So, here's a classic market puzzle: a company reports sales that beat expectations, but its stock goes down anyway. That's what happened with Arcos Dorados Holdings Inc. (ARCO), the world's largest independent franchisee of McDonald's Corporation (MCD). For the fourth quarter, revenue came in at $1.267 billion, topping the Street's view of $1.241 billion. But earnings per share of 12 cents missed the consensus of 20 cents. And just like that, shares were down about 2%.
Sometimes the market cares more about profits than top-line growth. But let's dig into what's actually happening here, because the story is more interesting than just a missed earnings number.
First, the sales growth is real and impressive. Systemwide comparable sales—a key metric for restaurant chains—jumped 16% year-over-year. That fueled a 10.7% increase in total company revenue. This isn't just inflation; it's people buying more Big Macs and McNuggets across Latin America and the Caribbean.
The real engine here is digital. Revenue from digital channels—think delivery, self-order kiosks, and loyalty programs—surged 18.7% year-over-year. Crucially, digital sales now make up 62% of Arcos Dorados's total systemwide sales. That's a huge shift. The company is essentially running a tech-enabled restaurant business, not just flipping burgers.
Performance varied by region. In Brazil, comparable sales improved sequentially from the third quarter. In Mexico and Argentina, sales growth significantly outpaced blended inflation—by 1.5 times in Mexico and 1.3 times in Argentina. That suggests real volume growth, not just price hikes.
On the profitability front, adjusted EBITDA hit $172.7 million, up from $147.4 million a year ago. The margin expanded to 13.6% from 12.9%. So, operations are becoming more efficient even as sales grow. The quarter also included a $33.8 million net tax benefit in Brazil, which the company expects to convert to cash over the next five years. That's a nice future tailwind, but it didn't save the earnings miss this quarter.
Arcos Dorados is also in expansion mode. It opened 48 restaurants in the quarter, 41 of which were free-standing locations. By the end of the quarter, 73% of its restaurants had been modernized. The company exited the year with a solid cash position of $373.4 million.
Looking ahead, the growth story continues. Arcos Dorados still expects to open 105 to 115 new restaurants in 2026. To support that, it's planning capital expenditures of $275 million to $325 million for the year. That's a significant investment in its future footprint.
So, why did the stock slip? Sometimes a miss on the bottom line, even with strong sales, gives investors pause. They might be weighing the costs of rapid digital adoption and expansion against current profits. Or it could just be a classic "sell the news" reaction after a strong run. But for a company that's clearly winning in digital sales and expanding aggressively across Latin America, one quarter's earnings miss might not tell the whole story.
