Arcos Dorados Holdings Inc . (NYSE:ARCO), the largest McDonald's (NYSE:MCD) franchisee in Latin America and the Caribbean, announced its highest annual revenue in history, reaching $4.3 billion for the full year 2023. The company's 3D strategy—focusing on Digital, Delivery, and Drive-thru—has been a driving force behind a 22.2% increase in adjusted EBITDA, which amounted to over $472 million.
The fourth quarter saw system-wide comparable sales grow by 32.4%, while digital sales accounted for 53% of system-wide sales. The company also declared a cash dividend of $0.24 per share and plans to continue its expansion with 80 to 90 new EOTF restaurants in 2024.
Key Takeaways
- Arcos Dorados' total revenue for 2023 hit a record $4.3 billion.
- Adjusted EBITDA grew by 22.2%, reaching over $472 million.
- System-wide comparable sales increased by 32.4% in Q4.
- Digital sales grew by 39% and represented 53% of total system-wide sales.
- The company launched a loyalty program in Brazil and Uruguay, surpassing 5 million members.
- Plans to open 80 to 90 new EOTF restaurants in 2024.
- A cash dividend of $0.24 per share will be paid in equal installments throughout the year.
- Net leverage at the end of 2023 was 1x, with an 11% increase in cash flow from operations.
Company Outlook
- Arcos Dorados aims to grow sales at or above inflation in 2024.
- A more favorable cost environment for food and paper is expected, which should support healthy margins.
- The company plans to fund 2024 capital expenditures with cash on hand and cash from operations.
Bearish Highlights
- Margin headwinds experienced in Brazil and NOLAD may continue into 2024.
- Headwinds in SLAD, particularly in Argentina and Ecuador, are affecting sales.
- The devaluation of the Argentine peso is expected to impact 2024 results.
Bullish Highlights
- Loyalty program membership increased from 3 million to 5 million in just two months.
- Positive sales performance in Brazil and NOLAD.
- Consistent market share gains and improved SG&A as a percentage of revenue.
Misses
- The company faced pressure from food and paper costs, although this pressure lessened in the second half of 2023.
Q&A highlights
- Arcos Dorados' stock price affects the mark-to-market of the long-term management compensation plan.
- The company has seen a positive impact from the devaluation in Argentina on their P&L, primarily related to impairments and write-offs of long-lived assets.
- Improvement in the effective tax rate related to non-taxable gains in Argentina.
- First-quarter 2024 earnings results are expected to be reported in mid-May.
Arcos Dorados continues to leverage its 3D strategy to maintain a strong growth trajectory, with an emphasis on digital innovation and customer loyalty programs. Despite economic challenges in specific markets, the company's overall performance signals a robust operational strategy and a commitment to delivering shareholder value.
InvestingPro Insights
Arcos Dorados Holdings Inc. (ARCO) has demonstrated a strong financial performance in the last year, as reflected in the company's record-breaking annual revenue for 2023. To provide a deeper understanding of the company's financial health and investment potential, here are some curated insights from InvestingPro:
InvestingPro Data highlights the company's robust revenue growth, with a significant 19.7% increase in revenue over the last twelve months as of Q4 2023, reaching $4,331.88 million. This is in line with the company's reported annual revenue, reinforcing the success of its 3D strategy. Additionally, ARCO's P/E Ratio stands at 13.61, suggesting that the stock may be trading at a reasonable valuation given its earnings. The company's Price / Book multiple is at 4.83, which could indicate the market's positive sentiment towards ARCO's assets and growth prospects.
InvestingPro Tips indicate that ARCO has raised its dividend for three consecutive years, showcasing a commitment to returning value to shareholders. This aligns with the article's mention of the declared cash dividend of $0.24 per share. Furthermore, the company is trading at a low P/E ratio relative to near-term earnings growth, which might appeal to value investors looking for growth at a reasonable price.
For investors seeking additional insights, there are more InvestingPro Tips available that delve into ARCO's market position and future profitability predictions. For instance, ARCO is recognized as a prominent player in the Hotels, Restaurants & Leisure industry and analysts predict the company will be profitable this year.
