Arcos Dorados Reports First Quarter 2013 Financial Results Achieved double-digit organic revenue growth and high single-digit comparable sales expansion on solid contribution from largest regions Business Wire BUENOS AIRES, Argentina -- April 30, 2013 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 its unaudited results for the first quarter ended March 31, 2013. First Quarter 2013 Highlights *Revenues increased by 6.0% year-over-year to $976.9 million or by 15.7% on an organic basis, as high single-digit comparable sales growth and revenues from new restaurants partly offset reported revenues lowered by the depreciation of local currencies versus the US dollar *Systemwide comparable sales increased by 9.9% year-over-year, primarily driven by average check growth *Adjusted EBITDA decreased by 12.0% to $68.7 million. Excluding currency translation and special items, Adjusted EBITDA grew 1.7% in comparison with 1Q12, mainly impacted by higher dollar denominated costs *The Company reported a net loss of $6.6 million compared to a gain of $25.4 million the previous year, mainly due to lower operating income and higher non-operating charges related to the official devaluation in Venezuela “Our first quarter performance demonstrates Arcos Dorados’ ability to consistently grow sales and achieve market share gains even in challenging markets. A strong marketing calendar and access to the largest product portfolio resulted in double-digit organic revenue growth and a high single-digit increase in comparable sales versus the prior-year period.” “The introduction of the highly successful and globally recognized Monopoly promotion in Brazil in April is driving consumption in a soft market. While we remain cautious on the outlook in markets such as Venezuela, our solid first quarter results are on target with our full year expectations and will benefit from easing comparable sales and cost containment initiatives in coming quarters,” said Woods Staton, Chairman and Chief Executive Officer of Arcos Dorados. First Quarter 2013 Results Consolidated Financial Highlights (Million US$) 1Q12 Special Currency Organic 1Q13 % As % (a) Items Translation Growth (a+b+c+d) Reported Organic (b) (c) (d) Total 1,843 1,959 Restaurants Sales by Company-operated 882.8 (84.9) 136.1 934.1 5.8% 15.4% Restaurants Revenues from franchised 38.8 (4.2) 8.2 42.8 10.5% 21.3% restaurants Total Revenues 921.6 (89.1) 144.4 976.9 6.0% 15.7% Comparable Sales 9.9% Adjusted EBITDA 78.1 (3.8) (6.9) 1.3 68.7 -12.0% 1.7% Adjusted EBITDA 8.5% 7.0% -17.0% Margin Net Income attributable to 25.4 (19.2) (5.7) (7.1) (6.6) -126.0% -28.1% AD No. of shares outstanding 209,529 209,529 ('000) EPS ($ per 0.12 (0.03) share) (1Q13 = 1Q12 + Special items + Currency translation + Organic growth) Please refer to “Definitions” section for further detail Arcos Dorados’ first quarter revenues increased by 6.0% to $976.9 million, as organic revenue growth of 15.7% was partly offset by depreciation of local currencies. Strong organic revenues were driven by systemwide comparable sales growth of 9.9%, despite the negative impact of an extra day in the month of February 2012. The net addition of 116 restaurants during the last 12-month period contributed $57.2 million in constant currency to revenues. Additionally, our three largest divisions achieved double-digit growth. Systemwide comparable sales growth was mainly driven by average check growth. The Quality campaign “Mas allá de la Cocina”, which commenced in the quarter, strengthened the brand by bringing our customers closer to the true origin of our food and highlighting the quality of our ingredients. This campaign, together with successful product launches and the introduction of new flavors such as Thai Sweet Chili sauce in a number of markets, form part of a strong 2013 marketing calendar designed to strengthen the brand over the long term and drive sales. Adjusted EBITDA Adjusted EBITDA for the first quarter was $68.7 million, a 12.0% decrease compared to the same period of 2012. Adjusting for special items and currency impact, organic Adjusted EBITDA grew by 1.7%. Adjusted EBITDA comparisons were affected by special items in both periods consisting of higher corporate G&A of $3.8 million explained by a net gain of $0.3 