Arcos Dorados Holdings Inc.

Q1 2024 Earnings Conference Call

5/15/2024

spk00: Good morning, everyone, and thank you for joining our first quarter 2024 earnings webcast. With us today are Marcelo Raba, our Chief Executive Officer, Luis Caraganato, our Chief Operating Officer, and Mariana Tannenbaum, our Chief Financial Officer. Today's webcast, which is being recorded, will consist of prepared remarks from our leadership team, which will be accompanied by a slide presentation also available in the investor section of our website, www.arcosdorados.com.ir. As a reminder, to better view the presentation on the webcast platform, please scroll over the upper left hand part of the screen and click on the arrows to maximize the slides. After we conclude our opening remarks, we will answer your questions, which you can submit using the chat function on the left hand side of the screen. You will need to minimize the slides to access the chat function. Today's call will contain forward looking statements, and I refer you to the forward looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with generally accepted accounting principles, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial results as compared with GAAP results, which can be found in the press release and unaudited financial statements filed today with the SEC on Form 6-K. Marcelo, over to you.
spk03: Thank you, Dan. Good morning, everyone, and thank you for joining us. The strength of the results we reported this morning demonstrate how far we've come as a company over the last decade. They also reinforce the strength of the Arco Dorado's business model, with solid US dollar growth to start 2024, even in the face of a very challenging economic environment in one of our main markets. This is a testament to the importance of operating responsibly and managing the business with a long-term mindset. In the last 10 years, we diversified the business, reducing the weight of any single country. While Brazil remains our biggest market, Nolab now contributes a growing share of sales and EBITDA, much of it in hard or very stable currencies. And within SLAD, markets like Chile, Colombia, and Uruguay have also increased their contributions to consolidated results. Our objective is to generate sustainable profitability growth over the long term. To this end, the business model and the 3D strategy are working well together. Everything starts with sales. And our balanced approach to managing pricing, product mix, and guest volumes is driving above inflation compatible sales growth. The most critical driver of sustainable sales growth is guest volume. And the McDonald's brand continues to capture the highest volume per restaurant in our region by far. The region's growth potential is huge, and we are still accelerating restaurant openings. In fact, we plan to invest in the McDonald's brand for many years to come, and our investments will foster a virtuous cycle of growth in our communities and local economies. In turn, this will support our long-term expansion plans while insulating the business from short-term volatility. Before getting into the specifics of first quarter results, I want to take a moment to express how saddened we are by the severe flooding in Brazil's southernmost state, Rio Grande do Sul. Fortunately, all our employees in the state survived the flooding. In the short term, we are focused on supporting our employees and their families, including with basic necessities, and by guaranteeing their job security until the situation improves. We have also begun distributing food within the communities we serve, as well as to first responders. Moving forward, we will be working on several initiatives in coordination with local governments and NGOs to continue supporting our people and to aid in reconstruction. Finally, I should also note that our business exposure to the state is relatively limited, and so far, Brazil's second quarter trends have not been materially impacted by this situation. Turning now to the first quarter, performance in Brazil and NOLAB more than offset the impact of the devaluation of the Argentine peso on consolidated results. Total revenue rose 9.1% in the first quarter, supported by the 12th consecutive quarter of positive comparable guest traffic at the consolidated level. System-wide comparable sales rose above inflation in nearly all markets as well, and were up 2.2 times blended inflation for the entire company, excluding Argentina. McDonnell's brand visit and spend shares remain more than two times our nearest competitors, and the brand attributes we track are at or near all-time highs across the region. The digitalization of the Arco Dorado's business also remains on track in the quarter, with digital channels generating 55% of system-wide sales. Total digital sales growth of 30% in US dollars was driven by delivery, self-order kiosks, and mobile order and pay sales. Notably, this quarter, we signed an agreement to become a regional sponsor of Formula One in Latin America. Over the years, this global sport has become popular among families within the region, reaching all demographic, gender, and socioeconomic groups. In addition to providing a significant boost to our brand presence in the region, this sponsorship will focus on further leveraging the successful 3D strategy, including the synergy with the precision, teamwork, and speed of service of our industry-leading drive-through business. Finally, restaurant openings continue to accelerate We added 22 EOTF restaurants, 19 of them freestanding. Brazil opened 11 restaurants, including 10 new freestanding units. Luis will now take us through an overview of sales performance in each division.
