Arcos Dorados Holdings Inc (ARCO) 2022 Q1 法說會逐字稿

Good morning, everyone, and thank you for joining our First Quarter 2022 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 on the Investors section of our website, www.arcosdorados.com/ir.

(Operator Instructions)

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. Our discussion today excludes the results of the Venezuelan operation, both at the consolidated level as well as for the SLAD division. For your reference, we included a full income statement, excluding Venezuela with today's earnings release.

Marcelo, over to you.

Thank you, Dan. Good morning, everyone, and thank you for joining us. Today, we have another quarter of record sales and profitability to report. You will see that these results are broad-based and sustainable thanks to the focused execution of our Three D's; digital, delivery and drive-thru strategy.

Our balance sheet and cash generation are as strong as ever. And we are on track to exceed the guidance we provided for investments and restaurant openings in 2022. After the quarter ended, we also executed the historic liability management transaction, becoming the first quick service restaurant operator in the world to issue a sustainability-linked bond.

Let's start with the key highlights from our record-setting first quarter of 2022. System-wide sales exceeded $1 billion, and total revenue reached nearly $790 million. Comparable sales grew 42% on the back of strong volume growth and continued market share gains within a consolidated marketplace.

Digital sales which includes delivery, mobile app and self-order kiosks reached the highest ever U.S. dollar total. Digital contributed 38% of the quarter's sales and included the highest ever U.S. dollar sales totals for delivery, self-order kiosks and quarter ahead.

This outstanding sales performance generated significant operating leverage across all costs and expense line items. In fact, the $79.6 million of adjusted EBITDA was a record for the first quarter. Revenue management, including pricing, product mix and segmentation, plus a highly localized supply chain and efficient operation drove both EBITDA and the bottom line, with net income of almost $26 million or $0.12 per share in the quarter.

We also started the year with a strong pace of growth with 16 restaurant openings, including 14 freestanding units and 10 new restaurants in Brazil. More on that later on the call.

Over to Luis for a closer look at our sales results.

Thanks, Marcelo. All Arcos Dorados divisions generated excellent sales results in the first quarter. We have said it before, and we will say it again. This is a testament to the structural competitive advantages we're maximizing with a flexible restaurant portfolio and the Three D strategy.

Once again, guests responded to the industry benchmark quality and convenience of the McDonald's experience throughout the region. All divisions improved guest perception of key brand attributes, including favorite brand and continue to grow market share faster than their closest competitors. Brazil's system-wide comparable sales grew 39%, rebounding from tough results last year when a spike in COVID led to a resumption of government-imposed operating restrictions in both March and April.

Revenue in Brazilian reais grew by more than 25% versus the pre-pandemic first quarter of 2019, nearly offsetting the significant depreciation of the currency in that period. Digital sales channels remained strong in Brazil, where they generated almost half of system-wide sales. Marketing activities in Brazil, including the Méquizices campaign featuring some of Brazil's top music celebrities describing their favorite McDonald's orders.

We also sponsored Big Brother Brazil, the country's most popular reality show, helping fuel sales growth across that release. Finally, the family business benefited from the exclusive Disney 50th anniversary collection in the happy meal. Now that which is now composed of 9 markets, generates results in U.S. dollars, euros or relatively stable currencies.

System-wide comparable sales grew 24.1% in the quarter, driven mainly by guest volumes with especially strong results in Mexico and Panama. Marketing activities in NOLAD mostly focused on core menu items in the quarter. Mexico reinforced the chicken category with the introduction of spicy chicken McNuggets and the McCrispy Spicy Deluxe. Costa Rica drove customer excitement with (foreign language) campaign.

And after a 2-year hiatus, we successfully reintroduced a seasonal favorite Filet-o-Fish in Costa Rica, Panama and Puerto Rico. System-wide comparable sales in SLAD rose 64.3%, more than double the blended inflation in the period. Performance was strong across division, especially in Argentina, Chile and Colombia, where volume growth was robust.

First quarter marketing activities in SLAD also centered on core offerings. In Argentina, the Más Sabor, Más Fun campaign drove an increase in Big Mac sales while markets like Chile and Colombia focused on strengthening the chicken category. Most markets family business benefited from our exclusive licensing agreement with Disney.

