material variations.
Excluded from Adjusted EBITDA : There were no material variations.
First quarter net loss attributable to the Company totaled $29.7 million , compared to net loss of $52.3 million in the same period of 2020. Arcos Dorados’ recorded a loss of $(0.14) per share in the first quarter of 2021 compared to a loss of $(0.26) per share in the corresponding 2020 period. Total weighted average shares for the first quarter of 2021 amounted to 207,265,773 compared to 204,070,029 in the prior year’s quarter.
Consolidated – excluding Venezuela
Figure 2. AD Holdings Inc Consolidated - Excluding Venezuela: Key Financial Results (In millions of U.S. dollars, except as noted)
1Q20 (a)
Currency Translation (b)
Constant Currency Growth (c)
1Q21 (a+b+c)
% US Dollars
% Constant Currency
Total Restaurants (Units)
2,178
2,136
Sales by Company-operated Restaurants
586.1
(75.4)
26.1
536.8
-8.4%
4.5%
Revenues from franchised restaurants
29.8
(4.2)
(2.6)
23.1
-22.6%
-8.6%
Total Revenues
615.9
(79.6)
23.5
559.8
-9.1%
3.8%
Systemwide Comparable Sales
2.1%
Adjusted EBITDA
30.0
(2.4)
(2.8)
24.7
-17.6%
-9.4%
Adjusted EBITDA Margin
4.9%
4.4%
-0.5%
Net income (loss) attributable to AD
(50.3)
(0.8)
23.1
(28.0)
-44.3%
-45.9%
No. of shares outstanding (thousands)
204,070
207,266
EPS (US$/Share)
(0.25)
(0.14)
Excluding Arcos Dorados’ Venezuelan operation, total revenues in US dollars decreased 9.1% year-over-year, due to the significant average depreciation of key local currencies, primarily the Brazilian real and the Argentine peso. Constant currency revenues grew 3.8% in the quarter, boosted by strong results in SLAD and the Caribbean to overcome a tough comparison with the pre-pandemic months of January and February 2020 as well as ongoing government-imposed operating restrictions throughout the quarter.
During the first quarter of 2021, the peak number of temporary restaurant closures remained below 10% of the total footprint compared with 50% in the prior year. As of the date of this press release, more than 98% of the Company’s restaurants are operating at least one sales segment and approximately 67% are operating all sales segments.
Systemwide comparable sales for the first quarter increased 2.1% , with strong performances in SLAD and the Caribbean (excluding Venezuela). NOLAD continued its steady, sequential improvement versus the prior quarter but remained negative. Brazil generated a small sequential improvement but was negative due to the difficult comparison with the first two months of the prior year and a significant tightening of ongoing operating restrictions, especially in March. The Drive-thru and Delivery sales segments grew 55% and 208% in constant currency versus the prior year quarter, respectively, through a higher average check and efficient product mix management.
The Company’s unmatched and expanding footprint of free-standing restaurants continued to support topline growth in the quarter.
First quarter consolidated Adjusted EBITDA, excluding Venezuela, reached $24.7 million , with positive contributions from all four divisions. Consolidated Adjusted EBITDA margin was down 50 basis points, but up 30 basis points when adjusted for Puerto Rico’s $4.7 million non-cash bad debt reserve reversal included in the prior year result. The margin expansion was mainly driven by efficiencies in Payroll expenses and lower Royalty fees, due to the resumption of growth support from McDonald’s Corporation. This was partially offset mainly by higher Occupancy and other operating expenses, which included spending 5% of sales on advertising and promotion after last year’s temporary reduction to 4% . Significantly higher margins in the Caribbean and SLAD divisions compensated for margin contractions in Brazil and NOLAD.
Consolidated G&A expenses decreased 7.4% year-over-year in US dollars, and increased 7.4% in constant currency terms, which was below the weighted G&A inflation.