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Full transcript - Arcos Dorados Holdings Inc (ARCO) Q4 2023:
Daniel Schleiniger: Good morning, everyone, and thank you for joining our Fourth Quarter and Full Year 2023 Earnings Webcast. With us today are Marcelo Rabach, our Chief Executive Officer; Luis Raganato, our Chief Operating Officer; and Mariano 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 Investors 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.
Marcelo Rabach: Thank you, Dan. Good morning, everyone, and thank you for joining us today. I am very pleased to confirm that we had a very strong year in 2023. Our 3D's strategy of Digital, Delivery and Drive-thru continues to evolve, while leveraging the industry’s largest freestanding restaurant portfolio. Digital sales includes mobile app, Delivery and Self-order Kiosk consumptions. The penetration of these channels is expanding throughout footprint. Thanks to a mobile app that has evolved into an ecommerce platform offering incentives and convenience to increase guest loyalty and visit frequency. A delivery sales channel which continues to work strongly in a segment where we are the established industry leaders. On self-order kiosks that are capturing an increasing share of on-premise orders with above 60% of Arcos Dorados restaurants already modernized to the experience of the future format. Our 3D’s strategy continues to drive sustainable sales growth supported by both restaurant volume and average check. Importantly, we are implementing the strategy in a way we believe we deliver above inflation growth in system-wide comparable sales to then drive operating leverage and profitability growth. Our balance sheet is very strong which allows us to accelerate restaurant openings and capture significant growth opportunities for years to come, all while operating responsibly and supporting the communities we serve. Let’s turn to our consolidated results for the fourth quarter and full year 2023. Total revenue surpassed $1.2 billion in the quarter, and $4.3 billion for the full year, which was the highest U.S. dollar total in our history for each period. Guest volumes were up mid-single-digits in each division this year helping to drive the 19.7% increase in US dollar revenue in 2023. In line with our strategic approach, adjusted EBITDA grew with revenue reaching almost $133 million in the quarter, and more than $472 million for the full year. These results were also the highest US dollar total in our history for each period. US dollar adjusted EBITDA grew 16.3% in the fourth quarter and 22.2% for the full year on top of the prior year’s record results. This included incremental margin improvements in both periods, thanks mainly to better food and paper costs and G&A expenses. Net income for the quarter was almost $56 million, or $0.26 per share. We generated the best ever full year net income of more than $181 million or $0.86 per share last year. System-wide comparable sales grew 32.4% in the fourth quarter, rising with or above inflation in all divisions and above 1.1 times the company’s blended inflation demonstrating the strength of the 3D’s strategy. Our restaurant pipeline continues to demonstrate the growth opportunity that lies ahead of us. During the fourth quarter, we opened 36 restaurants bringing the full year total to 81 new restaurants across our footprint. This included 72 new freestanding locations. In Brazil, we opened 50 total restaurants last year including 44 freestanding units. Importantly, first year redundant investment for the restaurants we opened in each of the last three years has been in the mid to high 20s which supports our outlook for long-term unit growth potential. Our market share in all mid-markets is a testament to the strong brand positioning we have built and the significant consumer preference we enjoy versus our nearest competitors. According to a research, we gained more market share that our main competitors in the fourth quarter, further strengthening our leadership position. Notably, these gains came in markets where McDonald’s brand share is already two to almost four times that of our main competitors. Luis, over to you for divisional sales performance .