Finally, drive-thru and delivery remained very strong in the division, reaching all-time sales records in many markets. Speaking of records, let's take a closer look at the digital sales Marcelo highlighted. Mobile app downloads now exceed 69 million with the highest number of active users in the industry by far.

Record quarterly delivery sales, including the highest ever monthly sales for the segment in March. And we set another delivery sales record in April. In other words, we have the right strategy to continue taking share as we grow this important sales segment. The unparalleled experience and convenience of McDelivery continues driving volume growth despite recovering on-premise sales.

Delivery sales grew more than 29% in constant currency with similar growth levels in all divisions. This performance proves that delivery is truly a new consumption occasion that has helped generate structurally higher sales per unit. Self-order deal sales also set a record in the quarter. More than half of the on-premise volume in experience of the future restaurants now goes through this digital channel.

Importantly, this highly efficient and customizable channel generates a 15% to 20% higher average check compared with the front counter. Order ahead is still in its infancy and has not yet been fully implemented in all markets. But it is showing the value of allowing guests to choose where, when and how to enjoy the McDonald's menu favorites.

Sales through the order ahead functionality were almost 7x higher than the first quarter last year. Among the benefits of operating the region's largest freestanding restaurant portfolio is the unmatched availability of McDonald's drive-thru in our markets. Drive-thru sales rose almost 13% in constant currency versus the first quarter of 2021 with positive results in all divisions, especially SLAD.

Values remain high. And we're gaining new drive-thru guests on a daily basis. The drive-through-based loyalty program has now grown to 4 million identifiable members. Later this year, we plan to introduce a more comprehensive loyalty program, leveraging our digital capabilities and insights to drive additional [DC] frequency and profitability. In line with expectations, the off-premise channels of delivery and drive-thru have remained sticky and generated 46% of total sales in the quarter, even with un-drivable sales much closer to NOLAD.

For a closer look at how profitability responded to the sales growth we generated around the region, I will turn the call over to Mariano.

Thanks, Luis. Marcelo already mentioned that we achieved record U.S. dollar EBITDA for our first quarter. As a result, the trailing 12-months EBITDA is now the highest in Arcos Dorados' history. All 3 divisions contributed strong results towards this important new milestone. Brazil's EBITDA margin rebounded after feeling the effects of renewed government-imposed restrictions last year. Notably, the 14.8% margin was also 100 basis points higher versus the pre-pandemic first quarter of 2019.

NOLAD and SLAD were strong as well with double-digit EBITDA margins and significant growth in U.S. dollars compared with both 2019 and 2021. Whether we look at the 570 basis points of margin improvement versus 2021 or 160 basis points versus 2019, the story is similar, better gross margin, efficient payroll and G&A expense leverage.

We are particularly pleased with gross margin performance given how global supply chain challenges and commodity price inflation have generated significant input cost pressures. Having a highly localized supply chain is key to minimizing this impact. We have also taken a balanced approach to revenue management without overdoing it on pricing. The Three D strategy allows us to use digital tools to optimize sales through the right channels and to drive volume to the optimal product mix.

It was through healthy and sustainable top line growth plus efficient supply chain management that we were able to improve food and paper costs by 110 and 60 basis points versus 2021 and 2019 respectively. Notably, all 3 divisions captured food and paper cost efficiencies in the quarter compared with pre-pandemic 2019.

Turning now to our capital structure and growth plans. Let's start with cash flow from operations. Cash generated from operations was seasonally strong and 5x as high as the first quarter last year. Net leverage declined and remained healthy at 1.3x. Our debt profile will look different at the end of the second quarter, following our recently completed liability management transaction. We will tell you more about that in a minute.

As Marcelo said, we opened 16 restaurants during the quarter, including 14 freestanding locations, 10 of the restaurants were opened in Brazil. Total capital expenditures were $24.8 million in the quarter. As we have mentioned previously, we have a robust restaurant opening plan. And the team is working hard to add to the pipeline and accelerate the pace of openings. Based on the current run rate, we expect to exceed restaurant opening and capital expenditure guidance for 2022.

Let's go back to the details of the liability management transaction we announced last month. As of the end of March 2022, we had 2 outstanding bonds with $202 million due in September of next year and $536 million due in April of '27. This U.S. dollar debt has been swapped nearly 50% to Brazilian reais with derivative instruments that matched the value and maturity of both the principal and interest of these bonds.