Non-operating Results
Arcos Dorados’ non-operating results for the first quarter, excluding Venezuela, included a $9.6 million non-cash foreign currency exchange loss, compared to a non-cash loss of $32.5 million in the same period of 2020. Net interest expense was $2.1 million lower year-over-year. Excluding Venezuela, the Company estimated income tax benefit of $0.1 million in the first quarter, compared to income tax expense of $1.9 million in the prior-year period.
First quarter net loss attributable to the Company, excluding Venezuela, totaled $28.0 million , compared to net loss of $50.3 million in the prior year period. Loss per share was $(0.14) in the first quarter 2021, excluding Venezuela, compared to loss per share of $(0.25) in the prior year quarter.
Analysis by Division :
Brazil Division
Figure 3. Brazil Division: Key Financial Results (In millions of U.S. dollars, except as noted)
1Q20 (a)
Currency Translation (b)
Constant Currency Growth (c)
1Q21 (a+b+c)
% As Reported
% Constant Currency
Total Restaurants (Units)
1,025
1,030
Total Revenues
284.4
(48.8)
(32.3)
203.3
-28.5%
-11.4%
Systemwide Comparable Sales
-10.0%
Adjusted EBITDA
29.2
(3.8)
(11.9)
13.5
-53.6%
-40.8%
Adjusted EBITDA Margin
10.3%
6.7%
-3.6%
As reported revenues decreased 28.5% , mainly due to the 19% year-over-year average depreciation of the Brazilian real against the US dollar. Revenues declined 11.4% on a constant currency basis, including a 10% decrease in systemwide comparable sales. Revenue faced a tough comparison with the pre-pandemic months of January and February 2020 as well as continued government-imposed operating restrictions throughout the quarter. Revenue was also negatively impacted in March due to a further tightening of operating restrictions to combat a significant increase in virus infections, hospitalizations and deaths.
The Division again benefitted from its unmatched and difficult-to-replicate footprint of street-facing restaurants, which represent almost 55% of its restaurants and generated growth of more than 10% in systemwide sales on a constant currency basis.
Due to the tightened operating restrictions in March 2021, the Division had to temporarily close as much as 18% of its restaurant base, compared with 41% in March 2020. As of the date of this press release, 99% of Brazil’s restaurants is operating at least one sales segment and 55% is operating all sales segments.
Marketing activities in the first quarter focused on the Company’s core products and the unique emotional bond between guests and the McDonald’s brand. During the quarter, the Company launched the “Méquizices” campaign, which celebrates popular McDonald’s meals as well as guests’ individual rituals when enjoying their favorite McDonald’s menu items. The Company also created sales momentum by sponsoring Big Brother Brasil (“BBB”), the biggest TV show in the country, reaching audiences equivalent to a daily Super Bowl. Activations focused on promoting the Three D’s, including a “McDonald’s Pijama Party” in the BBB program, which reached record levels in Delivery sales and generated six simultaneous positions in social network trending topics.
The Company’s Mobile App has the highest user ratings in the restaurant industry and reached record levels of downloads in the quarter, helping to drive Digital sales penetration.
As reported Adjusted EBITDA in the division reached $13.5 million in the quarter, down 53.6% or 40.8% on a constant currency basis, compared with the prior year period. Adjusted EBITDA margin contracted 360 basis points versus the prior year quarter as the decline in sales outpaced the reduction in costs and expenses.
NOLAD
Figure 4. NOLAD Division: Key Financial Results (In millions of U.S. dollars, except as noted)
1Q20 (a)
Currency Translation (b)
Constant Currency Growth (c)
1Q21 (a+b+c)
% As Reported
% Constant Currency
Total Restaurants (Units)
531
507
Total Revenues
96.1
(2.9)
(3.4)
89.8
-6.5%
-3.6%
Systemwide Comparable Sales
-3.9%
Adjusted EBITDA
5.1
(0.1)
(1.8)
3.2
-37.4%
-35.2%
Adjusted EBITDA Margin
5.3%
3.6%
-1.7%
As reported revenues decreased 6.5% , or 3.6% on a constant currency basis. Systemwide comparable sales decreased 3.9% , largely due to a tough comparison with the pre-pandemic performance in January and February of last year, but continuing its sequential improvement versus the prior quarter despite ongoing operating restrictions.