spk01: Thanks, Marcelo, and good morning, everyone. As Marcelo just mentioned, we believe sales growth above inflation is the most sustainable way to increase profitability. Brazil's comparable sales rose 9.4% on top of 13.8% in the first quarter last year. This year's growth was 2.2 times inflation in the period, with higher volume and average check contributing to the result. Digital sales grew 38% and accounted for 65% of total sales in Brazil. Importantly, 26% of sales were identified. As a reminder, these are transactions where we not only have customer data, but where customers have explicitly authorized us to track and use their data. Additionally, the milk-making loyalty program continued to gain traction in the market in the quarter. Brazil's marketing plans and campaigns became the talk of the town during the first quarter. With the continuation of the successful Make Me Pega campaign and the launch of Big Tasty Turbo Cheese, We engaged with Gen Z customers by once again sponsoring the Lollapalooza Music Festival in Sao Paulo, as well as the country's most popular primetime TV show, Big Brother Brazil. We also drove brand excitement and customer engagement across all sales channels by bringing back the McFish sandwich as a limited time offer, selling out in a very short time. Finally, the dessert category included the introduction of the McFlurry Chococanchi with an iconic Brazilian chocolate, Diamante Negro. No less comparable, sales grew more than three times blended inflation in the quarter, with guest volumes driving almost the entire result. Every single market in NOLA grew comparable sales above inflation in the quarter with strong volume growth as the main driver. Performance was particularly impressive in Mexico with comparable sales up in the teens, driven primarily by guest volume growth. I should note that the quarter's results also benefited from the extra trading day due to leap year, as well as from holiday week, particularly in Mexico. Key marketing activities in Mexico included the launch of the new value platform, Elige Tu Fab, which allows guests to choose between delicious beef or chicken combos at an attractive price. Notably, digital channel sales in Mexico doubled versus last year, and the McDonald's app is now the most downloaded and used app across the country's QSR industry. Panama implemented a strong value platform coupled with one of the biggest brand equity scores in the region to accelerate the business in that country. In Puerto Rico, we gained significant visit share as the new brand campaign, Saca tu Encanto, resonated well with guests. Finally, as Marcelo mentioned, we signed a regional sponsorship of Formula One that resonates across our footprint with special meaning given the popularity of Mexican driver, Checo Pérez. Comparable sales grew below blended inflation in SLAT due to the significant economic slowdown in Argentina in the quarter. However, except for Argentina and Ecuador, the other large markets in the division generated comparable sales growth well above local inflation. This included Chile, Colombia, and Uruguay, where gas value growth was robust. Comparable sales were up 1.8 times blended inflation in SLAT, excluding Argentina. The silver lining in Argentina was that while consumption was down 20 to 30% in the country, Arcos Dorados volumes declined at about half that rate in the period. The local team delivered this impressive result by continuing to offer consumers the best value proposition in the market's QSR industry. This led to significant market share gains against our main competitors and improvements in our brand equity scores, which should position us for a strong rebound once the economy stabilizes. Similar to Brazil, the Slab division strengthened brand affinity and excitement among younger consumers by sponsoring the most relevant music festivals in the region, including Lollapalooza in Argentina and Chile, as well as Estéreo Picnic in Colombia. We brought menu innovation to Slab's markets with the launch of the Quarter Pounder Western Barbecue in Chile and Uruguay. Quarter Pounder Cheesy Jalapeno in Ecuador, and The Grand Taste is Spicy in Argentina. These new product launches were all met with strong guest responses, helping drive restaurant traffic and average check growth. SLAT also continued making inroads in the chicken category. with the launch of the McRespi Chicken platform in Uruguay and the McRespi Chicken Legend in Colombia, which is quickly becoming a guest favorite. All the marketing efforts related to menu favorites, music, and sports are generating tangible results. Market share performance in the quarter was strong throughout the Arcos Dorados footprint in both visit and sales share. We also measured 2.5 times top of mind and 1.5 times favorite brand scores against our main competitors on average across the geography. This was supported by all the markets we track with quarterly data in NOLED and SLAT, which gained important market share in the period. In Brazil, where we continue to strengthen the brand's leadership position, we achieved an all-time high visit share score over the training 12 months. According to our research, Brazil reached record high scores in brand equity, including top of mind, while remaining the country's favorite QSR brand by a wide margin. Notably, we measured favorable gaps against our main competitor in all the brand attributes we track, covering experience, taste, community impact, family environment, and affordability, among others. Over to Mariano for a closer look at consolidated and divisional profitability in the quarter.
