Arcos Dorados Reports First Quarter 2011 Financial Results

BUENOS AIRES, Argentina, May 5, 2011 /PRNewswire/ -- Arcos Dorados Holdings Inc. (NYSE: ARCO) ("Arcos Dorados" or the "Company"), Latin America's largest restaurant chain and the world's largest McDonald's franchisee, today reported unaudited results for the first quarter ended March 31, 2011.

First Quarter 2011 Highlights

• Revenues increased by 23.2% year-over-year, or by 16.5% on a constant currency basis, to US$ 826.7 million
• Systemwide comparable sales increased by 12.5% year-over-year
• 69 net restaurants opened over the last 12 months
• Adjusted EBITDA(1) totaled US$ 72.3 million
• Net income attributable to the Company increased by 59.4% to US$ 35.5 million

"Arcos Dorados continued to build upon its solid foundation for long-term growth in the first quarter of 2011. The quarterly results clearly demonstrate the Company's ability to attract new customers through a proven marketing strategy that leverages the McDonald's brand, offers a broad array of menu alternatives, and delivers superior value through an expanding network of restaurants throughout our markets in Latin America.

"We advanced our expansion program since first quarter of last year, adding 81 new restaurants, reimaging 84 restaurants and opening 35 McCafes and 111 Dessert Centers. These additions and improvements provide our customers with a wide array of choices, with the Company's diverse retail formats continuing to drive higher revenues and facilitate increased restaurant expansion. The Company's Affordability platform, which offers customers a rotating selection of menu items at great values, continues to be a significant driver of growth for Arcos Dorados," said Woods Staton, Chairman and CEO of Arcos Dorados."

First Quarter Results

Arcos Dorados' first quarter revenues increased by 23.2% to US$ 826.7 million.  On a constant currency basis, revenue growth was 16.5%.  The increase was driven by systemwide comparable sales growth of 12.5% and the net addition of 69 restaurants over the last 12-month period.

The Company's solid revenue performance was driven by the significant growth of its Brazil, NOLAD (Mexico, Panama and Costa Rica) and SLAD (Argentina, Venezuela, Colombia, Chile, Peru, Ecuador, and Uruguay) divisions. Brazil, the Company's largest division, reported revenue growth of 21.3% year-over-year, accounting for 52.0% of the Company's total revenues. NOLAD's revenues increased by 20.9% year-over-year, with a systemwide comparable sales increase of 7.2%. SLAD's revenues grew by 34.2% compared to the first quarter of 2010, mainly driven by a 25.9% increase in systemwide comparable sales. The Caribbean division (Puerto Rico, Martinique, Guadeloupe, Aruba, Curacao, F. Guiana, US Virgin Islands of St. Thomas and St. Croix) reported revenues of US$ 64.6 million in the quarter, which were 3.4% higher than in the first quarter of 2010.

Arcos Dorados' Adjusted EBITDA(1) performance in the first quarter of 2011 benefited from revenue growth and improved Adjusted EBITDA(1) in the Company's Brazil, NOLAD and SLAD divisions. However, these improvements were impacted by (i) higher corporate expenses, which included higher payroll in line with the strengthening of the corporate structure to meet public-company needs, as well as the impact of higher inflation in Argentina, where the majority of corporate headcount is located; and (ii) increased G&A expenses related to the expansion plans programmed for the Brazil division.

Adjusted EBITDA(1) for the first quarter of 2011 was US$ 72.3 million, a 4.3% improvement over the US$ 69.4 million reported in the same period of 2010. The Adjusted EBITDA margin as a percentage of total revenues was 8.7% for the quarter, as compared to 10.3% in the first quarter of 2010. Overall, the Company was able to effectively manage increased commodity costs, keeping food and paper costs stable as a percentage of revenues. Higher payroll costs contributed to margin pressure in the quarter.

Net income attributable to the Company was US$ 35.5 million in the first quarter of 2011, up 59.4% from the US$ 22.3 million reported in the prior year quarter. This increase was primarily the result of improved operating results, as well as a lower foreign currency exchange charge. Income tax expense for the period totaled US$ 10.2 million, resulting in an effective tax rate of 22.3%, as compared to 34.8% in the first quarter of 2010.

The Company reported basic earnings per share (EPS) of US$ 0.15 in the first quarter of 2011, compared to US$ 0.09 in the prior year quarter. This increase of 64.1% was a result of the 59.4% growth in net income, as well as a lower weighted-average number of outstanding shares (please refer to Axis Split-off explanation below).