Luis Raganato: Thanks, Marcelo, and good morning, everyone. Brazil's comparable sales rose 6.2% in the quarter and 9.9% for the full year. Comparable sales rose 1.3 times inflation in the quarter and 2.1 times inflation for the year with about equal contribution from guest values and average check over the course of full year 2023. About 63% of sales came through digital channels in Brazil, with identified sales representing 26% of the total. The loyalty program we launched at the end of October helped improve performance on both fronts, especially after Black Friday. As Marcelo just showed you, McDonald’s brand market share in Brazil remained at more than twice that of our nearest competitor. The quarter included 12 of the top 20 strongest sales days of the year driving market share gains in both guest visits and sales. We introduced “McCrispy Chicken Elite sandwich in October, combining crispy and juicy breaded chicken with the new Honey & Fire sauce. The sandwich is already one of the best sellers in the country where we are committed to growing the chicken category. In November, we reinforced the beef platform bringing back the famous Big Mac jingle with the launch of two limited timed offers: the “Double Big Mac” and the “Big Mac Bacon”. As of the end of 2023, we had more than 3 million registered members in the loyalty program across a 100% of restaurants in Brazil including all sub-franchisees. The division’s traditional Méqui Friday campaign in November helped generate record mobile app downloads and active users. NOLAD’s comparable sales grew 5.4% in the quarter and 10.6% for the full year, which was 2.1 times and 2.9 times to division’s blended inflation respectively. Volume growth accounted for about two-thirds of comparable sales growth last year. The division reinforced its market leadership in the fourth quarter achieving its highest level of visit share while growing key brand attributes such as “Top of Mind”, “Favorite Brand” and “High-Quality Food”. Mexico’s sales momentum remains strong with mid-teens year-over-year growth in the quarter. Marketing activities were key to support this growth with the launch of GRANDS Tasty and Bacon, new platform focused on large and indulgent burgers to engage guests. In Puerto Rico, we continued gaining market share leading the island’s highly competitive QSR industry. The brand campaign Saca Tu Encanto supported brand love in that market. Finally , we are making good progress with the digitalization of Nolad where 34% of sales came from digital channels in the quarter, up from just 22% last year. At last comparable sales grew in line with the division’s blended inflation rate for the quarter and 1.2 times blended inflation for the year. Guest volume growth in 2023 was in the mid to high-single-digit range, while comparable sales were impacted by inflation aided growth in Argentina all year. Brand strength has been a consistent contributor to market share gains and sales growth for the entire company including SLAD where we added significant market share in the period. The fourth quarter included the launch of brand affinity campaigns such as, Pasan Cosas Lindas” in Argentina and “Me Gustas Así” in Chile. The results were important sequential improvements in key brand attributes such as favorite brand and branded trust in both markets. Brand innovation included new large sandwiches such as the Grand Tasty Spicy in Argentina and the Bacon Cheddar McMelt in Chile and Colombia to boost the beef platform. We also supported the desert category taking advantage of local flavors with new McFlurry in several SLAD markets. After Mariano takes you through divisional profitability, I will come back to tell you about the performance of the 3D’s strategy.
Mariano Tannenbaum: Thanks, Luis. Good morning, everyone. We are very pleased to be reporting the strongest ever EBITDA results for a fourth quarter and full year in Arcos Dorados history. Adjusted EBITDA grew 16.3% in US dollars, slightly above total revenue growth in the quarter. Similarly, full year EBITDA grew 22.2% in US dollars, leveraging 19.7% revenue growth in 2023. Moving forward, we expect to continue generating profitability growth by offering value to our guests and by opening new restaurants to drive sales growth. We should also capture some operating leverage to support incremental margin improvements. Consolidated EBITDA margin rose by 10 basis points in the quarter and 20 basis points for the full year. Food and paper, payroll and G&A, all contributed to margin expansion last year helping offset the higher effective royalty rates in 2023. Excluding the impact of the royalty rate, our full year 2023 EBITDA margin rose 60 basis points over the prior year. Fourth quarter adjusted EBITDA grew strongly in all three divisions. In Brazil, EBITDA was up 15.4% in US dollars, lower food and paper and G&A expenses were offset mainly by higher payroll and occupancy and other operating expenses as a percentage of revenue. For the full year, Brazil’s EBITDA grew 23.9% in US dollars, boosted by a 60 basis points increase in margin. Margin expansion for the full year included better food and paper, payroll and G&A expenses, which were partially offset by small increases in occupancy and other operating expenses, as well as royalties as a percentage of revenue. NOLAD’s EBITDA grew 11.7% in US dollars, lower food and paper costs were offset mainly by higher payroll and occupancy and other operating expenses as a percentage of revenue. NOLAD’s full year EBITDA grew 21.1% in US dollars. Margin was down 20 basis points, due mainly to the higher effective royalty versus 2022, which was partially offset by a net improvement in other cost and expense line items. SLAD’s adjusted EBITDA grew 31% in US dollars in the fourth quarter. EBITDA margin improved by 160 basis points with lower payroll and occupancy and other operating expenses, partially offset by higher food and paper costs as a percentage of revenue. For the full year 2023, SLAD’s EBITDA grew 19.5% in US dollars including an incremental improvement of 10 basis points over the prior year’s margin with improvements in most cost and expense line items, offsetting the higher effective royalty rates versus 2022. Luis, back to you.