spk02: Thanks, Luis. Good morning, everyone. First quarter adjusted EBITDA growth was in line with revenue growth in the period, highlighting the diversity of our operation and the resilience of the cost structure, even following the significant devaluation of the Argentine peso. As we mentioned on our last call, we expect to generate EBITDA growth primarily through revenue growth while capturing efficiencies and margin opportunities over the long run. The consolidated EBITDA margin was flat with lower food and paper and G&A offset primarily by higher occupancy and other operating expenses as a percentage of revenue. A consistent value proposition and the lower cost environment led to the improvement in food and paper and significant revenue growth leveraged G&A. Meanwhile, below inflation growth in Argentina was the main cause of lost operating leverage in fixed expenses. For full year 2024, we expect the favorable cost environment to continue and will focus on gaining efficiencies in other line items. Divisional results reflect this dynamic. with Brazil extracting almost 27% higher U.S. dollar EBITDA and 90 basis points of margin expansion from its strong top-line growth. Importantly, Brazil's solid margin expansion included lower food and paper, payroll, and G&A expenses. NOLA also turned its impressive sales growth into almost 21% U.S. dollar profitability growth, and 30 basis points of margin expansion. SLAT's U.S. dollar EBITDA decline in the period was driven almost exclusively by the reduced consumption in Argentina and the translation impact from the Argentine pesos' significant devaluation at the end of 2023. The resulting volume reduction in division's largest market caused sales and operating leverage to decline, which reduced margins as well. To a lesser degree, SLAT's results were also negatively impacted by the effect of the unrest in Ecuador. Looking ahead, the macroeconomic environment continues to be challenging to predict in the short term, but we remain focused on generating the strongest possible full year results in each of our markets. leveraging the diversity of our operating footprint to drive consolidated U.S. dollar profitability higher than last year.
spk01: The driving force behind our results for the last three years was the 3D strategy of digital delivery and drive-through. The work to digitalize the business is far from over. and the results of the first quarter demonstrate how this strategy still has plenty of room to drive performance across the entire Arco Dorado's footprint. Digital, which includes sales from the mobile app, delivery and self-order kiosks, grew 30% in U.S. dollars versus the prior year quarter. These channels accounted for 55% of system-wide sales and allowed us to identify 22% of sales in the quarter as well. In Brazil, digital channels generated 65% of sales, including 26% identified sales with actual customer data. Delivery and drive-through sales combined were up 14% year over year in U.S. dollars. These two channels that make up off-premise sales and heavily leverage the company's freestanding restaurant footprint accounted for about 44% of system-wide sales in the quarter. Brazil's delivery sales grew by more than 44% in U.S. dollars and was more than four times the nearest competitor's delivery sales in local currency terms, according to publicly available information. Nolet's results also benefited from strong digital sales, particularly in delivery and self-order kiosks, as we continue the digitalization of these markets. The loyalty program we launched in Brazil and Uruguay so far has grown to more than 8 million registered members as of the end of April 2024, up from 3.2 million at the end of last year. We should have loyalty in two more markets by the next earnings call, and we expect to be fully implemented by the end of 2025. Loyalty boosts the power of the mobile app by taking customer data from identified sales to offer an increasingly personalized guest experience. We have been very encouraged by the accelerating growth in registered members. and a very positive trend in 90-day active customers. Together, these drive frequencies significantly higher than non-loyalty customers, which also increases the customer's lifetime value. We are already seeing this in both Brazil and Uruguay. and the rollout of loyalty in each new market will benefit from the learnings we are gaining in existing loyalty markets. Mariano?
