Arcos Dorados Exercises Renewal Option for Its Master Franchise Agreement With McDonald’s

Rhea-AI Summary

Arcos Dorados Holdings Inc. (NYSE: ARCO), Latin America's largest restaurant chain and the world's largest independent McDonald's franchisee, has exercised its option to renew its Master Franchise Agreement (MFA) with McDonald's (NYSE: MCD). The new 20-year MFA will be effective from January 1, 2025. The agreement is expected to include:

• A Renewal Option for another 20-year MFA beginning January 1, 2045
• A royalty structure of 6.0% of Gross Sales for the first ten years, 6.25% for the next five years, and 6.5% for the final five years

Both companies believe there are significant growth opportunities in Arcos Dorados' 20 countries and territories. The Company plans to open approximately 90 to 100 restaurants in 2025.

Positive

• Renewal of Master Franchise Agreement with McDonald's for 20 years
• Planned expansion with 90-100 new restaurant openings in 2025
• Potential for further renewal in 2045 for another 20-year term

Negative

• Gradual increase in royalty payments over the 20-year agreement period

Insights

Financial Analyst

The renewal of Arcos Dorados' Master Franchise Agreement (MFA) with McDonald's is a significant development for the company's long-term stability and growth prospects. This 20-year extension provides a solid foundation for Arcos Dorados to continue expanding its operations across Latin America.

Key points to consider:

• The new MFA includes a tiered royalty structure, starting at 6.0% of Gross Sales for the first decade, increasing to 6.25% and 6.5% in subsequent five-year periods.
• Arcos Dorados plans to open 90-100 new restaurants in 2025, indicating strong growth expectations.
• The agreement includes an option for another 20-year renewal starting in 2045, demonstrating long-term commitment from both parties.

This renewal solidifies Arcos Dorados' position as McDonald's largest independent franchisee and provides a clear roadmap for future expansion. Investors should view this positively as it reduces uncertainty and supports the company's growth strategy in the region.

Market Research Analyst

The renewal of Arcos Dorados' MFA with McDonald's is a strong indicator of the company's market position and growth potential in Latin America. Several factors make this development particularly noteworthy:

• Market Expansion: The planned opening of 90-100 new restaurants in 2025 suggests significant untapped potential in the 20 countries and territories where Arcos Dorados operates.
• Brand Strength: McDonald's continued trust in Arcos Dorados underscores the strength of the brand in the region and the franchisee's operational excellence.
• Long-term Stability: The 20-year agreement, with an option for another 20 years, provides a stable foundation for long-term planning and investment.

This renewal positions Arcos Dorados favorably in the competitive fast-food landscape of Latin America, potentially leading to increased market share and revenue growth. Investors should monitor the company's execution of its expansion plans and its ability to maintain profitability amid the tiered royalty structure.

MONTEVIDEO, Uruguay--(BUSINESS WIRE)-- Arcos Dorados Holdings Inc. (NYSE: ARCO) (“Arcos Dorados” or the “Company”), Latin America’s largest restaurant chain and the world’s largest independent McDonald’s franchisee, notified McDonald’s (NYSE: MCD) that it will exercise its option to renew its Master Franchise Agreement (“MFA”) with McDonald’s.

As previously disclosed, Arcos Dorados received a Renewal Notice from McDonald’s, on August 1, 2024, to replace the parties’ existing MFA with a new, 20-year MFA, to be effective as of January 1, 2025. On September 30, 2024, and in line with the current MFA’s renewal procedures, Arcos Dorados provided notice to McDonald’s of its intention to exercise its Renewal Option. The parties are now working to finalize the new MFA agreement.

Upon signing, the new MFA agreement is expected to include a Renewal Option for a new, 20-year MFA, beginning January 1, 2045. Additionally, the new agreement is expected to include a royalty of Gross Sales of 6.0% for the first ten years, 6.25% for the subsequent five years and 6.5% for the final five years.

Arcos Dorados and McDonald’s share in the belief that the Company’s 20 countries and territories present significant opportunities for growth. In line with this view, the Company expects to open approximately 90 to 100 restaurants in 2025.

Arcos Dorados will communicate additional progress as appropriate and in line with the requirements of the US Securities and Exchange Commission.

About Arcos Dorados

Arcos Dorados is the world’s largest independent McDonald’s franchisee, operating the largest quick service restaurant 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 with almost 2,400 restaurants, operated by the Company or by its sub-franchisees, that together employ more than 100 thousand people (as of 06/30/2024). The Company is also committed to the development of the communities in which it operates, to providing young people their first formal job opportunities and to utilize its Recipe for the Future to achieve a positive environmental impact. Arcos Dorados is listed for trading 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/ir.

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 expectation for revenue generation, its outlook and guidance for 2025 and the renewal of its Master Franchise Agreement with McDonald’s. 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241001240546/en/

Investor Relations Contact

Dan Schleiniger

VP of Investor Relations

Arcos Dorados

daniel.schleiniger@mcd.com.uy

Media Contact

David Grinberg

VP of Corporate Communications

Arcos Dorados

david.grinberg@mcd.com.uy

Follow us on:

LinkedIn

Instagram

X

YouTube

Source: Arcos Dorados Holdings Inc.

FAQ

When will Arcos Dorados' new Master Franchise Agreement with McDonald's take effect?

The new 20-year Master Franchise Agreement between Arcos Dorados (NYSE: ARCO) and McDonald's will take effect on January 1, 2025.

What is the royalty structure for Arcos Dorados' new agreement with McDonald's?

The royalty structure for Arcos Dorados (NYSE: ARCO) is expected to be 6.0% of Gross Sales for the first ten years, 6.25% for the next five years, and 6.5% for the final five years of the new agreement.

How many new restaurants does Arcos Dorados (ARCO) plan to open in 2025?

Arcos Dorados (NYSE: ARCO) plans to open approximately 90 to 100 new restaurants in 2025.

Does the new agreement include an option for further renewal after 2045 for Arcos Dorados (ARCO)?

Yes, the new agreement is expected to include a Renewal Option for another 20-year Master Franchise Agreement beginning January 1, 2045 for Arcos Dorados (NYSE: ARCO).