Luis Raganato: Let’s turn to the 3D’s strategy of Digital, Delivery and Drive-thru. Digital sales grew 39% in US dollars and contributed 53% of system-wide sales in the quarter. We also identified 21% of the quarter’s system-wide sales and this figure should continue to rise as we roll out the loyalty program to more markets. The goal is to identify 40% of sales by the end of 2025 keeping in mind our ability to positively impact the customers’ average and visit frequency with significant increases the value of an identified customer. The mobile apps downloads and monthly active users continued to grow during the quarter receiving boosts from the launch of the loyalty program in Brazil and Uruguay, as well as the increasing popularity of the mobile order and pay functionality. As we have said in the past, the only channel approach we are taking across geographies restaurant formats and digital platforms is allowing us to serve more customers the way they want to be served. This is why it was so important to evolve the mobile app from a couponing to, to an ecommerce platform with personalized offers multiple ways to place and receive orders and a loyalty program. In addition to the mobile app and deliveries which I will tell you about on the next slide, let’s not forget that Digital sales also include the self-order kiosks in EOTF restaurants. In some markets, self-order kiosks are the number one sales channel delivering higher average checks and operation efficiency while capturing the lion’s share of on-premise value. Both Delivery and Drive-thru contributed to the strong sales growth in the quarter with combined off-premise US dollar sales rising 16% versus the prior year, taking advantage of our freestanding restaurant portfolio, Delivery became almost a billion dollar sales channel for us in 2023 growing from less than 5% of sales in 2019. We have also developed plans in each of our markets to continue boosting Drive-thru sales in 2024, which is a channel we already dominate across the region. In late October of last year, we launched a new loyalty program in two of our markets, Brazil and Uruguay. At the end of February, the program had grown to more than 5 million members adding 2 million members in just the last months. We monitor several important KPIs and compare them with benchmarks within both the McDonald system, as well as industry peers and similar programs in other industries. So, March, we have very healthy results in terms of active customers, visit frequency and retention rates. We will soon roll out the loyalty program to additional markets in NOLAD and SLAD and expect it to be fully implemented by the end of 2025. We look forward to sharing the progress on future calls. Now that you have seen this trend of our operating results, let’s take a look at the balance sheet and cash flows that will support accelerated unit growth in the coming years. Net leverage at the end of 2023 was unchanged from the end of 2022 or just 1x. Assessing the difference throughout the year, total debt rose modestly versus the prior year-end as we deployed cash to fund capital expenditures. Additionally, the appreciation of the Brazilian real reduced the value of our derivative instruments, certain increase in net debt was offset by the EBITDA growth we presented earlier. Cash flow from operating activities grew 11% versus the prior year, allowing us to meet our ambitious capital expenditure plans for the year, while keeping net leverage unchanged. As Marcelo already shared, restaurant openings were just above the top end of our 75 to 80 openings guidance range for full year 2023, just above 90% being freestanding openings increasingly structural competitive advantage across our markets. Capital expenditures for the full year totaled $360 million in line with our guidance. With that, we met our openings guidance, modernized another 10% of our existing restaurants, performed required maintenance on all other restaurants and enhanced our information technology infrastructure and digital capabilities. Returns on investments from both openings and modernizations remain well above historical averages and part of the CapEx at the end of 2023 was invested in openings planned for the first quarter of 2024. In fact, we have already opened 18 restaurants so far this year. For the full year 2024, we plan to open 80 to 90 EOTF restaurants, again with about 90% of them being freestanding, we expect to accomplish this plan with capital expenditures of $300 million to $350 million, which we plan to fund with cash on hand and cash from operations. About 60% of restaurants across the Arcos Dorados footprint, our experience of the future locations. We remain confident that we will surpass 90% of our footprint modernized to EOTF by the end of 2027 reaping all the benefits of the formats enhanced technology to improve guest experience, while driving additional sales growth and operational efficiency. Finally, in addition to the value the business is generating and as part of its ongoing commitment to provide shareholders with multiple sources of return, Arcos Dorados’ Board of Directors has approved a cash dividend of $0.24 per share to be paid in full equal installments towards the end of each calendar quarter. Marcelo, back to you.