spk02: Let's take a look at our capital structure and investments in growth. Our net leverage ratio remained at a very healthy 1.2 times at the end of the first quarter. I am also pleased to report that a couple of weeks ago, Muris upgraded Arcos Dorado's corporate and senior debt rating outlook from stable to positive, reaffirming the VA2 rating based on our liquidity condition and latest operating performance. Over the last 12 months, cash from operations remained in line with the prior period. We have been deploying excess cash primarily to support restaurant growth and modernizations, as well as expanding digital capabilities. We continue to expect to fund this year's CapEx plan with cash on hand and cash from operations. In the first quarter, we opened 22 restaurants, which is on pace to meet full year guidance, and we deployed about $61 million for capital expenditures for restaurant openings, modernizations, and maintenance as well as for digital and IT enhancements. Marcelo, back to you.
spk03: In the next few days, we expect to publish our 2023 Social Impact and Sustainable Development Report. You will be able to download the report by visiting the Recipe for the Future website. Let me give you a preview. This will be our 10th annual ESG report. which is also the industry's only report to include audited content. The latest edition will showcase all the progress we made last year across the six pillars of our recipe for the future. Among the highlights were the hundreds of thousands of training and job opportunities we offered to the region's young people. This is one of our most important contributions to the economic development of the communities we serve, given that almost two-thirds of our employees are younger than 24 years old. We are also proud of the diverse and inclusive workplace we offer, having received more than 40 awards and other forms of recognition just last year. from a variety of governments and NGOs. On the environmental side, more than 30% of the energy Arcos Dorados uses now comes from renewable sources. And this number continues to rise as we sign more agreements for this type of energy, providing an incentive for these energy producers to continue investing in the countries where we operate. These are just a few examples of the important work we are doing for the benefit of our communities and the environment. I opened today's call by saying that first quarter results demonstrate how far we've come over the last decade. Before we move to Q&A, I would like to leave you with some final thoughts. The strength of the Arcos Dorados business model is evident in the first quarter's results. We operate across a diversified geographic footprint, generating a growing amount of cash flow from stronger and more stable currencies and markets than ever before. Sales growth remains solidly above inflation, supported by positive guest volumes at the consolidated level. This is driving profitability growth in a way we believe is sustainable over time. And we are capturing incremental operating efficiencies as well. Most importantly, all the levers we have pulled to generate these results are far from over. The brand continues to capture significant market share. Our menu is constantly evolving to meet customer preferences. The digitalization of all markets is and will always be an ongoing process. Our pricing tools are increasingly sophisticated, further balancing sales growth and margins. The operation is already the industry standard and it's getting better. And we still have a huge opportunity to accelerate restaurant growth across the entire region. These are among the many reasons we are confident in our ability to continue generating significant shareholder value in the years to come. Thank you once again for your interest in Arcos Dorados and ongoing support of our business. Then over to you to start the Q&A session.
spk00: Thanks, Marcelo. In order to get started, please minimize the presentation slides so that you can access the chat function on the left hand side of the webcast platform. Please limit yourself to one or two questions so that I can read, understand and convey them to our speakers. We will now pause briefly to compile your questions. Right, OK, so we have actually Already several questions in the chat room, lots of multi-part questions. So we'll take them one by one and we'll get started with Thiago Bortolucci at Goldman Sachs, who says, sorry for the long list. Good morning, Arco's team. Thiago's first question is, in Brazil, if we can provide a breakdown between ticket and traffic that drove the comparable sales growth in the country. So that's for you, Marcelo.
spk03: Okay, thank you, Dan. And good morning, Thiago. Thank you for joining us today. Look, we had an excellent first quarter in Brazil. And as you know, comparable sales are a function of guest volume, pricing, and product mix. And we had a positive contribution of each of these drivers. In terms of guest volumes, uh they arose uh low single digits in the first quarter 2024 uh so they were positive again in brazil in the first quarter pricing was basically in line with headline inflation and product mix improved uh thanks to the higher participation of digital and loyalty sales versus the prior year so the three components of uh The comparable sales had contributions to the figures we saw in Brazil in the first quarter. Importantly, according to Crest, we gained both PC share and sales share in the first quarter and over the trade in 12 months. with some of the smaller players in the industry losing share. In fact, over the last two years, if you take a look at Brazil's numbers, first quarter comparable sales have grown more than 24% in the cumulative two years. of those increases, 40%, around 40% came from volume and 60% more or less came from average. So we are in the strongest position in Brazil to capture additional growth in coming years. And these will generate for sure significant shareholder value thanks to our very strong position.