Last month, we announced our intention to place a new $350 million sustainability-linked bond due in May of 2029. The proceeds from this liability management transaction were to be used to refinance the 2023 bond and tender up to $150 million of the 2027 bonds. As you may have already seen, we successfully placed this 7-year bond with an interest rate of 6 and 1/8% with the lowest spread of our treasuries in Arcos Dorados history. The new bond received the same ratings as the existing instruments, BA2 from Moody's and BB from Fitch, both with a stable outlook.

The average life of our outstanding debt will increase from 3.9 to 6 years. And we plan to maintain a prudent risk management policy using derivative instruments to hedge the FX exposure of the debt. The transaction will leave us with 3 long-term debt securities, $19.5 million of principal on the 2023 senior notes following the tender offer and partial redemption of the remaining outstanding principal, $386 million of principal on the 2027 senior notes following the $150 million tender of that bond and $350 million of principal on the 2029 senior notes.

I will turn it back over to Luis for a description of the bonds' sustainability performance targets or SPTs and some of the strategies we will use to achieve them.

Thanks, Mariano. A sustainability-linked bond ties a company's financing strategy to the achievement of specific SPTs. We have aligned the SPTs for this bond with our long-term commitments, mainly reducing absolute greenhouse gas emissions by 36% in restaurants and offices by 2030. These are categorized as Scope 1 and 2 emissions and reducing greenhouse gas emissions intensity by 31% in our supply chain by 2030. These are categorized as Scope 3 emissions. Both long-term commitments will use 2021 as the best line year. The 2 key performance indicators or KPIs for the bond are linked to these commitments. The first KPI is the absolute level of CO2 equivalent emissions in restaurants and offices.

We have established an SPT to reduce the Scope 1 and 2 emissions by 15% by 2025. The second KPI is the intensity of CO2 equivalent emissions relative to our food and packaging volume. We have established an SPT to reduce these Scope 3 emissions by 10% by 2025.

We engaged Sustainalytics for a second-party opinion and received favorable assessments of the appropriateness and ambitiousness of the KPIs and SPTs we selected. We are proud of the leadership role we are playing in ESG across Latin America and the Caribbean as well as within the global [TSR] industry. The SPTs are measurable and quantifiable on a consistent methodological basis and progress will be measured annually by a third-party, South Pole Carbon Asset Management.

If one SPT is not achieved, then the bond's interest rate will increase by 12.5 basis points beginning in 2026. If neither SPT is achieved, then the bond's interest rate will increase by 25 basis points beginning in 2026. So how will we achieve these targets? If we had all the answers, then they would not be considered ambitious targets.

But we have developed an ESG framework to provide a road map. You can download the framework from our Recipe for the Future website. Almost 6% of greenhouse gas emissions in the business are Scope 1 and 2. We have several initiatives in place or projects under development to achieve the first SPT. They include incorporating up to 25 sustainability initiatives in all new or remodeled restaurants, installing LED lighting in all restaurants and offices, converting to high-efficiency air conditioning systems with environmentally friendly refrigerants and increasing the renewable energy mix by contracting power purchase agreements.

More than 93% of our greenhouse gas emissions are Scope 3. So we will hold regular roundtable meetings with key suppliers to discuss and agree on measures for de-carbonization across the entire value chain. We plan to provide incentives to the suppliers and their producers to support the reduction of greenhouse gas emissions intensity.

We will also coordinate specific initiatives with them, including revised production policies and new investments in sustainability. These initiatives are good for the business as they will lead to a more efficient operation. More importantly, they are the right thing to do.

Marcelo, over to you.

Thanks, Luis. We have a long and diverse history of collaborating with and contributing to the communities in which we operate. Our social commitment and sustainable development team works across 6 recipes for the future pillars, which are: use opportunity, providing thousands of young people their first formal jobs and helping them develop soft skills necessary to succeed in the workforce.

Climate change, taking actions to reduce the environmental impact of the operations, such as the ones in our sustainability-linked bond, sustainable sourcing, ensuring humane and sustainable supply chain practices, secular economy supporting recycling inside and outside restaurants, commitment to families, offering nutritious family menus and even to Roland McDonald's help changes and diversity and inclusion, developing initiatives to promote diversity of gender, race, sexuality and generations.