Balance Sheet & Cash Flow Highlights

Cash and cash equivalents were US$ 141.2 million at March 31, 2011. The Group's total financial debt (including derivative instruments) was US$ 570.0 million, with net debt (total financial debt less cash and cash equivalents) of US$ 428.8 million; and a Net Debt/Adjusted EBITDA ratio of 1.4x at March 31, 2011. Cash generated from operating activities was US$ 10.8 million in the first quarter of 2011, increasing over the same period last year, and driven by improvements in operating income. Capital expenditures (CapEx) for the period were US$ 32.9 million with funds mainly being utilized for restaurant openings and reimagings during the quarter.

Recent Developments

Axis

Effective as of March 16, 2011, the Company's Board of Directors approved the split-off of Axis (the operator of the distribution centers in Argentina, Chile, Colombia, Mexico and Venezuela). The split-off was performed through the redemption of 41,882,966 shares (25,129,780 class A shares and 16,753,186 class B shares). As consideration for the redemption, the Company transferred to its shareholders its equity interests in the operating subsidiaries of Axis totaling a net book value of US$15.4 million and an equity contribution that was made to the Axis holding company amounting to US$29.8 million.

Dividend

On April 1, 2011, the Company paid a dividend of US$12.5 million, which was declared on March 23, with respect to its results of operations for fiscal year 2010.

IPO

On April 14, 2011, the Company executed an initial public offering of its Class A shares on the New York Stock Exchange. As a result of the offering, the Company issued 9,529,412 Class A shares at a price of US$17.00 per share. Gross proceeds from the offering totaled US$162 million.  The Company commenced trading on April 14, 2011 under the ticker symbol ARCO.

Guidance 2011

For the full-year 2011, the Company expects consolidated revenues to grow by 15-17% and growth in Adjusted EBITDA of 15-17% compared with 2010. Additionally, the Company estimates an increase in net income of 35-45% for the year.

Please keep in mind that, given the recent increase in price for ARCO shares, the Company would like to remind investors that its existing liability awards (phantom equity units or "CADs") granted to certain employees under the Company's long-term incentive plan are recorded at the end of each reporting period based on their fair value, which is calculated based on certain variables and assumptions including the market price of the Company's stock,  and the related compensation expense is included within "General and administrative expenses" in the income statement. These should also be considered in conjunction with the Company's business analysis.  For a detailed description of the plan, please refer to the most recent Consolidated Financial Statements filed with the SEC.

Additionally, and to allow investors to build their financial models, Arcos Dorados is providing quarterly information for the years 2009 and 2010.

Definitions:

Systemwide comparable sales growth refers to the change, measured in constant currency, in our Company-operated and franchised restaurant sales in one period from a comparable period for restaurants that have been open for thirteen months or longer. While sales by our franchisees are not recorded as revenues by us, we believe the information is important in understanding our financial performance because these sales are the basis on which we calculate and record franchised revenues, and are indicative of the financial health of our franchisee base.

Constant currency basis refers to amounts calculated using the same exchange rate over the periods under comparison to remove the effects of currency fluctuations from this trend analysis.

About Arcos Dorados

Arcos Dorados is the world's largest McDonald's franchisee, in terms of systemwide sales and number of restaurants. The Company is the largest quick service restaurant chain in Latin America and the Caribbean, with restaurants in 19 countries and territories.

Cautionary Statement on Forward-Looking Statements

This press release contains forward-looking statements. The forward-looking statements contained herein include statements about the Company's business prospects, its ability to attract customers, its affordable platform, its expectation for revenue generation and its outlook for 2011. These statements are subject to the general risks inherent in Arcos Dorados' business. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, Arcos Dorados' business and operations involve numerous risks and uncertainties, many of which are beyond the control of Arcos Dorados, which could result in Arcos Dorados' expectations not being realized or otherwise materially affect the financial condition, results of operations and cash flows of Arcos Dorados. Additional information relating to the uncertainties affecting Arcos Dorados' business is contained in its filings with the Securities and Exchange Commission. The forward-looking statements are made only as of the date hereof, and Arcos Dorados does not undertake any obligation to (and expressly disclaims any obligation to) update any forward-looking statements to reflect events or circumstances after the date such statements were made, or to reflect the occurrence of unanticipated events.

Use of Non-GAAP Financial Measures(1)

In addition to financial measures prepared in accordance with the general accepted accounting principles (GAAP), within this press release and the accompanying tables, we use a financial measure titled 'Adjusted EBITDA'. We use Adjusted EBITDA to facilitate operating performance comparisons from period to period. Adjusted EBITDA is defined as our operating income plus depreciation and amortization plus/minus the following losses/gains included within other operating expenses, net and within general and administrative expenses in our statement of income: compensation expense related to a special award granted to our chief executive officer, incremental compensation expense related to a change in the valuation formula of our 2008 long-term incentive plan, gains from sale of property and equipment, write-off of property and equipment, contract termination losses and impairment of long-lived assets and goodwill.  For a more detailed explanation of Adjusted EBITDA please refer to our F-1 statement.

SOURCE Arcos Dorados Holdings Inc.