spk00: Great. Thanks, Marcelo. Along the same lines of Brazil, Thiago says, With channels, the delivery sales channel is growing at 44% year over year. It seems that this was the main driver of same-store sales growth, while on-premise performance was lower in the quarter. Can you share comps by channel in Brazil? And that one, I guess, to you, Luz.
spk01: All right. Hello, Thiago. How are you? Of course, delivery keeps on surpassing our expectations with an impressive growth of 44%. But having said that, we had a very good sales quarter in Brazil with all channels growing positively in the mid-teens. Specifically in delivery, we're leveraging from our freestanding restaurant portfolio, the strength in operations and marketing execution, the close relationship that we have with 3PO's and the recent launch of our loyalty program.
spk00: Dan? Thanks, Luis. And then in continuation, again, with the Brazil sort of channel dynamics, Thiago then asks, and what was the contribution of the channel mix to our gross and EBITDA margins in the quarter? And I'll turn it over to you, Mariano.
spk02: Perfect. Thanks, Thiago, for the question. And hi, everybody. Of course, the contribution was very positive. In the first quarter of this year, EBITDA grew almost 27% from $59.5 million in the first quarter of 2023 to $75.4 million in the first quarter of this year. And the margin was up 90 basis points from 15.9 to 16.8. And it's extremely or we are extremely happy to see that this increase in margin was reflected in several lines, mainly in food and paper. So we are improving gross margin in payroll. which is improving as well, and GNA, which are the three main cost lines in our income statement.
spk00: Great. Thanks, Mariano. And let's stick with you because Jaco's next question relates to food and paper. Can you comment on how beef and potato are trending and how this would impact gross margin?
spk02: Okay. Yeah, we see a benign food and cost environment, and we are optimistic with the outlook for 2024. In particular, we see a better outlook on beef with reduction in costs. We see some pressures on potato, but overall, there is a positive trend. We are expecting everything else equal, a better gross margin than what we had last year. So that's the outlook that we have for 2024.
spk00: Okay, I think we're getting almost to the end of Thiago's list of questions. We have one related to Argentina. Any comments on the traffic in the region and how it's been evolving throughout the quarters? And we also received a similar question from Lorena Reich from Lucor, asking what our expectations are for the rest of the year in Argentina. And I'll turn that one over to you, Marcelo. Okay, thank you.
spk03: Yes, consumption in Argentina declined between 20 and 30% in the first quarter. But as we mentioned during the opening remarks, alcohol volumes declined at only about half that rate. And these volumes have been evolving modestly in a positive way sequentially since then. I would say that our local team has been doing an excellent job in terms of remaining close to consumers, offering them the best value proposition in the country's QSR industry by far. And as a result of that effort, we have gained significant market share and further strengthen our brand attributes. And this should put us in a very well position for when the Argentine economy begins its expected recovery. It is still too soon to know how all the macroeconomic factors will evolve during the year. But we are working very hard in order to navigate the current situation as well as possible and always with a long-term mindset. So challenging context in Argentina, but remember that Arcos Dorados, the beauty of Arcos Dorados is that we operate in 20 different markets. So we have another 19 markets and our business today is very diversified. with significant contributions coming from Brazil, from Nolan, and from other markets of the SLAT division. So we are very confident that this diversification will continue driving consolidated profitability growth in full year 2024 and in coming years.
spk00: Perfect. And final question, Thiago, a question from Thiago related to expansion. How does the scenario may be higher for longer interest rates impact our near-term plans around expansion? And I'll turn it back to you, Maidama.