million in 1Q13 and of $4.1 million in 1Q12 related to the CAD incentive plan (including the impact of hedging). The Adjusted EBITDA margin as a percentage of total revenues decreased by 144 basis points to 7.0% compared to the year ago period. The decline mainly reflects the impact of currency devaluation over dollar-denominated costs in various countries, which offset an improved Adjusted EBITDA margin in NOLAD. The Company reported a net loss of $6.6 million in the first quarter of 2013, compared to net income of $25.4 million in the same period of 2012. The result reflects lower operating results along with higher non-operating losses recognized in the quarter, which were partly offset by lower income taxes. Non-operating Results Non-operating results for the quarter reflected (i) a 12% increase in overall funding costs (interest expense plus results from derivative instruments), mainly due to higher debt levels related to the restructuring process carried out during the last twelve month period (please refer to prior releases), and (ii) a special item of $15.4 million from a foreign currency exchange loss in the first quarter of 2013 resulting from the impact of the devaluation of the Venezuelan Bolivar over net monetary assets, as previously announced. Income tax expense for the quarter totaled $5.9 million, compared to $12.1 million in the year-ago period. The resulting increase in the effective tax rate primarily reflected the negative impact of the Venezuelan currency devaluation impacting the quarter, as the Company recorded a valuation allowance over the related tax benefits. The Company reported a basic net loss per share of $0.03 in the first quarter of 2013, compared to earnings of $0.12 in the previous corresponding period. Analysis by Division: Beginning January 2013, the Company reorganized its SLAD and Caribbean division. The Venezuela and Colombia operations are now part of the Caribbean division. For comparison purposes, prior year information reflects these changes. Brazil Division Financial Highlights (Million US$) 1Q12 Special Currency Organic 1Q13 % As % (a) Items Translation Growth (a+b+c+d) Reported Organic (b) (c) (d) Total 666 735 10.4% Restaurants Comparable 9.1% Sales Revenues 450.0 (60.6) 71.5 460.9 2.4% 15.9% Adjusted 62.3 (7.2) (0.0) 55.1 -11.6% -0.1% EBITDA Brazil revenues grew by 2.4% and were impacted by a higher average exchange rate when compared to the previous year’s first quarter. Excluding the 13% average devaluation of the Real, organic revenues grew 15.9%. Systemwide comparable sales growth was 9.1% in the quarter, mainly driven by increased average check resulting from the product mix shift along with higher prices over the past twelve months. The overall Brazilian consumption environment remained slow. In response, the Company launched marketing activities to drive sales, including the nationwide roll-out of wraps and the Triple Cheeseburger in the Affordability platform, among others. The net addition of 69 restaurants during the last 12-month period contributed $31.3 million to revenues in constant currency during the quarter. The openings brought the restaurant count to a total of 735. Adjusted EBITDA decreased by 11.6% in the first quarter of 2013. Organic Adjusted EBITDA remained stable as increased revenues and G&A leverage were offset by (i) higher payroll as a percentage of sales; (ii) higher food and paper costs as a percentage of sales due to the impact of the year-on-year Real devaluation over dollar denominated costs; and (iii) higher operating costs Adjusted EBITDA margin for the quarter reached 12.0%. NOLAD Financial Highlights (Million US$) 1Q12 Special Currency Organic 1Q13 % As % (a) Items Translation Growth (a+b+c+d) Reported Organic (b) (c) (d) Total 490 503 2.7% Restaurants Comparable 1.5% Sales Revenues 89.4 2.3 6.3 98.0 9.6% 7.0% Adjusted 3.1 0.1 1.6 4.7 53.8% 51.7% EBITDA NOLAD’s (Mexico, Panama and Costa Rica) revenues grew by 9.6% or 7.0% on an organic basis, year-over-year. Systemwide comparable sales grew by 1.5% in the quarter, mainly driven by new products and Happy Meals. Comparable sales also benefitted from the Easter holiday shift in March. Additionally, the net addition of 13 restaurants during the last 12-month period contributed $ 5.7 million to revenues in constant currency. Adjusted EBITDA grew by 53.8% to $4.7 million from $3.1 million in the prior year. On an organic basis, Adjusted EBITDA grew by 51.7% mainly due to the leveraging of F&P costs. As a result, margin improved 139 basis points to 4.8% in the quarter. SLAD Financial Highlights (Million US$) 1Q12 Special Currency Organic 1Q13 % As % (a) Items Translation Growth (a+b+c+d) Reported Organic (b) (c) (d) Total 343 366 6.7% Restaurants Comparable 14.6% Sales Revenues 206.0 (21.6) 42.2 226.5 10.0% 20.5% Adjusted 20.4 (2.0) 2.0 20.4 0.0% 9.8% EBITDA SLAD’s (Argentina, Chile, Peru, Ecuador, and Uruguay) revenues grew by 10.0% and 20.5% on an organic basis compared to the first quarter of 2012. Value Meals and the inclusion of the Triple-Bacon sandwich in the affordability platform in Argentina contributed strongly to a systemwide comparable sales increase of 14.6% in the quarter. The net addition of 23 restaurants during the last 12-month period contributed $12.6 million to revenues in constant currency in the quarter. Adjusted EBITDA remained stable versus the prior year, resulting in a margin of 9.0%. Adjusted EBITDA rose by 9.8% on an organic basis driven by higher revenues, which were partly offset by higher payroll as a percentage of sales and higher occupancy and other operating expenses (primarily energy costs). Caribbean Division Financial Highlights (Million US$) 1Q12 Special Currency Organic 1Q13 % As % (a) Items Translation Growth (a+b+c+d) Reported Organic (b) (c) (d) Total 344 355 3.2% Restaurants Comparable 12.1% Sales Revenues 176.2 (9.2) 24.4 191.5 8.7% 13.9% Adjusted 13.0 (1.0) 0.2 12.2 -6.3% 1.4% EBITDA The Caribbean division (Colombia, Venezuela, Puerto Rico, Martinique, Guadeloupe, Aruba, Curaçao, French Guiana, Trinidad & Tobago, and the US Virgin Islands of St. Thomas and St. Croix) reported revenue growth of 8.7% despite the negative impact of the official devaluation of the Venezuelan Bolivar Fuerte in February 2013. On an organic basis, revenues increased by 13.9% compared to the first quarter of 2012, driven by systemwide comparable sales growth of 12.1%. Despite challenging conditions in markets such as Venezuela, brand preference remains strong. The Company’s superior product offering and successful regional and local marketing campaigns, such as Fish McBites in Puerto Rico and “Arepas” in Venezuela, have helped mitigate traffic declines. The net addition of 11 restaurants during the last 12-month period contributed $7.6 million to revenues in constant currency during the quarter. Adjusted EBITDA declined by 6.3% and amounted to $12.2 million in 1Q13. On an organic basis, Adjusted EBITDA increased by 1.4% compared to one year ago, mainly due to the higher cost of dollar-denominated inputs in Venezuela. This factor more than offset revenue growth and improvements in payroll and G&A as a percentage of sales. As a result, Adjusted EBITDA margin decreased by 102 basis points to 6.4% of revenues. New Unit Development Total Restaurants Mar. ‘13 Dec. ‘12 Sept. June Mar. (eop) ‘12 ‘12 ‘12 Brazil 735 731 691 677 666 NOLAD 503 503 496 492 490 SLAD 366 361 350 346 343 Caribbean 355 353 343 343 344 TOTAL 1,959 1,948 1,880 1,858 1,843 LTM Net Openings 116 108 103 91 86 *Considers company-operated and franchised restaurants at period-end Note: Information for SLAD and Caribbean reflect new division reorganization Gross openings of 133 restaurants over the twelve month period ended March 31, 2013, resulted in a total of 1,959 restaurants, 1,997 Dessert Centers, and 339 McCafe’s. The Company’s openings plan remains on-track, and more than 75% of full year 2013 openings were secured as of period end. Balance Sheet & Cash Flow Highlights Cash and cash equivalents were $145.0 million at March 31, 2013. The Company’s total financial debt (including derivative instruments) was $682.9 million, which included $306.9 million corresponding to the accounting balance of the 2019 USD Notes and R$ 675 million (equivalent to $336.6 million) related to the BRL 2016 Notes. Net debt was $537.9 million and the Net Debt/Adjusted EBITDA ratio was 1.6 at March 31, 2013. Net cash used by operating activities was $14.2 million in the first quarter of 2013. During the quarter, capital