Last year, we published the Arcos Dorados social impact and sustainable development report for 2020. It was the first time we or any other QSR in Latin America issued unaudited ESG report. Today, we are proud to introduce the Arcos Dorados social impact and sustainable development report for 2021. This report has been prepared according to GRI and SEBI standards. And once again, it includes content audited by UY.

Please visit the recipe for the future website to download the report and learn about all our ESG efforts in 2021.

I will wrap up with a summary of the main takeaways from today's presentation. 2022 is off to a great start. We delivered the third consecutive record quarter and trailing 12-months EBITDA total is now the highest in Arcos Dorados history.

These results were broad-based and the positive trends have continued so far into the second quarter with both top line and profitability ahead of this year's plan. Cash flow remains robust. And our balance sheet is strong with no material maturities for the next 5 years.

Against the backdrop, we expect to exceed guidance for restaurant openings and capital expenditures in 2022. We are committed to our recipe for the future. I'm proud of all the hard work we are doing in ESG. This is what allowed us to become the only QSR in the world to have issued a sustainability-linked bond, tying our financial strategy to long-term climate change commitments.

We are confident about the future and believe the results we are reporting today will be sustainable over time because of our structural competitive advantages and successful Three D strategy. The truth is Arcos Dorados and the McDonald's brand in Latin America and the Caribbean have never been stronger.

Dan, over to you to start the Q&A session.

(Operator Instructions) Our first question came from Marcella Recchia from Credit Suisse. And she asked us -- well, one of the questions that she asked us is, can you give us a trade update on the second quarter early trends?

Yes. Marcella, thank you for being with us today. Well, the trends we saw during the first quarter of this year have continued into the second quarter. I would say that the whole business is performing ahead of this year plan. And that's both in terms of revenues and in terms of profitability. Total guest traffic, excluding dessert centers is already near or even above pre-pandemic levels. And our digital tools are helping us to recapture the on-premise business, the on-premise volume in a more profitable way.

So I think we believe that the pandemic has been a catalyst that permanently changed our channel mix and offering channels are still generating a significant portion of our system-wide sales because those channels have demonstrated to be very sticky. Guests have responded well to the ease and convenience of delivery and drive-thru, which have remained very sticky even with the situation that the on-premise sales continued to recover at a faster pace than we were expecting.

And if you let me add, Marcelo, I would like to give a little bit more detail. First, when we talk about on-premise, on premises' McCafe, Glass Food Court, Glass Dessert Centers and they are performing in line with each other. The off-premise is delivering glass-relative. Well, we are experimenting is a normalization activities and the mobility I would say, all across the region.

And even though we are seeing a recovery in on-premise sales, I would say, at a very good pace, we're having a very, very strong performance enough rental sales. Just as an example, talking about delivery, we posted a quarterly sales record in the first quarter. And this includes not only that we increased sales by 29%, but we have the highest ever sales in a single month in March. And on top of that record, we had in April, we set another monthly record. So the strong -- the trend is very strong for the channel. And we start with this channel, this when we implemented it back in 2017. So what we saw is it was 4% of sales in 2019. Today is around 16% of total sales. The pandemic worked as a catalyzer, but that [usfication] remained -- is sticky, okay?

So we really think that this channel is going to be an engine of growth in the near future. And if we talk about drive-thru, the secondly, I wanted to give you some details there too. 2019 was 22% of total sales. After the pandemic that participation of total sales remains around 30% in the first quarter. And we saw an increase in system-wide sales of 13% in this first quarter.

But the good news is that we are gaining new guests just in 2021. We won out of 7 guests was a new customer. And it's very positive because when they try it for the first time, they love it because it's convenient, it's safe, it's fast, it's fun, and this is a competitive advantage for us.

Just in Brazil, we have 2.5x as many units as our main competitor. And it's not only about the foot-print it's about the experience, the operational experience. We are seeing, I mean, impressive improvements in operations in every market. So we see this channel as the second engine of growth.

And of course, the digital platform has boosted sales through these channels. And we talked about this before through customized offers, through targeted marketing campaigns. But we are going to keep investing in new technologies, new capabilities because we still believe that we have a huge opportunity to growth volume.

Great. Thanks, Luis. The next question is actually an overlap between Rodrigo Almeida from Santander and Thiago Bortoluci from Goldman. They both asked questions related to gross margin performance after congratulating us for results. Thiago, for example, asks how our gross margin is split between -- or how the performance is split between price, supplier negotiations and mix over the U.S. is a little bit different also in terms of price mix and segmentation and how we're able to pass through those costs to the guests? So I'll turn that one over to you, Mariano.