spk02: Perfect. Well, in this case, we have a long-term plan of investments, openings, mainly freestanding units in many of our markets in LATAM. We have the long-term plan also to modernize our existing stores with EOTF. We are also deploying investments in non-development, mainly in technology to continue improving our digital platforms. And this will not change. We are seeing above average returns in general mainly in our freestanding units, well above our cost of capital, and this will not change. So we will remain with our investments, and we are very pleased with the results we are seeing so far.
spk00: Great. Next set of questions from Felipe Casimiro from Bradesco. His first question. Could you shed more light on the evolution of the competitive landscape in Brazil and Mexico with heated competition from other listed players? And how are we adapting to fiercer competition in the QSR segment? Back to you, Marcelo. Okay, thank you.
spk03: Well, look, we gained more than one percentage point, in fact, 1.1 percentage point of market share across our main markets in the first quarter of 2024, according to our research. And I would say that competition has been mostly irrational, although, as you mentioned, we have seen increased promotional activity in some markets, particularly in Brazil. But we are focused on offering a very compelling value proposition with competitive pricing and, most importantly, a much better restaurant experience. So this is driving volume growth in recent quarters. And this helps us to leverage our fixed cost structure. So this year, for example, we have a more favorable cost environment that should help us to continue improving our margins while we respond and we react to competitive pressures as needed. given the fact that we are the leaders in all these markets, particularly in Brazil, and we have the ability to react and to put pressure in some competitors if we feel that that's the correct answer that we need to give them. So very well positioned and gaining share in most markets.
spk00: Great. Felipe sent also a multi-parter, so I'm going to take these a little bit out of order, Felipe, if you would like. higher than our estimate. Could you elaborate the main reasons of the effective tax rate of around 40%? And how should we think about this over the course of 2024? Over to you, Mariano.
spk02: Perfect. Hi, Felipe, and thanks for the question. On a quarterly basis, the effective tax rate can be volatile, given the various rules governing the calculation of this liability in each of our markets. Remember, we operate in 20 different markets. plus our holding companies, as well as within our overall structure. So for the first quarter of 2024, we had an effective tax rate of 39.7. This compares with 35.8% in the first quarter of 23. So looking ahead for the full year, even if it is difficult to predict, we believe that a consolidated ETR between 35% and 40% is a reasonable level to expect for the food year.
spk00: Perfect. Next question is, how should we think about the evolution of the royalty rates in Brazil? And should we still see a growth support offsetting this line in 2024? And I'll get back to you, Marcelo. Okay, thank you.
spk03: Look, Felipe, we have in place an agreement with McDonald's for the growth support incentive that goes through the end of this year. So we expect royalty rates on consolidated levels to stay in the same range than they were in this first quarter, around 6.3% of sales. And given the fact that we already agreed with McDonald's with this support for the whole year, we do not expect this number changing materially
spk00: Yeah, in fact, that's right. And then Fedebe's last question, and a little bit detailed here, but the supplier days dropped five days to 80 days in the first quarter of 24, which is back in line with 2018 and 19 levels. Could you elaborate on the reasons behind the reduction and how should we think about supplier relationships and potential benefits with lower costs on a move forward basis? One more time back to you, Mariano.
spk02: Perfect. Well, traditionally, you know, the first quarter is the worst quarter in terms of working capital for the company due to seasonality. Remember that in this particular quarter, we also accelerated the openings. Remember, this year we had 22 openings compared with only eight openings last year. And this is, you know, what we are trying to do in terms of avoiding having all our capex back ended. That would have had an impact on our accounts payables because usually development suppliers have shorter terms than other suppliers. So I wouldn't expect to change in our account payables terms. know uh in the in the in the short or in the medium term and if if so it would be for for the better and not for for for the worst that means we uh if anything we will expand uh payment terms and not uh reduce it in some cases of course there are opportunities to have reduction costs by changing the outstanding days, but those are very specific things and negotiations, and we cannot, you know, expand that to the whole bucket of our suppliers.
spk00: Great. Thanks, Mariano. Now we're going to move over to Julia Rizzo from Morgan Stanley. Also, two or three questions here from Julia. The first one is, can you give us an update on sales trends in the key markets for the second quarter to date? And over to you, Marcelo.