Both, at the end of the first quarter and as of the date of this release, substantially all of the division’s restaurants were operating all sales segments.
Marketing activities for the first quarter included the celebration of the 50th anniversary of the McDonald’s brand’s arrival in Costa Rica. Also in the quarter, the Company fueled sales in Mexico by bringing back the McRib sandwich, an iconic product that received strong consumer response. The limited time offer sold out in just three weeks. The Company continued to accelerate Drive-thru sales through the Mobility Campaign, customer experience and loyalty efforts such as the Drive-thru VIP Club. Finally, Delivery continued to be a key sales driver supported by co-branded campaigns and special bundles with the delivery aggregators.
As reported Adjusted EBITDA reached $3.2 million in the first quarter. The result represents a year-over-year decline of 37.4% , or 35.2% in constant currency terms, due to the decline in revenue and a 170 basis point contraction in the Adjusted EBITDA margin.
SLAD
Figure 5. SLAD Division: Key Financial Results (In millions of U.S. dollars, except as noted)
1Q20 (a)
Currency Translation (b)
Constant Currency Growth (c)
1Q21 (a+b+c)
% As Reported
% Constant Currency
Total Restaurants (Units)
406
391
Total Revenues
147.9
(30.2)
33.1
150.8
1.9%
22.4%
Systemwide Comparable Sales
26.0%
Adjusted EBITDA
1.4
(2.0)
9.4
8.9
526.2%
667.4%
Adjusted EBITDA Margin
1.0%
5.9%
4.9%
As reported revenues increased 1.9% , despite the 30% year-over-year average depreciation of the Argentine peso against the US dollar. The strong recovery in the division led to a constant currency revenue increase of 22.4% . Systemwide comparable sales increased 26.0% , above the division’s blended inflation despite a tough comparison with its pre-pandemic performance in January and February of last year.
The SLAD division was operating at least one sales segment in 98% of its restaurants at the end of the quarter, with 72% operating all sales segments. Due to tighter government-imposed operating restrictions, especially in Argentina and Chile, as of the date of this press release 95% of the division’s restaurants are operating at least one sales segment and 46% are operating all sales segments.
Marketing activities for the first quarter included the expansion of the Drive-thru mobility campaign "Movete Como Quieras" to all SLAD markets. This campaign is designed to continue driving sales in this strategic segment by encouraging guests to take any form of transportation through the Drive-thru. The Company also expanded its successful “McCombo APP del Día” value platform to Chile, boosting its digital sales and generating new users of the Mobile App. In Ecuador, the Company focused on driving sales in its chicken portfolio with the “McNuggetear” campaign, which generated a 51% growth in Chicken McNuggets sales, in that market.
As reported Adjusted EBITDA totaled $8.9 million , compared to $1.4 million in the prior year. The growth was driven by a continued recovery in the Chilean business, combined with solid results in Argentina. Adjusted EBITDA margin rose 490 basis points, boosted by the strong recovery in sales that helped drive cost and expense leverage.
Caribbean Division
Figure 6. Caribbean Division: Key Financial Results (In millions of U.S. dollars, except as noted)
1Q20 (a)
Currency Translation - Excl. Venezuela (b)
Constant Currency Growth - Excl. Venezuela (c)
Venezuela (d)
1Q21 (a+b+c+d)
% As Reported
Total Restaurants (Units)
336
314
Total Revenues
89.2
2.2
26.2
(0.3)
117.3
31.5%
Adjusted EBITDA
5.1
0.4
5.2
0.7
11.4
124.0%
Adjusted EBITDA Margin
5.7%
9.7%
4.0%
The Caribbean division’s results may continue to be impacted by Venezuela’s macroeconomic volatility, including the ongoing hyperinflationary environment, which has historically led the Company to record significant non-cash accounting charges to operations in this market. As such, the discussion of the Caribbean division’s operating performance focuses on results that exclude the Company’s operations in this country.
