Fast-food chain Arcos Dorados (NYSE: ARCO) fell short of the market’s revenue expectations in Q1 CY2025, with sales flat year on year at $1.08 billion. Its GAAP profit of $0.07 per share decreased from $0.14 in the same quarter last year.

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StockStory’s Take

Management attributed Arcos Dorados’ flat sales in Q1 to a combination of external and internal factors, including lower guest volumes across the quick-service restaurant industry, unfavorable calendar effects from Leap Day and Holy Week, and currency depreciation in key markets. CEO Marcelo Rabach noted that digital and loyalty channels remained resilient, with almost 60% of sales coming through digital platforms and a growing base of nearly 19 million monthly app users. While off-premise channels helped offset weaker in-restaurant traffic, CFO Mariano Tannenbaum highlighted that higher food and paper costs, especially in Brazil due to rising beef prices, weighed on margins. Management emphasized that operating performance improved later in the quarter, especially in March, and that Brazil and SLAD divisions provided some margin stability despite broader challenges.

Looking ahead, Arcos Dorados’ leadership expects an improved operating environment as the year progresses, supported by a robust marketing plan and ongoing digital initiatives. Management indicated that early Q2 sales trends, particularly in Mexico and Brazil, have strengthened as negative calendar effects subside and brand activations ramp up. CFO Mariano Tannenbaum stated, “We expect margins for 2025 will be similar to 2024, excluding the positive impact of prior-year payroll reversals in Brazil,” as the company pursues pricing actions aligned with inflation, enhanced supplier negotiations, and continued cost discipline. CEO Marcelo Rabach expressed confidence in capturing further market share and leveraging the company’s modernized restaurant base, while remaining cautious on consumer spending trends.

Key Insights from Management’s Remarks

Management identified several factors that shaped Q1 results, including digital channel growth, segment-specific consumer dynamics, and varied margin performance across regions.

• Digital channel penetration: The company’s digital sales accounted for nearly 60% of system-wide sales, with digital platforms and the loyalty program driving customer engagement and frequency. Off-premise channels, such as delivery and mobile ordering, remained resilient as consumers pulled back on in-restaurant dining.
• Brazil’s mixed performance: Brazil saw a modest constant-currency revenue increase but faced a soft consumer climate and heightened beef costs, which pressured margins. Marketing campaigns, including sponsorships and menu innovations, helped maintain brand preference and market share despite external pressures.
• NOLAD region dynamics: The NOLAD division (Mexico, Panama, Costa Rica, and others) experienced comparable sales gains in Mexico, but overall revenue was impacted by currency depreciation and weaker traffic in Panama and Costa Rica. Digital campaigns and value-focused promotions were used to maintain customer engagement.
• SLAD division recovery: SLAD (South Latin America Division) posted strong comparable sales growth, led by Argentina’s rebound from prior economic instability and robust performance in Uruguay and Venezuela. Digital sales penetration in SLAD reached 70% in some markets, underscoring the effectiveness of ongoing digitalization efforts.
• Margin pressures and cost management: Rising food and packaging costs, particularly in Brazil, drove margin contraction, although management cited some relief from payroll expense efficiencies and positive royalty fee changes in other divisions. The company is prioritizing pricing adjustments and supplier negotiations to mitigate further cost headwinds.

Drivers of Future Performance

Management’s outlook for the remainder of 2025 centers on digital engagement, disciplined pricing, and adaptation to shifting consumer spending patterns.

• Digital and loyalty expansion: Continued investment in digital platforms and the expansion of the MyMcDonald’s loyalty program are expected to drive higher customer frequency and off-premise sales. Management aims to have the loyalty program active in all major markets by year-end, further increasing digital penetration.
• Margin stabilization strategies: Management plans to offset rising input costs through pricing actions aligned with inflation, improved supplier negotiations, and operational efficiencies, including enhanced scheduling systems. The company expects EBITDA margins to be broadly stable year-on-year, adjusted for prior-year payroll credits in Brazil.
• Macro and consumer headwinds: Leadership remains cautious about consumer spending, especially in Brazil and NOLAD, due to ongoing economic volatility. Management’s strategy emphasizes protecting traffic through competitive pricing and promotions, with an eye on fixed cost leverage as sales volumes recover.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will watch closely for (1) sustained improvement in sales trends in Brazil and NOLAD as calendar effects normalize, (2) signs that margin stabilization efforts—such as pricing and supplier negotiations—are taking hold, and (3) continued momentum in digital and loyalty program adoption. The pace of restaurant openings and the ability to maintain cost discipline in a volatile macro environment will also be important indicators.

Arcos Dorados currently trades at a forward price-to-sales ratio of 0.3×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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