spk03: About the second quarter in? The key countries. Okay. I would say that, as I mentioned before talking about Argentina, the Figures that we are seeing in the second quarter are in line with what we saw in the first quarter. Remember that the first quarter was very strong. It was, in fact, our 12th consecutive quarter of comparable gas volume growth. So, cumulative sales trends are about in line with these numbers in the second quarter. although we will not benefit this quarter from an extra trading day. And we will compare with Holy Week that last year was in the second quarter. We remain focused on delivering great value to our guests. all across our menu, and we expect this to help us deliver comparable sales growth at or above inflation in the full year 2024 in most of our markets, with a balanced contribution from pricing, product mix, and guest volume, as has been the case so far this year. So that's what we are seeing today in terms of products.
spk00: Julia's next question relates to, asks us if we can give more color on delivery performance. How much does delivery represent of sales in Brazil? And that question is for you, Luz.
spk01: All right. Thank you, Julia. Hello. In Brazil, delivery represents around 20% of system-wide sales. And about the delivery performance, we operate delivery in more than 80% of our restaurants in about 14 different markets. Delivery sales rose 27% in US dollars, represented 18% of system-wide sales. And about the evolution, delivery has surpassed our expectations so far. We believe that there are still good opportunities to keep on capturing market share because even with the best course in speed and accuracy, we still have a big room to improve our operations. And we believe that the challenge has not reached full maturity yet. And because of this, we believe that our strategies and our operating models will continue to evolve. Our strategy will keep on focusing on strong operational execution. We're going to keep on working in innovations in digital capabilities and targeted marketing campaigns specific to the channel to keep on strengthening the strategic partnership with 3PO's and on delivery that represents today about 10% of our total delivery sales. Dan? Thanks, Mariano.
spk00: Thanks, Lise. Okay, and then Julia's final question also relates to delivery, which is after growing so much and achieving significant sales representativeness, how is this channel profitability versus consolidated figures in Brazil? So we'll give it to you, Mariano.
spk02: Yes, well, Well, thanks, Julia, for the question. In fact, all our channels are accretive to the business and they are generating good returns and contribution to EBITDA. You can see that delivery has grown a lot the last several years representing now a relevant part of our business. And so the margins continued to increase overall as well. So that means that delivery, even though there's a delivery fee that the company pays to the three POs, there are many other impacts in our cost lines that benefit the margins overall and are helping to improve the overall margins of the company. Remember last year we had a record EBITDA margin and in this footer and you can see that margins are improving as well.
spk00: Great. I'm going to move back to now Lorena Reich, from Luke Rowe, who asked the question earlier about Argentina. She also asked, she said, good morning, congrats on the strong performance. Can you comment on the cash burn during the quarter, which is still very healthy, but below 200 million versus usually having above that figure? So back to you, Mariam.
spk02: Perfect. Thanks, Lorena, for the question. I already answered a part of the question about working capital seasonality being the first quarter, the worst of the four quarters we have. And this is due because, you know, In January, usually we pay all invoices related to the end of the previous year, and being December our highest month in terms of sales and CapEx development, in January there's an impact on our working capital. On top of that, this year in particular, the quarter ended on Easter Sunday, which is a four-day holiday weekend in many of our Latin countries. That resulted in a temporary increase in the account receivables that were automatically collected on the next business day, Monday. That's a Monday of the second quarter. So these two effects, of course, have an impact on the cash flow dynamics of the first quarter. On top of that, I already mentioned as well in a previous question that This year we accelerated capex on the first quarter, having opened 22 new restaurants compared with eight new restaurants of the previous year. So these dynamics are impacting the cash flow generation on the first quarter. But if you look at the trailing 12 months, so then excluding seasonality, the operating cash generation remained in line with the prior period that we expect
spk00: uh the cash conversion similar to uh last year thanks mariano um so now lucas vejeda from jp morgan asks how have restaurant operational kpis uh been involving in brazil such as turnover drive-through speed speed etc so i'll turn it over to you please for an overview all right uh hello lucas thank you for the question um the evolution on operational kpis
spk01: in Brazil specifically, have been very positive. We focused for the last two years, for example, on turnover, 90 days turnover. We focused on people. People is the base of our operations plan. And specifically in that area, KPI, we have seen a reduction of our turnover in about 20%, so that is very positive. Our crew, our managers are the base of our operations, and we rely on that to have an excellent execution. And talking about speed and accuracy, and in the rest of the channels and talking about drive delivery, even from counter, the improvements have been very significant. But having said that, we still have a huge room to keep on improving. I would say that the main focus is to equalize operations. Trying to work and equalization means that we try to work with low performance stores and markets even. We benchmark and leverage the best practices that we have in those that are high performance stores. and markets, and that's the beauty of having 20 markets, the geographic diversity that we have. So, in summary, we're pleased with the results, with the evolution of these KPIs, but we are obsessively focused in the continuous improvement. Dan?