expenditures amounted to $37 million. Quarter Highlights & Recent Developments Venezuela Royalty Waiver The Company obtained a temporary royalty waiver from McDonald’s Corporation for Venezuela of $5 million for the full year 2013 and a proportionate amount was registered in 1Q13. Subsequently, the amount was increased, resulting in a total royalty relief for the year 2013 of $8 million, which will be recorded in the 2Q13 on an accumulated pro-rata basis. Dividend On April 5, 2013, the Company paid the first installment of its 2013 Dividends. The total amount paid was $12.5 million or $0.0597 per share on outstanding Class A and Class B shares. Annual General Shareholders Meeting The Company held its Annual Shareholders’ Meeting on April 25, 2013. All matters proposed were approved. Further information can be found in the investors section of the Company’s website. 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. Organic: To better discern underlying business trends, this release uses non-GAAP financial measures that segregate year-over-year growth into three categories: (i) currency translation, (ii) special items and (iii) organic growth. (i) Currency translation reflects the impact on growth of the appreciation or depreciation of the local currencies in which we conduct our business against the US dollar (the currency in which our financial statements are prepared). (ii) Special items include the impact of events that management does not consider part of the underlying performance of the business. (iii) Organic growth reflects the underlying growth of the business excluding the effect from currency translation and special items. About Arcos Dorados Arcos Dorados is the world’s largest McDonald’s franchisee in terms of systemwide sales and number of restaurants, operating the largest quick service restaurant (“QSR”) chain in Latin America and the Caribbean. It has the exclusive right to own, operate and grant franchises of McDonald’s restaurants in 20 Latin American and Caribbean countries and territories, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curaçao, Ecuador, French Guyana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, St. Croix, St. Thomas, Trinidad & Tobago, Uruguay and Venezuela. The Company operates or franchises 1,948 McDonald’s-branded restaurants with over 90,000 employees serving approximately 4.3 million customers a day, as of December 2012. Recognized as one of the best companies to work for in Latin America, Arcos Dorados is traded on the New York Stock Exchange (NYSE: ARCO). To learn more about the Company, please visit the Investors section of our website: www.arcosdorados.com 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 2013. 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 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 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, and stock-based compensation and bonuses incurred in connection with the Company’s initial public listing. First Quarter 2013 Consolidated Results (In thousands of U.S. dollars, except per share data) For Three-Months ended March 31, 2013 2012 REVENUES Sales by Company-operated 934,063 882,839 restaurants Revenues from 42,847 38,759 franchised restaurants Total Revenues 976,910 921,598 OPERATING COSTS AND EXPENSES Company-operated restaurant expenses: Food and paper (331,247) (304,660) Payroll and employee (200,408) (187,303) benefits Occupancy and other (262,462) (236,999) operating expenses Royalty fees (46,442) (43,993) Franchised restaurants (15,708) (14,104) - occupancy expenses General and administrative (80,333) (77,629) expenses Other operating (3,093) (1,694) expenses, net Total operating costs (939,693) (866,382) and expenses Operating income 37,217 55,216 Net interest expense (14,965) (11,979) Gain (loss) from 231 (1,163) derivative instruments Foreign currency (22,912) (3,887) exchange results Other non-operating (316) (553) expenses, net Income before income (745) 37,634 taxes Income tax expense (5,852) (12,146) Net (loss) income (6,597) 25,488 Less: Net income attributable to (5) (93) non-controlling interests Net (loss) income attributable to Arcos (6,602) 25,395 Dorados Holdings Inc. Earnings per share information ($ per share): Basic net (loss) income per