Marcelo Rabach: Thanks, Mariano. Operating responsibly is an important principle for Arcos Dorados, which is why we continue to develop and implement our recipe for the future ESG platform. In 2023, we continued moving forward with our commitment to source 100% fresh cage free eggs. So far, we had switched our sourcing in Brazil, Colombia, Costa Rica, Puerto Rico and Peru. We are already working out the details for our upcoming transition in several additional markets and expect to achieve our commitment to be 100% fresh cage free in all Arcos Dorados markets by the end of 2025. Our sustainable construction program reached new cities in Latin America, arriving in Brazil, Chile, Peru, Argentina, and Ecuador. These new or remodeled restaurants include up to 25 sustainability initiatives and come equipped with technology that minimizes the operations environmental impact. The technologies include smart airconditioning systems, water collection tanks, solar panels, and waste separation beams among others. In 2023, Arcos Dorados sourced about 30% of its energy from renewable sources. Last year, we also signed an agreement with the [Indiscernible] a leading company in the Argentinean energy sector to source electricity from a new wind farm they built in the province of Buenos Aires. We began sourcing electricity from this new farm last month and along with other prospects in Brazil and Colombia, we expect these to help us continue converting our energy matrix to more sustainable sources in 2024. Before we open the call for questions and answers, I would like to share a few final thoughts. We are very proud of the results we delivered in 2023. Comparable sales rose with or above inflation in all markets driven by higher guest volumes and a competitive pricing strategy that offer the most compelling value proposition in the region. Total revenue benefited from the strong comp sales performance, as well as restaurant openings and in mostly neutral currency environment. In 2023, profitability grew mainly as a result of top-line growth as we used some of our margin opportunity to drive guest volume. Over time, this is more sustainable and reflects habit formation among guests supporting increased frequency and lifetime value. But it is worth repeating that excluding the impact of the higher royalty rate, full year 2023 EBITDA margin was 60 basis points higher than the prior year. The structural competitive advantages we enjoy today are real and we have strengthened them in 2023. Our freestanding restaurant portfolio grew larger and we opened even more opening gap between us and our nearest competitors. And our Digital platform is second to none with the industry’s most downloads, active users, functionalities, sales, you name it. Our plans is to continue leveraging these advantages while bringing them to more markets in the coming years. Finally, the restaurant openings is as strong as ever. We will maintain discipline around the processes and tools that have generated the strong results over the last few years. We also expect to increase the base of openings in the next couple of years to take advantage of the opportunity to expand the McDonald’s brand in a highly underpenetrated region of the world. We are now two and a half months into the first quarter of 2024 and we are pleased with the continued growth of our markets. We set ambitious internal goals for revenue and EBITDA growth this year with solid results so far. Needless to say, we are also keeping a close eye of developments in Argentina and Ecuador at the beginning of 2024. But we feel confident with the brand along with the right strategy and team to continue generating significant value for our shareholders, people and communities. Thank you all for your continuing support. Dan, over to you to start the Q&A session.