Perfect. Thank you, Dan, and thank you, Rodrigo, for joining us in your first call, and thank you, Thiago as well for your question. Well, I will try to answer both questions in the same answer. In terms of margin, we have -- in terms of gross margin we have successfully managed our food and paper costs since the beginning of the pandemic despite ongoing input cost pressures that we are all seeing in the market. Just analyzing our P&L, you will see that over the last couple of quarters, we have even expanded gross margin versus the pre-pandemic period.

During the first quarter of 2022, we were able to increase gross margin by 80 basis points versus 2019, reaching 65.1% in the period. All this led to a gross profit of $490 million, which was 10% higher in U.S. dollars as reported than in 2019 despite the depreciation of local currencies, especially the Brazilian real and the Argentine peso.

Now let's look at the current situation. As we all know, this year began with pretty severe spikes in input costs worldwide due to COVID, climate issues, all these aggravated by the conflict we are seeing in Ukraine that accelerated the increase in international price on key commodities.

So let's talk about commodities first. Although we are exposed to commodity price volatility, we have a very diversified cost structure where no single item represents more than 9% of our total food and paper costs with the exception of beef. The commodities themselves represent an even lower percentage of the cost structure. But on top of that, we used certain instruments and negotiations with key suppliers to mitigate the effect of rising input costs. We use and negotiate commodity hedges with our suppliers that are executed directly by them and give us some coverage against these price increases.

We also have supplier contracts and agreements that we used to lock prices by making purchases in advance, taking advantages of our very good cash flow generation. We have pricing protocols and we take advantage of our economies of scale. That's because of our size and scale, we are able to negotiate, of course, better prices with our main suppliers.

So explaining in detail what we are doing on the cost side. But we also need to take a look at how we are managing the revenues. As you know, Arcos Dorados has been implementing successful revenue management strategies. For example, we have thoroughly started the pricing strategies, usually in line with inflation that are the most effective at protecting gross margin while maintaining our even expanded market share.

Digital also continues to play a key role with segmentations and greater personalization. The digital offers are strategically used to improve sales in order to increase our check gaining new customers or increased frequency of purchase by our existing guests. Our mobile app capabilities continue to expand, increasing our labor efficiency and enhancing our ability to focus on guests' needs and preferences.

So with price increases in line with inflation, we have been able to increase our check above inflation. This, combined with a successful cost management strategy already described, allowed us to increase gross margins even in the face of some very challenging cost pressures. Finally, if you allow me, I will take a step further because we have successfully managed more than the gross margin.

Other lines in our income statement have also improved as a percentage of sales, especially payroll, rent and G&A, which benefited from the aggressive cost controls we implemented during the pandemic. All this helped us deliver an EBITDA margin during the first quarter of 2022 of 10.1% that together with strong sales resulting in the highest first quarter EBITDA of our history.

We are confident that if the sales trend continues in our main markets, then we will deliver another year of very healthy EBITDA, both in terms of U.S. dollars and as a percentage of revenues.

Great. Thanks, Mariano. So I'm going to bring it back to Marcella Recchia from Credit Suisse to be fair actually asked 3 questions. We took her first one. She also asked the question in terms of on-premise sales versus pre-pandemic.

I think Luis has already addressed that. And our third question is, what's our expectation with respect to our comments around exceeding our full year 2022 guidance for openings and what color can we give on what to expect there? So over to you, Marcelo.

Thanks, again. Yes, when we provided guidance this January, we said that we would open at least 55 restaurants with around 90% of them being freestanding units. So we said at least -- we also said that we have a robust opening pipeline. And at the time we said that the development team (inaudible) was working hard to both increase the pipeline and accelerate the pace of openings, increase the quantity, but sustaining the quality of the openings that we are doing because we will always remain focused on our proven underwriting process to maximize ROI.

As you have heard and seen with our first quarter results, we have had a very strong start of the year with both top line profitability ahead of expectations. And we are setting a new base for our plan of openings for this year, given the fact that we already made 16 restaurant openings in the first quarter, including 14 freestanding, which put us on pace to exceed opening guidance but around 10 additional restaurants.

