Arcos Dorados Holdings Inc. (ARCO), the largest independent McDonald's Corp. (MCD) franchisee, reported better-than-expected third-quarter earnings Thursday, driven by strong sales growth and rising digital demand across Latin America.

The company reported earnings of 15 cents per share, beating analysts' estimate of 14 cents.

Revenue rose 11.3% year over year to $1.328 billion, topping expectations of $1.320 billion.

CEO Luis Raganato said the company gained market share and delivered growth across all three divisions despite challenging consumer conditions.

Digital Sales Drive Growth

Systemwide comparable sales climbed 15.5%, supported by higher average checks and increased customer traffic.

Digital sales jumped 22%, accounting for roughly two-thirds of systemwide sales.

Identified sales reached 29% of total sales, while loyalty program membership surged 60% to nearly 38 million members.

Regional Performance Strengthens

Brazil's comparable sales rose 3.5%, while dollar-denominated revenue grew more than 15%. Adjusted EBITDA increased $6.2 million to $68.1 million, excluding a year-earlier tax benefit.

NOLAD comparable sales remained nearly flat but improved sequentially. Adjusted EBITDA climbed nearly 10%, despite continued pressure in Mexico.

Meanwhile, Argentina and Venezuela led growth in SLAD. Colombia, Peru and Uruguay also posted strong results.

Profitability Improves Despite Wage Pressures

Adjusted EBITDA rose 9% on an underlying basis to $125.9 million, excluding a year-earlier Brazilian tax benefit. However, reported adjusted EBITDA fell 37.4% due to the prior-year tax benefit. Adjusted EBITDA margin reached 9.5%.

Food and paper costs declined 90 basis points as a percentage of revenue.

However, wage inflation outpaced average check growth, putting pressure on payroll expenses.

Trailing 12-month adjusted free cash flow increased to $156.3 million from $52.6 million a year earlier.

Restaurant Expansion and Buyback Plans

Arcos Dorados opened 35 restaurants during the quarter, including 28 freestanding restaurants.

The board also approved a share repurchase program of up to $25 million over the next six months.

CEO Luis Raganato said the company believes its shares are undervalued at current levels. He described the buyback as an attractive investment opportunity, reflecting management's confidence in Arcos Dorados' long-term growth plans.

Long-Term Growth Outlook

The company expects mid- to high-single-digit annual revenue growth and high-single-digit to low-double-digit adjusted EBITDA growth over the long term.

Between 2027 and 2030, Arcos Dorados plans to open 550 to 600 restaurants and invest $1.3 billion to $1.5 billion in capital expenditures.

Its updated development model has improved first-year returns by 3 to 5 percentage points while reducing investment costs per restaurant.

These objectives reflect long-term growth expectations rather than guidance for any single year.

ARCO Price Action: Arcos Dorados Holdings shares were up 2.81% at $7.13 at the time of publication on Thursday, according to market data.