common $(-0.03) $ 0.12 share Weighted-average number of common 209,529,412 209,529,412 shares outstanding-Basic Adjusted EBITDA Reconciliation Operating income 37,217 55,216 Depreciation and 29,121 20,129 amortization Other operating items excluded from EBITDA 2,355 2,735 computation Adjusted EBITDA 68,693 78,080 Adjusted EBITDA Margin 7.0% 8.5% as % of total revenues First quarter 2013 Results by Division (In thousands of U.S. dollars) 1Q Three-Months ended % Incr. Constant March 31, / Curr. 2013 2012 (Decr.) Incr/(Decr) % Revenues Brazil 460,922 449,969 2.4% 15.9% Caribbean 191,460 176,198 8.7% 13.9% NOLAD 98,014 89,443 9.6% 7.0% SLAD 226,514 205,988 10.0% 20.5% TOTAL 976,910 921,598 6.0% 15.7% Operating Income Brazil 38,747 50,496 -23.3% -13.3% Caribbean 5,610 6,918 -18.9% -7.0% NOLAD (2,478) (3,560) -30.4% -33.2% SLAD 14,715 16,088 -8.5% 1.6% Corporate and Other (19,377) (14,726) 31.6% 51.5% TOTAL 37,217 55,216 -32.6% -24.2% Adjusted EBITDA Brazil 55,104 62,310 -11.6% -0.1% Caribbean 12,222 13,037 -6.3% 1.4% NOLAD 4,721 3,069 53.8% 51.7% SLAD 20,405 20,414 0.0% 9.8% Corporate and Other (23,759) (20,750) 14.5% 30.0% TOTAL 68,693 78,080 -12.0% -3.2% Average Exchange Rate per Quarter Brazil Mexico Argentina 1Q13 2.00 12.62 5.02 1Q12 1.77 12.97 4.34 Local $ per 1 US$ Summarized Consolidated Balance Sheet (In thousands of U.S. dollars) March31, 2013 December31, 2012 ASSETS Current assets Cash and cash equivalents 145,000 184,851 Accounts and notes receivable, net 99,576 105,019 Other current assets (1) 308,408 311,628 Total current assets 552,984 601,498 Non-current assets Property and equipment, net 1,192,180 1,176,350 Net intangible assets and goodwill 65,921 67,271 Deferred income taxes 135,903 133,708 Other non-current assets (2) 75,495 70,336 Total non-current assets 1,469,499 1,447,665 Total assets 2,022,483 2,049,163 LIABILITIES AND EQUITY Current liabilities Accounts payable 216,844 244,365 Taxes payable (3) 118,329 125,713 Accrued payroll and other liabilities 190,120 150,690 Other current liabilities (4) 46,387 50,845 Provision for contingencies 103 507 Financial debt (5) 25,011 6,154 Total current liabilities 596,794 578,274 Non-current liabilities Accrued payroll and other liabilities 38,515 40,115 Provision for contingencies 20,054 20,092 Financial debt (5) 659,525 655,365 Deferred income taxes 7,764 9,007 Total non-current liabilities 725,858 724,579 Total liabilities 1,322,652 1,302,853 Equity Class A shares of common stock 351,654 351,654 Class B shares of common stock 132,915 132,915 Additional paid-in capital 21,998 18,634 Retained earnings 343,831 400,761 Accumulated other comprehensive loss (151,711) (158,821) Total Arcos Dorados Holdings Inc 698,687 745,143 shareholders’ equity Non-controlling interest in subsidiaries 1,144 1,167 Total equity 699,831 746,310 Total liabilities and equity 2,022,483 2,049,163 (1) Includes "Other receivables", "Inventories", "Prepaid expenses and other current assets", "Derivative instruments" and "Deferred income taxes". (2) Includes "Miscellaneous", "Collateral deposits" and "McDonald´s Corporation´ indemnification for contingencies". (3) Includes "Income taxes payable" and "Other taxes payable". (4) Includes "Royalties payable to McDonald´s Corporation" and "Interest payable". (5) Includes "Short-term debt" (only within current portion), "Long-term debt" and "Derivative instruments" Consolidated Financial Ratios (In thousands of U.S. dollars, except ratios) As of As of March 31, December 31, 2013 2012 Cash & cash equivalents 145,000 184,851 Total FinancialDebt (i) 682,935 659,788 Net FinancialDebt (ii) 537,935 474,937 Total FinancialDebt / LTM Adjusted EBITDA ratio 2.1 1.9 Net Financial Debt / LTM Adjusted EBITDA ratio 1.6 1.4 Total financial debt includes short-term debt, long-term debt and (i) derivative instruments (including the asset portion of derivatives amounting to $1,601 as a reduction of financial debt as of March 2013). (ii) Total financial debt less cash and cash equivalents. Contact: Investor Relations Contact Arcos Dorados Sofia Chellew, Director, Investor Relations, (+5411) 4711-2515 firstname.lastname@example.org www.arcosdorados.com
Arcos Dorados Reports First Quarter 2013 Financial Results
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