Arcos Dorados Holdings Inc. (ARCO) Income Statement

The growth trajectory shows a clear inflection from the stagnation of 2024Q4-2025Q1, where revenue growth was negative or flat, to a robust double-digit pace in the most recent quarters. This acceleration appears to be driven by a combination of inflationary pricing in key markets like Brazil and the continued rollout of digital sales channels, which may be expanding the customer base. However, the durability of this growth is questionable, as it may be heavily reliant on price increases that could eventually meet consumer resistance in volatile Latin American economies.

The structural gross margin appears constrained by the mandatory royalty and rent payments under the McDonald's MFA, leaving limited room for error. The recent decline suggests that input cost inflation, particularly for beef and wheat, is eroding profitability faster than pricing actions can offset it. This margin profile is significantly below capital-light franchisors like YUM (46.2%) and QSR (41.1%), highlighting the fundamental difference between a franchisee operator and a brand owner.

The data shows that for every dollar of incremental gross profit, a significant portion is being consumed by rising SG&A, which grew from $85.1M to $80.4M sequentially despite higher revenue. This suggests that the company is not achieving the overhead efficiency typically expected from a scaling restaurant operator. The lack of operating leverage implies that future profit growth will be almost entirely dependent on gross margin recovery, which appears unlikely given the current cost environment.

The primary cost drivers appear to be food & paper and labor, which together form the bulk of COGS. The fact that COGS is growing faster than revenue suggests that management is struggling to control input costs or is absorbing cost increases to maintain market share. This trend is particularly concerning given the company's already thin gross margin, as it leaves virtually no buffer for further cost shocks.