spk00: Thanks, Luis. And now over to Bob Ford from Bank of America, who says, good day, everyone. Good morning, Bob. Can you discuss some of the system's more successful CRM strategies in terms of activation and transaction sizes and some examples of our early successes? We'll come back to you, Luis. I think this is also somewhat related to loyalty.
spk01: Yeah, of course. I was going to go. Thank you, Bob, for the question first. Yes, and I'm going to go a little bit deeper into digital. You know that we're pleased with the evolution of digital sales, the performance. We have rose 30% in US dollars, accounted, as we said, for the penetration is 55% of total system-wide sales. And this includes 22% of identified sales. So we're very pleased with the performance. And we're very confident that we're going to be able to maintain our growth trend. Digital sales, the growth of the channel was driven by three main factors. The implementation of new functionalities to our app, the expansion of our customer base, and a great trend in active users. And loyalty was a booster of the sales. Because we use the customer data and identify sales to offer or to try to offer a more personalized experience. So we have three main KPIs to identify. you know, evaluate the program and its visa frequency, average check, and 90-day active user. And what we are seeing is an acceleration growth in registered members. Like I said before, we had, I mean, we launched The program in Uruguay and Brazil in October 2023, by the end of December of last year, we had 3.2 million registered members. And by the end of April, we had 8 million registered members. That is a significant growth. We're seeing that today in the last weeks that is still going on. And so we do not only see that growth in restaurant members, but a positive trend in active customers. And this steady increase reflects the growing engagement and interest that our guests have with it. And talking about redemptions and the margin that we can see in the future of this program is that we see a positive impact since we think products have, on average, a higher margin because these transactions are incremental. For example, a dessert after lunch or associated with a new sale. And you know that another advantage that the program has is that enables us to analyze customer behavior, average check, and number of visits. When I talk about that, it's the average check and number of visits to manage the customer lifetime value. So we're going to keep on investing in that. We are encouraged about the early results, and we're going to implement two more markets by 2020. the next earnings call by August, and we intend to cover the whole region by 2025.
spk00: Dan? Thanks, Luis. And Bob's last but second question, final question is, why will Argos prove to be more or less digital versus other global markets? Thank you. So, Marcelo, I guess you can wrap it up for us. Okay. Yeah, thanks.
spk03: Thanks, Bob, for the question. And I think you referred to other McDonald's global markets. I would say that the digitalization of the alcohol business is strategic for us. It has been that way for many, many years now. That's why 55% of our sales during the first quarter were digital. And the investments that Luis was mentioning, they have had great returns. All of them have had great returns, a positive impact on our sales, a positive impact in terms of average check, and finally, a positive impact in terms of margin. So we continue to benchmarking against the best markets within the McDonald's system. For example, China is one of the leaders in terms of digital within the McDonald's system. We continue to benchmark it with them and try to get the best practices and the newest tools that they are using in order to leverage all the efforts that we already have done in terms of digital within Arco Dorado. So this will continue to be a focus for us in coming years.
spk00: Great. Thanks, Marcela. And that was actually the last question we received from the investment and analyst community. So that's the end of the Q&A session. Thanks again for all your interest in Arquis Dorados and joining us in today's webcast. We look forward to speaking with you again in the middle of August on our second quarter 2024 earnings webcast. And until then, stay safe and have a great day.
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