Arcos Dorados (NYSE:ARCO) Exceeds Q1 Expectations

Radek Strnad /
2024/05/15 7:44 am EDT

Fast-food chain Arcos Dorados (NYSE:ARCO) announced better-than-expected results in Q1 CY2024, with revenue up 9.1% year on year to $1.08 billion. It made a GAAP profit of $0.14 per share, down from its profit of $0.18 per share in the same quarter last year.

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Arcos Dorados (ARCO) Q1 CY2024 Highlights:

  • Revenue: $1.08 billion vs analyst estimates of $1.02 billion (5.6% beat)
  • Adjusted EBITDA: $108.9 million vs analyst estimates of $102.0 million (6.8% beat)
  • EPS: $0.14 vs analyst expectations of $0.17 (17.6% miss)
  • Gross Margin (GAAP): 12.2%, down from 13.4% in the same quarter last year
  • Same-Store Sales were up 38.6% year on year (beat vs. expectations of up 34.4% year on year)
  • Store Locations: 2,381 at quarter end, increasing by 69 over the last 12 months
  • Market Capitalization: $2.36 billion

Translating to “Golden Arches” in Spanish, Arcos Dorados (NYSE:ARCO) is the master franchisee of the McDonald's brand in Latin America and the Caribbean, responsible for its operations and growth in over 20 countries.

Traditional Fast Food

Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.

Sales Growth

Arcos Dorados is one of the larger restaurant chains in the industry and benefits from a strong brand, giving it customer mindshare and influence over purchasing decisions.

As you can see below, the company's annualized revenue growth rate of 8.3% over the last five years was decent as it opened new restaurants and grew sales at existing, established dining locations.

Arcos Dorados Total Revenue

This quarter, Arcos Dorados reported solid year-on-year revenue growth of 9.1%, and its $1.08 billion in revenue outperformed Wall Street's estimates by 5.6%.

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Same-Store Sales

A company's same-store sales growth shows the year-on-year change in sales for its restaurants that have been open for at least a year, give or take. This is a key performance indicator because it measures organic growth and demand.

Arcos Dorados has been one of the most successful restaurants over the last two years thanks to skyrocketing demand within its existing locations. On average, the company has posted exceptional year-on-year same-store sales growth of 35%. This performance suggests its steady rollout of new restaurants is beneficial for shareholders. When a chain has strong demand, more locations should help it reach more customers seeking its meals.

Arcos Dorados Year On Year Same Store Sales Growth

In the latest quarter, Arcos Dorados's same-store sales rose 38.6% year on year. This growth was an acceleration from the 34.2% year-on-year increase it posted 12 months ago, which is always an encouraging sign.

Key Takeaways from Arcos Dorados's Q1 Results

We were impressed by how significantly Arcos Dorados blew past analysts' revenue and adjusted EBITDA expectations this quarter. The CEO struck a positive tone, saying "We see significant growth potential in Latin America and the Caribbean, and we are accelerating restaurant openings." Overall, this was a solid quarter for Arcos Dorados. The stock is up 4.9% after reporting and currently trades at $11.76 per share.

So should you invest in Arcos Dorados right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.