Arcos Dorados (NYSE:ARCO) reported a stronger first quarter of 2026, with management saying revenue, adjusted EBITDA and cash flow improved despite a challenging consumer environment in parts of Latin America.
Chief Executive Officer Luis Raganato said total revenue rose about 13% and exceeded $1.2 billion for the first time in a first quarter. System-wide comparable sales increased 16%, driven mainly by average check, while guest traffic improved in several markets. Adjusted EBITDA reached $119 million, which Raganato described as the company’s highest first-quarter result in U.S. dollars.
“The plan for 2026 was developed to optimize sales growth drivers over the course of the year and capture efficiencies to drive improved profitability,” Raganato said. He added that the company is focused on generating positive adjusted free cash flow and creating shareholder value.
Margins Expand as Food and Paper Costs Improve
Chief Financial Officer Mariano Tannenbaum said adjusted EBITDA totaled $118 million, up almost 30% in U.S. dollars from the prior year. The consolidated adjusted EBITDA margin expanded by 120 basis points, with 60 basis points of contribution from food and paper and another 60 basis points from general and administrative expenses.
Tannenbaum said modest pressure in payroll, occupancy and other operating expenses was offset by income from sub-franchisee restaurant transactions in NOLAD and SLAD. Excluding those transactions, consolidated EBITDA margin still expanded by 70 basis points compared with the first quarter of 2025.
Food and paper costs improved in Brazil and SLAD, while NOLAD was stable as a percentage of revenue despite global food inflation. Payroll expenses rose as a percentage of revenue in Brazil and NOLAD, mainly because of higher hourly crew wages, while SLAD delivered payroll leverage.
In Brazil, Tannenbaum said adjusted EBITDA increased more than 20% in U.S. dollars, with improved food and paper costs as the main driver of the division’s 30-basis-point margin expansion. During the Q&A portion of the call, he said beef cost reductions in Brazil had continued for a second quarter and that management is “cautiously optimistic” about food and paper costs for the rest of 2026.
Brazil Traffic Improves After Post-Carnaval Slowdown
Raganato said Brazil had a strong start to the year in the first six weeks of 2026, but restaurant volumes slowed meaningfully after Carnaval. He said the company responded with initiatives designed to recover volume without sacrificing profitability, and by the end of the quarter, guest volume trends showed a “promising reversal.”
In response to analyst questions, Raganato said the Brazilian quick-service restaurant industry is undergoing a correction in guest volume. He said industry volumes were down in the mid- to high-single-digit range, particularly after Carnaval, as consumer disposable income remained limited.
Raganato said Arcos Dorados focused on maintaining a compelling value proposition while also building brand affinity. In Brazil, campaigns included core menu offerings, affordability initiatives such as Méqui Econômico, early FIFA World Cup promotions and a presence at Lollapalooza Brazil.
“April’s guest volume and comparable sales reached the best growth levels out of the last 20 months, and so far the month of May is following a similar trend,” Raganato said.
He also said the company achieved its highest visit share level since 2022, according to CREST, and maintained more than twice the guest traffic of its nearest competitor.
Digital Sales and Loyalty Continue to Grow
Arcos Dorados said digital channels, including the mobile app, delivery and self-order kiosks, grew 21% from the prior year and represented about 64% of system-wide sales. Raganato said delivery sales remained strong, helped by promotional activity from new third-party delivery partners in Brazil, while kiosk sales grew as the restaurant base continued to modernize.
The company’s loyalty program surpassed 30 million registered members at the end of the quarter. During the Q&A session, Raganato said loyalty members increased 62% versus the end of last year and represented 25% of total sales. He said the program is now available in 10 countries, covering 94% of the company’s stores, after Panama was added during the quarter.
Raganato said loyalty has increased visit frequency by an estimated 20% to 25%, with minimal impact on average check. He also said redeemed products have, on average, higher margins.
Although digital sales continue to rise, Raganato noted that 55% of sales are still generated inside restaurants, which he said reflects the strength of the in-restaurant brand experience. He said self-order kiosks are a major contributor to digital sales and are located inside restaurants.
Regional Performance Varies Across Latin America
Raganato said revenue performance in U.S. dollars was strong across all three divisions. Brazil delivered the highest growth, supported by new restaurants, higher average check and appreciation of the Brazilian real.
In NOLAD, comparable sales rose due to higher guest traffic in a couple of key markets, supported by pricing discipline, mix optimization and continued momentum in Mexico. Panama and Costa Rica also made early progress toward rebalancing traffic and average check, while currency appreciation in Mexico and Costa Rica supported reported revenue growth.
Tannenbaum said NOLAD margins were 50 basis points above the prior year, mainly because of a gain from a restaurant transaction in Mexico. Excluding that transaction, he said EBITDA margin was down about 40 basis points. Food and paper costs were flat, but payroll and occupancy costs remained under pressure, including from minimum wage increases in several countries.
SLAD sustained strong momentum, with Raganato citing internal research indicating maintained or expanded visit and value share in each SLAD market within their respective QSR industries. Tannenbaum said SLAD’s EBITDA margin rose by about 120 basis points even without income from a local sub-franchisee restaurant transaction.
Company Highlights Free Cash Flow and Capital Discipline
Beginning with the first-quarter release, Arcos Dorados will publish adjusted free cash flow for the trailing 12 months. Tannenbaum said adjusted free cash flow reached almost $110 million for the 12 months ended March 31, compared with negative $3 million in the previous period.
The company invested $36.8 million during the quarter, including $16.7 million for new restaurants. Arcos Dorados added 19 restaurants in the period, including 13 freestanding units. Tannenbaum said capital spending was lower than the $48.8 million invested in the prior-year period, when the company opened 10 restaurants, reflecting a more disciplined investment approach.
Management said growth remains a capital allocation priority where returns are attractive. Tannenbaum said Arcos Dorados is focusing on improving execution, localizing suppliers and building restaurants more efficiently while maintaining standards.
Raganato said the company is targeting 90% of restaurants to be Experience of the Future locations in the next couple of years, compared with about 75% currently. Tannenbaum said the quick-service restaurant industry typically modernizes roughly 10% of the restaurant base each year.
Raganato also highlighted workplace recognition in several markets, including Great Place to Work rankings in Argentina, Uruguay and Brazil, as well as a No. 1 ranking in Mexico from Expansión Media Group’s Súper Empresas list. He said Arcos Dorados plans to publish its 2025 Social Impact and Sustainable Development Report in the coming weeks and will hold its next Investor Day on Oct. 1 in New York.
About Arcos Dorados (NYSE:ARCO)
Arcos Dorados Holdings Inc is the largest independent McDonald's franchisee in the world, operating under an exclusive license agreement with McDonald's Corporation. The company develops, owns and operates quick-service restaurants, offering the full McDonald's menu, including hamburgers, chicken sandwiches, salads, sides, desserts and McCafé beverages. In addition to restaurant operations, Arcos Dorados manages supply chain logistics, property development, training and support services for its franchise network.
Headquartered in Montevideo, Uruguay, Arcos Dorados serves 20 markets across Latin America and the Caribbean, including Argentina, Brazil, Chile, Colombia, Mexico, Puerto Rico and Uruguay.
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