A - Daniel Schleiniger: Thanks, Marcelo. [Operator Instructions] Great. So our first question today comes from Melissa Byun who actually sent a couple of questions from Bank of America. So I will start with the first one. I think this one is for you Mariano. Can you please discuss the margin outlook for 2024, including expectations for food and paper costs, wages and other expenses? And where do you see the potential for productivity gains and/or other sources of savings?
Marcelo Rabach: Okay. Thank you, Dan. Thanks, Melissa for the question and good morning to everybody. For the margin outlook 2024, we are committed to continue with our successful strategy that we have consistently delivered in the past four years. With our enlarged footprints of freestanding restaurants and the 3D’s, we will focus on growing sales above inflation, increasing our EBITDA in dollars, while obtaining margin expansion as we have done in the last two years. That’s how we increased our EBITDA from $272 million in 2021, to $472 million in 2023, that’s a 74% increase in US dollars and our EBITDA margin from 10.2% to almost 11% last year, despite the increase in the royalty rates. So in 2023, specifically, our strategy generated an EBITDA growth of 16.3% in the fourth quarter and 222.2% for the full year in US dollars. For 2024, we expect to continue this trend of growing sales at or above inflation with a more benign cost environment for food and paper. That should translate in maintaining the healthy margin trends of the last years. We did see some headwinds in margins in Brazil and NOLAD the ones that we experienced in ’20 - in the last quarter of 2023 to translate into 2024. So, in summary, the expectation for 2024 is to continue with the same trend that we had in 2023.
Luis Raganato: And if you let me add, Mariano, to improve margins, what we are doing in the region is focusing on the equalization of our execution and how we manage our business. What we do is, we have a benchmark market like Brazil. We take the best practices to – positively impact markets that have a specific opportunity and we have this kind of opportunities not only when you compare market-to-market but within some markets and even on a store level. So, what we are doing today is leveraging from the diversity and scale that we have in the company.
Daniel Schleiniger: Great. Thanks. Thanks guys. Melissa’s second question actually, it’s back to you Luis, is going to be, good growth. The loyalty program has been very impressive. Can you share any metrics on the behavior of members versus non-members? Thank you.
Luis Raganato: Yeah, thank you for the question, Melissa. The main metric that we have today– are there registered members, okay? And like you said, it is a very positive number. We came from 3 million members in December to 5 million members by the end of February. And what we are expecting is to increase the value of identified sales that’s another metric that we are starting to see. What we expect is that the loyalty programs are such a booster of those identified sales. And what we are already seeing is an increase in visit frequency but today it’s very early to – we are in the early stages of the program. And what I can add is that, we are going to roll out the program in many markets by the end of this year. Dan?
Daniel Schleiniger: Great. Thanks, Luis. The next question is from Julia Rizzo from Morgan Stanley. Actually she has about a three or four parter here. So let’s take this in pieces. First is please comment on same-store sales trends. I think she is probably talking more about the beginning of ‘24 than the end of ‘23 since we published those back in January and we’ll start with you Marcelo.
Marcelo Rabach: Okay. Thank you. Hi, Julio, thank you for your questions. Since February of this year of 2024 the cumulative sales trends are above the line with our expectations. Our strategy is to remain focused on offering value, great value to our guests all across our menu. And we expect this to help deliver comparable sales growth at or above inflation in the full year 2024 in most of our markets. And there are contributions in the sense coming from a very competitive pricing. We are pushing for categories of our program meets where we see the biggest opportunities. So we should have some contributions coming from our Board meets. And finally, we continue to see a positive evolution in terms of guest volumes that has been the case for the first two months of the year. In terms of the contribution of the different markets, I would say that based on the first two months of the year, we’ll face some headwinds in SLAD, particularly in Argentina and Ecuador. But at the same time, we saw very strong contributions coming from the other markets of SLAD and from the other two divisions. Brazil is doing extremely well and NOLAD too. So with this kind of performance in terms of sales, what we expect is an EBITDA growth at the consolidated level for the full year 2024 as it has been the case when we take a look to our results in the first two months of this year. So we are pretty constructive in terms of the same-store sales trend, which allowed us to gain market share consistently across the region last year and we continue with that trend in the first two months of this year.
