MONTEVIDEO, Uruguay--(BUSINESS WIRE)--Aug 8, 2018--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 second quarter ended June 30, 2018.

Second Quarter 2018 Key Results – Excluding Venezuela

On a constant currency basis 2, consolidated revenues grew 7.0%. As reported consolidated revenues decreased 5.7% to $734.5 million versus the second quarter of 2017. Systemwide comparable sales 2 rose 5.9% year-over-year. As reported, Adjusted EBITDA 2 decreased 17.1% to $48.8 million compared with the prior-year quarter. Consolidated Adjusted EBITDA margin contracted 100 basis points year-over-year to 6.6%. As reported, General and Administrative (G&A) expenses decreased by 1.7% versus the prior year quarter. As reported, net income increased to $10.7 million, from $1.1 million in the second quarter of 2017.

“Value-driven pricing, a compelling product mix, and the best restaurant experience in the QSR industry continued to draw more customers to our stores for the seventh consecutive quarter. While a prolonged truck drivers’ strike impacted our ability to fully leverage our scale, the Company’s performance in the second quarter underscores the strength of our business, enabling us to deliver steady results even in the face of short-term spikes in volatility.

Despite the difficult economic climate in some of our key markets, our strategy to drive top-line growth delivered a 7.0% increase in consolidated revenues on a constant currency basis, and we continue to believe that we will expand our Adjusted EBITDA margin by 100 to 200 basis points over the next two to three years.

We remain focused on bringing more guests to our restaurants more often and, looking forward, our strong restaurant portfolio, popular menu items and outstanding team continue to be our strategic pillars to drive long term shareholder value," said Sergio Alonso, Chief Executive Officer of Arcos Dorados.

Second Quarter 2018 Results


(2Q18 = 2Q17 + Currency Translation Excl. Venezuela + Constant Currency Growth Excl. Venezuela + Venezuela). Refer to “Definitions” section for further detail.

Arcos Dorados’ consolidated results continue to be heavily impacted by Venezuela’s macroeconomic volatility, including the ongoing hyperinflationary environment and the country’s heavily regulated currency. As such, reported results for the quarter reflect significant non-cash accounting impacts from operations in that market. Thus, the discussion of the Company’s operating performance is focused on consolidated results, excluding Venezuela.

Consolidated – excluding Venezuela

Excluding the Company’s Venezuelan operation, as reported revenues decreased 5.7% year-over-year, primarily due to the negative impact of the 50% and 12% year-over-year average depreciations of the Argentine peso and the Brazilian real, respectively. This was partially offset by constant currency revenue growth of 7.0%. Constant currency revenue growth was supported by a 5.9% increase in systemwide comparable sales, largely driven by average check growth combined with positive traffic.

Second quarter consolidated as reported Adjusted EBITDA, excluding Venezuela, decreased 17.1% or 9.3% in constant currency terms. The Adjusted EBITDA margin contracted by 100 basis points to 6.6%, mainly driven by the step up in Royalty Fees as well as higher G&A and Occupancy and Other Operating Expenses as a percentage of revenues. These were partially offset by efficiencies in Payroll and Food and Paper (F&P). Refranchising activity was also higher during the same quarter of last year. Excluding the Royalty Fee and refranchising comparisons, the Adjusted EBITDA margin would have been nearly flat, year-over-year.

As reported, consolidated G&A decreased by 1.7% year-over-year and increased by 30 basis points as a percentage of revenues largely due to the timing of certain IT project expenses.

Main variations in other operating income (expenses), net

Included in Adjusted EBITDA: In the second quarter of 2018, the Company recorded an inventory write down of $14.7 million in Venezuela, compared to an inventory write down of $3.5 million in the second quarter of 2017. Proceeds from refranchising were less than $0.2 million in the second quarter of 2018, compared to $3.1 million in the prior year comparable quarter.

Excluded from Adjusted EBITDA: In the second quarter of 2018, the Company did not record proceeds from its re-development initiative, compared with $4.2 million recorded in the second quarter of 2017.

Non-operating Results

Non-operating results for the second quarter reflected a $3.0 million non-cash foreign currency exchange loss, versus a non-cash loss of $15.6 million in 2017. Net interest expense was $10.6 million lower year-over-year, largely explained by the incurrence, in the second quarter of last year, of certain transaction costs in connection with the debt restructuring completed in April of 2017.

The Company reported an income tax expense of $2.2 million in the quarter, compared to an income tax benefit of $6.0 million in the prior year period.

Second quarter net income attributable to the Company totaled $10.7 million ($1.1 million, including Venezuela), compared to net income of $1.1 million (net loss of $4.1 million, including Venezuela) in the same period of 2017. Last year’s higher operating income, which included $4.2 million from the Company’s re-development initiative compared with no re-development proceeds in 2018, combined with a negative variance in income tax expenses, was more than offset by positive variances in net interest expenses, derivative instruments and foreign exchange results.

The Company reported earnings per share of $0.05 ($0.01, including Venezuela) in the second quarter of 2018, compared to earnings per share of $0.01 (loss per share of $0.02, including Venezuela) in the previous corresponding period. Total weighted average shares for the second quarter of 2018 were 210,579,612, as compared to 210,881,194 in the prior year quarter.

Analysis by Division :

Brazil Division

Brazil’s as reported revenues decreased by 10.7%, impacted by the 12% year-over-year average depreciation of the Brazilian real, the truck drivers’ strike and, to a lesser extent, the FIFA World Cup. Excluding currency translation, constant currency revenues remained flat while systemwide comparable sales declined 1.0%.

Marketing activities in the quarter included the launch of the FIFA World Cup-related “Sanduíches Campeões” campaign and the Player Escort program. Also during the quarter, the Company launched the McFlurry and McShake “Ouro Branco” along with the “Triplo Chocolate Kopenhagen” in the Dessert category. The “Justice League Action” and “Jurassic World" Happy Meal also performed well.

As reported Adjusted EBITDA decreased 24.8% year-over-year and 15.9% on a constant currency basis. The Adjusted EBITDA margin contracted 200 basis points to 10.9%, with efficiencies in F&P costs offset by increases in most other expense line items as a percentage of sales. The second quarter of 2017 included $2.9 million from refranchising, compared with $0.2 million for the same period in 2018. Excluding refranchising activity from both years, the Adjusted EBITDA margin would have declined 130 basis points.


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