Arcos Dorados (ARCO) Q2 FY26 earnings call: the analyst Q&A

Earnings call· Jun 2026 (Q2 FY26)· Consumer Discretionary· Aug 13, 2026

Source: earnings call transcript

Executive summary

Arcos Dorados Q2 FY26 — Record Revenue and Profitability Driven by Brazil Rebound and Digital Growth

Arcos Dorados delivered record second-quarter revenue and profitability, showcasing the resilience of its business model amidst challenging consumer dynamics. Strong performance in Brazil, driven by proactive strategies and digital engagement, offset some pressures in other markets. The company continues to focus on leveraging its market share advantage and digital platform for future growth, with an emphasis on operational execution and disciplined capital deployment.

Highlights

Total revenue reached a record $1.3 billion, up more than 14% year-over-year.
Adjusted EBITDA increased over 20% year-over-year, with a 70 basis point margin expansion (excluding prior year transaction).
Net income and EPS doubled versus last year, reaching record levels for the second quarter.
Digital sales grew by more than 25% year-over-year, now representing approximately 66% of total sales.
Market share gained about 0.5 point versus Q2 last year, remaining more than 2x main competitors.

Concerns

NOLAD's margin pressure, excluding a prior year transaction, was 110 basis points due to reduced operating leverage.
Consumer spending remained under pressure across most markets, particularly in Mexico and Argentina.
SLAD sales were slightly below inflation, despite positive traffic, due to conservative pricing in Argentina.

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Brazil Strong comp sales, new restaurants, and an appreciated currency drove U.S. dollar sales. Margin improvement was due to disciplined cost management, especially in food and paper, and G&A efficiencies. EBITDA margin expansion: 180 bpsEBITDA growth: 43%	—	up more than 25%	—	14.6%
NOLAD Experienced a demanding comparison base and intense competitive environment. Margin pressure mainly due to reduced operating leverage, despite better food and paper costs. Maintained positive comparable traffic and competitive position. Margin pressure (excl. transaction): 110 bps	—	—	—	—
SLAD Adjusted EBITDA grew in line with revenue. G&A improvements were offset by slightly higher food and paper costs and occupancy expenses, leaving margins essentially unchanged. Weighted average inflation was 46-47%, with sales slightly below inflation. EBITDA growth: 6.6%	—	—	—	10%

Deals & partnerships

Mexican sub-franchisee Transaction related to restaurant operations

The transaction from last year's result is excluded when comparing adjusted EBITDA margin expansion.

Risks & headwinds

Challenging consumer dynamics and macroeconomic environment Q2 FY26, expected to remain dynamic through H2 FY26

Consumer spending remained under pressure across most markets; 3% decline in overall retail sector in Argentina.

Mitigation:Resilient business model, agility of operating model, continued financial discipline, strong marketing plans, value platforms (EconoMéqui, McBaratos, McXMenos), and operational execution.

Demanding year-over-year comparison base Q2 FY26

NOLAD's margin pressure of 110 bps (excl. transaction) due to reduced operating leverage; prior year included full Holy Week and Minecraft promotion.

Mitigation:Leveraging brand strength, effectiveness of value proposition, maintaining positive comparable traffic, and competitive position.

Intense competitive environment Q2 FY26

Not quantified, but noted in NOLAD markets.

Mitigation:Focus on data-driven pricing, elasticity, balancing traffic affordability and profitability, and strong operational execution.

Hourly wages growing more than average check Q2 FY26

Payroll expenses higher as a percentage of revenue in all 3 divisions, mostly in NOLAD.

Mitigation:Disciplined cost management, G&A restructuring, and leveraging sales growth above inflation.

Food and paper cost headwinds in Argentina Q2 FY26

Slightly higher food and paper costs in SLAD, with Argentina having more headwinds.

Mitigation:Prudent pricing strategy to maintain market share, tactical issue not expected to deteriorate further.

What to watch in Q3 FY26

Brazil same-store sales momentum

next quarter

Current Positive trends in Q2 FY26

Target Continued positive trends in Q3 FY26

Why it matters

Brazil's strong rebound was a key driver of overall performance; sustained momentum is crucial for full-year results.

We are seeing positive trends in the first weeks of this third quarter. And of course, we are optimistic because we have the right management in our markets, and we do have a solid marketing plan, and we are focusing on a competitive advantage that is the operational execution.

Find out whether ARCO delivers this. Inve re-checks your case every morning.

Q&A highlights

Can management comment on the sustainability of Brazil's same-store sales rebound?

Management believes the rebound is sustainable due to proactive plans, including boosting the EconoMéqui value platform, targeted digital campaigns, and World Cup marketing. They are seeing positive trends in the first weeks of Q3 and are optimistic about continued performance.

“And yes, during the second quarter, we experienced a rebound in comp sales. And that was mainly a result of the proactive and excellent plan that the local team implemented. That's why we do think that this is sustainable for the near future.”

asked by Julia Rizzo · answered by Luis Raganato

2 min read 5 chapters

Detailed narrative

Brazil's Strong Rebound and Margin Expansion

Brazil was a standout performer, with comp sales rebounding strongly after Q1 and U.S. dollar sales increasing over 25%. This was attributed to proactive strategies including the EconoMéqui value platform, targeted digital campaigns, and FIFA World Cup marketing. The division's EBITDA margin expanded by 180 basis points to 14.6%, driven by lower food and paper costs, G&A efficiencies from restructuring, and sales growth above inflation, supported by a stronger Brazilian Real.

Digital Sales and Market Share Gains

Digital sales surged by over 25% year-over-year, now accounting for approximately 66% of total sales, with strong contributions from self-order kiosks and delivery. Identified sales surpassed 28% of total sales, aided by loyalty program membership. McDonald's restaurants in the Arcos Dorados footprint gained about 0.5 point in market share versus Q2 last year, maintaining a lead of more than 2x main competitors, a testament to successful local strategies and brand favorability.

NOLAD and SLAD Performance Amidst Headwinds

NOLAD faced a demanding comparison base due to prior year's Holy Week and Minecraft promotion, alongside an intense competitive environment and macroeconomic pressure. This led to a 110 basis point margin pressure, mainly from reduced operating leverage. SLAD saw adjusted EBITDA grow in line with revenue, with G&A improvements offset by slightly higher food and paper costs and operating expenses, keeping margins stable. Argentina's economic conditions were more challenging than expected, with a 3% decline in overall retail, though the company maintained positive sales growth and nearly flat guest counts.

Capital Structure Optimization and Capex Deployment

The company completed its second liability management transaction of the year, fully repaying 2029 senior notes and issuing the first sustainability-linked bond in the QSR industry. Net leverage improved modestly to 1.1x at quarter-end. Capital expenditures totaled $49.1 million in Q2, supporting 16 new restaurant openings and modernizing over 77% of the portfolio. Year-to-date, 35 restaurants have opened with $86 million invested, focusing on increasing return on investments by reducing costs and improving store profitability.

Strategic Focus and Future Outlook

Management emphasized the business model's resilience and ability to navigate tough periods. The company is focused on three pillars: leveraging leading market share and brand attributes, advancing its digital platform with customer-facing and back-of-house tools, and generating growth across all aspects of the business, including physical restaurants, digital channels, and cost efficiencies. Innovation and technology are expected to further widen the gap with competitors, with more details to be shared at the upcoming Investor Day.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.