Fast-food chain Arcos Dorados (NYSE:ARCO) missed Wall Street’s revenue expectations in Q4 CY2024, with sales falling 2.7% year on year to $1.14 billion. Its GAAP profit of $0.28 per share was 27.1% above analysts’ consensus estimates.
Is now the time to buy Arcos Dorados? Find out by accessing our full research report, it’s free.
Arcos Dorados (ARCO) Q4 CY2024 Highlights:
- Revenue: $1.14 billion vs analyst estimates of $1.18 billion (2.7% year-on-year decline, 2.7% miss)
- EPS (GAAP): $0.28 vs analyst estimates of $0.22 (27.1% beat)
- Adjusted EBITDA: $132.6 million vs analyst estimates of $137 million (11.6% margin, 3.2% miss)
- Operating Margin: 9%, up from 7% in the same quarter last year
- Locations: 2,428 at quarter end, up from 2,361 in the same quarter last year
- Same-Store Sales rose 21.5% year on year (29.2% in the same quarter last year)
- Market Capitalization: $1.64 billion
Company Overview
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
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.
With $4.47 billion in revenue over the past 12 months, Arcos Dorados is one of the larger restaurant chains in the industry and benefits from a well-known brand that influences consumer purchasing decisions.
As you can see below, Arcos Dorados’s sales grew at a decent 8.6% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new restaurants and increased sales at existing, established dining locations.
This quarter, Arcos Dorados missed Wall Street’s estimates and reported a rather uninspiring 2.7% year-on-year revenue decline, generating $1.14 billion of revenue.
Looking ahead, sell-side analysts expect revenue to grow 3.9% over the next 12 months, a deceleration versus the last five years. This projection is underwhelming and suggests its menu offerings will face some demand challenges.
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Restaurant Performance
Number of Restaurants
The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.
Arcos Dorados sported 2,428 locations in the latest quarter. Over the last two years, it has opened new restaurants quickly, averaging 2.4% annual growth. This was faster than the broader restaurant sector.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
Same-Store Sales
A company's restaurant base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales gives us insight into this topic because it measures organic growth at restaurants open for at least a year.
Arcos Dorados has been one of the most successful restaurant chains over the last two years thanks to skyrocketing demand within its existing dining locations. On average, the company has posted exceptional year-on-year same-store sales growth of 32.1%. This performance suggests its rollout of new restaurants is beneficial for shareholders. We like this backdrop because it gives Arcos Dorados multiple ways to win: revenue growth can come from new restaurants or increased foot traffic and higher sales per customer at existing locations.
In the latest quarter, Arcos Dorados’s same-store sales rose 21.5% year on year. This growth was a deceleration from its historical levels, showing the business is still performing well but losing a bit of steam.
Key Takeaways from Arcos Dorados’s Q4 Results
We enjoyed seeing Arcos Dorados beat analysts’ same-store sales expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its revenue missed. Overall, this was a mixed quarter. The stock traded up 4.4% to $8.11 immediately after reporting.
So should you invest in Arcos Dorados right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