Notably, recent openings have been performing very well with returns above expectations. And with the potential, we mentioned in our call in January, that we see the potential to open at least 1,000 new restaurants in the next 10 years. We are confident that we will be able to continue securing and developing sites for highly profitable new restaurants.

But as important as unit growth is for the long term. It's important to say that recent trends have been driven much more by organic growth in our existing footprint, which, by the way, still has room for improvement as well. So we are very pleased with the way we are balancing our growth between the organic growth and the new restaurant openings. We are very confident in our pipeline of new restaurants, particularly for freestanding units and recent results have been outstanding, so a very good outlook in this sense.

Great. Thanks, Marcelo. Our next question comes from Steven Gray of Great Value Management. Steven congratulates us for the presentation and the result. Thanks for the presentation and congratulations on very strong quarter under very challenging circumstances. And asked that we address, I note that we have in our release related to net debt, net debt rose due to the decline in the value of the derivative instruments we used to swap some of our U.S. dollar debt into BRL. So he asked us to provide a little more color on how that works and how the derivatives are structured and how that might drive value lower or higher, so over to you, Mariano.

Perfect. Thanks, Dan, and thanks, Steve, for the question. Every time that Arcos Dorados issues debt we go to the U.S. dollar capital markets. We have been doing that since 2009. We think that's the most efficient market that we can access both in terms of costs reflected in interest rates.

And in terms of maturities, not many companies in our region have access to these markets. And we are taking full advantage of that. A proof of that is that we -- in the recent transaction we just described, we obtained the lowest spread over treasury that we ever got.

And on top of that, we extended the maturity of our debt from 3.9 years to 6 years now. But there is going to the U.S. dollar capital market generates a mismatch between the cash flow we generate in local currency and our liabilities that are reflected in U.S. dollars. And we always mentioned and that's our policy to take a very prudent approach to risk management. That's why we use derivatives in order to convert part of our debt from U.S. dollars to Brazilian reais. And to do that, we use derivative instruments.

Those derivatives have a mark-to-market price that when the Brazilian real depreciates against the dollar, then our debt goes down together with our lower EBITDA in U.S. dollars. When the Brazilian real appreciates against the dollar, then our dollar goes our debt -- sorry, goes up in U.S. dollar terms at the same time as our results and our cash flows rises.

And that's how derivative works and how our risk management approach works and links what we are trying to do is to link our cash flow generation with the outflows that we have. And what happened in this particular quarter is exactly that the Brazilian real appreciated against the dollar. We have generated more cash flows in U.S. dollar terms and the debt is going up, and that's how the risk management policy works.

Great. Thanks, Mariano. The next question comes from Ulises Argote and again, I mentioned earlier that both Thiago and Rodrigo had some overlap in their questions. They also asked similar to what -- to Ulises, congratulations on our results, market share dynamics. How our market share has been performing sort of across the region. And again, thanks, Ulises, Thiago and Rodrigo for your questions.

Okay. Excellent. So according to our research, we increased total market share and blister share gap against our nearest competitors by about 3 percentage points across the business. And this is, I would say, very consistent across the region, several markets. So year-over-year, we see share gains in the mid-single-digits. And why is this happening? I would say that there is no silver bullet. We believe that this is a testament to our competitive advantages and particularly the successful Three D strategy.

Our digital platform is driving market share gains for sure because it is allowing guests to choose where, when and how to enjoy their McDonald's favorites. And we talked a lot about the stickiness of the off-premise sales channels. Luis mentioned some details around that.

But for example, if you talk about Brazil, our biggest country, we are the leaders in the entire delivery segment. And this includes every player in the marketplace, for example, called the pizza chains in Brazil. And we are the leaders of that market. Thanks to the consistent way we are working with our partners in Brazil and the coverage of this service across our footprint, leveraging obviously our freestanding units which are the best units to offer this delivery segment. So we are very pleased with the market share gains we saw in recent years and very pleased that we continue to see those good numbers in the first quarter of 2022.

Great. Thanks, Marcelo. Bob Ford from Bank of America sent us a number of questions, so we'll try to break this up a little bit. One relates to what percentage of sales are currently identified? And so I'll turn that over to you, Luis.

All right. I will leave this question to loyalty program because it's an engine that we are using to increase identifiable sales. Currently, our loyalty program is exclusive to the drive-thru sales. Okay. And it's called the plug VIP of the market. We have talked about this earlier.