Daniel Schleiniger: Great. Thanks, Marcelo. The next of three parts of Julia’s question, I think are all for you Mariano. The first one she asks about margin is declining in Brazil and Nolad and if that’s a one-off I think you’ve addressed that already. Basically saying that, correct, that is more of a one-off not something that we expect to continue into ’24. And then she asks a couple questions and some of that are related to Argentina. She says also corporate expenses and others increased above expectations despite the exposure to what we call Argentine peso. And related to that, how much is Argentina now of total sales and EBITDA? So I will give you those to Mariano.
Mariano Tannenbaum: Perfect. And thanks, Julia for the question. First of all, we continue to improve the SG&A as a percentage of revenues. In fact 2023 has the lowest percentage of SG&A, as a percentage of revenue in the history of the company. The positive impact that we should expect that you mentioned from the devaluation of Argentina will have an impact during 2024 as the devaluation happened only in the first - in the last two weeks of last year. And the increase in absolute terms can also be explained by the investment in Digital that the company continues to have and is driving sales and helping us to drive sales above inflation. And also, due to the increase last year in the stock price that has an impact on the mark-to-market of the long-term management compensation plan that we already mentioned. Regarding the second part of the question about how much is Argentina now of total sales and EBITDA? It remains the same as in 2022. In 2023, 16% approximately of total sales.
Daniel Schleiniger: Great. Thanks, Mariano. The next questions come from Thiago Bortoluci from Goldman Sachs. Good morning, Marcelo and Arcos team. Congrats on the strong EPS. Could you also please comment on sequential gross margin performance, i.e. versus the third quarter of 2023 per division? And that’s the first part of Thiago’s question. And I guess, I give that over to you Marcelo.
Marcelo Rabach: Okay. Yeah, hi, Thiago. Thanks for your question. What we saw in the second half, I would tell you of 2023 and that’s the trend, which – with which we started in 2024 is less pressure coming from food and paper costs. That’s why our food and paper improved in the second half and improved sequentially in the fourth quarter of this year when compared to the third quarter. And we are using strategically that room in our costs and in our margins in order to impress in offering the most compelling value proposition in the markets. And that’s why I think one of the main reasons I think we continue to gain market share and we continue to build this customer base which will allow us to create and generate to capture shareholder value for the long-term for the company. We are experiencing a leadership position, which is bit strong and we are building on that leadership position using in our favor the less pressure that we are seeing in terms of food and paper costs.
Daniel Schleiniger: Great. Thanks, Marcelo. And a second part of Thiago’s question, we will come back to you Mariano and he says, could you walk us through the impacts from Argentina on your P&L? Thanks. Again I am assuming we are talking about the fourth quarter of ’23.
Mariano Tannenbaum: Yes. Perfect. Yeah the FX sheet on the P&L is as described in our press release. Other operating income that includes a total of $7.4 million non-cash expense. That’s primarily related to higher impairments and write-offs of long-lived assets versus the prior year. Within this number, above $3.5 million is related to the devaluation in Argentina. In addition, in the 4Q there is an FX non-cash remeasurement is also $11.5 million. But keep in mind that for the full year 2023, the impact is positive in $5 million. So, those are the main impacts that we have in the P&L. On top of that, we have an improvement in our effective tax rate, as well related to Argentina due to generated non-taxable gain below also the operating line. That actually is giving us or allowing us to have the effective tax rates below the 5% that you can see in our results.
Daniel Schleiniger: Great. Thanks, Mariano. And I actually don’t see any more questions in the queue. So that brings U.S. to the end of the Q&A session.
Daniel Schleiniger: Like Luis and I remain available to any analyst or investor that has a question related to our results or our expectations for 2024. Thanks again to everyone for your interest in Arcos and joining the webcast today. Look forward to speaking with you again sometime in the middle of May when we report our first quarter 2024 earnings results. And until then, stay safe and have a great day.
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