Caribbean Division – excluding Venezuela
Figure 7. Caribbean Division - Excluding Venezuela: Key Financial Results (In millions of U.S. dollars, except as noted)
1Q20 (a)
Currency Translation (b)
Constant Currency Growth (c)
1Q21 (a+b+c)
% US Dollars
% Constant Currency
Total Restaurants (Units)
216
208
Total Revenues
87.6
2.2
26.2
116.0
32.5%
29.9%
Systemwide Comparable Sales
25.0%
Adjusted EBITDA
6.6
0.4
5.2
12.2
85.6%
78.4%
Adjusted EBITDA Margin
7.5%
10.5%
3.0%
Revenues in the Caribbean division, excluding Venezuela, increased 32.5% in US dollars, or 29.9% in constant currency terms. Systemwide comparable sales increased 25.0% , driven by strong performances in Puerto Rico and the French West Indies. Total revenue growth also reflects 100% company-operated restaurants in Puerto Rico in the first quarter of 2021, versus 87% in the prior year quarter, which accounted for 610 basis points of the US dollar revenue growth.
Free-standing restaurants, which represent 72% of the division’s footprint, continued to be the key sales driver, with nearly 30% comparable sales growth.
At the end of the quarter, 99% of the division’s restaurants were operating at least one sales segment, with 83% operating all sales segments. As of the date of this release, the number of restaurants operating at least one sales segment as well as the number operating all sales segments is substantially unchanged from the end of the first quarter of 2021.
Marketing activities in the first quarter in Puerto Rico included the launch of chicken-focused menu items such as the new line of Crispy Chicken Sandwiches. These new sandwiches represent the beginning of a multi-year journey into the chicken segment. Two months after the launch, the Company continues exceeding sales projections, due to high guest response. Also during the quarter, the Company continued strengthening the Drive-thru segment by improving service times, reducing menu complexity and leveraging exclusive communication campaigns and loyalty programs, such as “Pasa como quieras” and “Rueda y Gana” in Colombia.
As reported Adjusted EBITDA reached $12.2 million , growing 85.6% year-over-year, or 78.4% in constant currency terms, despite the fact that last year’s Adjusted EBITDA included a $4.7 million non-cash bad debt reserve reversal in Puerto Rico. Adjusted EBITDA margin rose to 10.5% , up 300 basis points versus the prior year quarter, and up 840 basis points excluding the non-cash reserve reversal from the prior year result.
New Unit Development
Figure 8. Total Restaurants (eop)*
March 2021
December 2020
September 2020
June 2020
March 2020
Brazil
1,030
1,020
1,023
1,024
1,025
NOLAD
507
507
513
530
531
SLAD
391
391
397
402
406
Caribbean
314
318
324
335
336
TOTAL
2,242
2,236
2,257
2,291
2,298
* Considers Company-operated and franchised restaurants at period-end
Figure 9. Current Footprint
Store Type*
Total Restaurants
Ownership
McCafes
Dessert Centers
FS & IS
MS & FC
Company Operated
Franchised
Brazil
562
468
1,030
616
414
75
2,009
NOLAD
314
193
507
353
154
13
576
SLAD
229
162
391
Arcos Dorados Holdings Inc
ARCO Rankings
#887 Ranked by Stock Gains
ARCO Stock Data
Industry
Food Service Contractors
Sector
Accommodation and Food Services
Tags
Consumer Services, Restaurants, Accommodation and Food Services, Food Service Contractors
Country
Uruguay
City
Wtc Free Zone
About ARCO
Arcos Dorados Holdings Inc. is a company that owns the master franchise of the fast food restaurant chain McDonald’s in 20 countries within Latin America and the Caribbean. As of December 31, 2010, it represented 6.7% of McDonald's franchised restaurants globally.