Today, we have through this program, 4 million identifiable members, okay? This is generating a 15% to 20% increasing frequency, the program plus the number of identifiable members that we have. And today, as we said earlier, we're working on a more comprehensive and then I would say sophisticated loyalty program. This new program will take the learnings that we're having with the VIP club and another best practices that we are taking from 40 markets that have implemented a loyalty program called -- My McDonald's rewards, all right?

So what we expect is to leverage on that. And just to build not only on those experiences, but to have our own experience. And the good news is that this loyalty program is not only about points or discounts, is about experience, and that's why we have worked so hard to improve our experience in our restaurants. I can tell you that our goal for 2025 is to reach 40% of identifiable sales.

Great. Thanks, Luis. So Bob also asked a number of questions related to the family business. What percent of sales are coming from families? What proportion of those are Happy Meal and how should we think about the Happy Meal schedule in terms of promotional properties for this year? And I'll pass it over to you, Marcelo.

Okay. Yes, the family business used to be and continues to be a very important part of our business. Typically, it was around 40% of our business directly related with families. And even during the pandemic when families weren't able to visit our restaurants, they continued to enjoy their favorite meals from home through delivery or visiting us through the drive-thru.

And this part of the business has recovered very fast. In fact, in many markets, we are seeing units per day of Happy Meal sales already above pre-pandemic levels, which is very important for us. And we know that part of the explanation of why is that happening is our roster of properties for the Happy Meal program this year.

As you may know, we are the only QSR who has an exclusive agreement with Disney. And this year, we have some properties coming from our -- which are very popular and during the weeks that we are offering those kind of properties. In many countries, we are seeing record high numbers of Happy Meal sales. So we are very pleased with this part of the business that continues to be very important for us. And it is a strategy going forward for the company.

Great. Thanks, Marcelo. We have a couple of questions related to experience of the Future and self-order kiosk sales, Richard Cathcart from Bradesco, who actually sent 2 questions. One relates to the increase in guidance, which I think we've already addressed for you, Richard.

The other one is that we mentioned that half of orders in EOTF restaurants are being made through the self-order kiosks, if we have an idea sort of where that can go? And related to that, David Hertzberg of Stifel asked if the average check growth between -- or average check difference between the self-order kiosks and the front counter, sort of what drives that difference?

Okay. Let's begin with the first part or the first one. Before the pandemic in 2019, for example, typically in the restaurants, where we have self-order kiosks EOTF restaurants, we had something around 30% of the guest counts inside the restaurants made through the self-order kiosk and 70% still at the front counter.

After the anemic in recent weeks or months that number grew to above 50%, more than half of the customers that are visiting us at the restaurants are ordering through the self-order kiosks. And we already have some of our markets, the ones that introduced EOTF in early stages in 2017-2018, where this participation of the self-order kiosk is already above 70%.

So we still see room for improvement in this. We continue to see an increase in the share of orders made through the self-order kiosk. And the great news about that is that the second question mentioned, typically, we see something between 15% and 20% better average -- higher average check in the orders made through the self-order kiosk.

The main reason for that is that there are -- there is a lot of intelligence, a lot of thinking about how we display the offers in the self-order kiosk, the artificial intelligence that these capabilities features have in order to walk through different offers and different products depending on what you are ordering. So that's why typically, in these orders, we see not only a higher average check, but a better margin for us. So that's why this is so important. That's why we are so encouraged by the results we are seeing in terms of the investments we made in the past. And we will continue to make for deploying EOTF across the region.

Perfect. Thanks, Marcelo. And one last one here from Bob. He asked about mall store guest counts compared to pre-pandemic levels. And so over to you, Luis.

All right. Yes. What we're seeing is, today, we are still negative versus Q1 2019. But we are very, very close to the normal volumes of that. And this is due to the negative impact that we are seeing in the shopping malls overall, all right? I wanted to highlight that in freestanding were flat versus Q1 2018, and that in U.S. dollars as reported they are very, very bossy.

Perfect. Thanks, Luis. And actually we don't have any more questions in the queue. I wanted to thank everyone for joining us today, for all your interest in the company and great questions. Look forward to speaking to you again -- speaking to you again in August on our next earnings webcast. Until then, please stay safe and have a great day.