Arcos Dorados Holdings Inc (ARCO) 2012 Q1 法說會逐字稿

Good morning, and welcome to the Arcos Dorados first quarter 2012 earnings call. With us today are Sergio Alonso, Chief Operating Officer; the Company's CFO, German Lemmonier; Raul Mandia, Chief Marketing Officer; and Sofia Chellew, Investor Relations Director.

As a reminder, all participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions).

For your information, today's conference is being recorded. I would now like to turn the conference call over to Sofia Chellew.

Good morning, everybody. Before we proceed, I would like to make the following Safe Harbor statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statement sections of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statement 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 measures. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which can be found in the press release filed with the SEC on Form 6-K.

At this time, I would like to turn the call over to Sergio Alonso.

Thank you, Sofia. Hello, and thank you for joining us today as we review our first quarter 2012 results. After some brief comments, we will open the call to any questions that you may have.

Arcos Dorados' first quarter performance was positive and demonstrates our ability to consistently grow sales and achieve operational improvements during a variety of market conditions.

While the economic climate was more challenging in the first part of the quarter, the overall results and momentum beginning in February are in line with our expectations for a pickup in consumption in the second half of the year. As such, we expect stronger performance for the second half of 2012.

Our management team, which has worked in the Latin America QSR industry for an average of two decades is well accustomed to economic cycles and occasional slowdowns, as our first quarter revenue and comparable sales growth demonstrates our experience, strong brand leadership and diversified geographic portfolio ensures we're well positioned to respond to temporary economic grimness and geopolitical headwinds.

Despite a slow start of the year in Brazil, one of our key markets, consolidated systemwide comparable sales growth increased by 11.6% over the first quarter of 2011. This was a factor in our ability to achieve year-over-year revenue growth of 11.5% or 16.6% on a constant currency basis in the quarter. The rollout of initiatives such as 'Made For You' are proceeding according to plan and are expected to offset some cost pressures in key markets.

Additionally, initiatives like the combined beverage business, or as we call it, CBB, which is a space within the restaurant dedicated to both hot and cold beverages are providing us with further opportunities to increase revenues. Beverage sales are a key component of the MacDonald's winning formula and we believe there are opportunities to expand the CBB model to other markets. We have rolled out the CBB concept in Puerto Rico, where we already are exceeding our initial expectations and we're also beginning in Mexico.

Our recent decision to increase our BRL bond will give us additional flexibility to introduce and expand innovative product platforms and grow our business through significant restaurant openings.

One point I want to emphasis is that recent short-term economic fluctuations should not overshadow the compelling long-term fundamentals of this exciting and dynamic region. This includes continuing and rapid population growth, an emerging middle class and increased demand for the convenience of eating out.

Our position as one of the world's most dominant brand in markets with a top demand also provides us with a unique growth platform. The exceptional quality world brand is highly consistent with the expanding middle class, who are expected to benefit from increased purchasing power throughout the region, both this year and well into the future. As this growth accelerates, Arcos Dorados' regional footprint and robust operating model means we are firmly positioned to capture this market opportunity.

On a year-over-year basis adjusted EBITDA increased by 8% in the first quarter, while net income decreased primarily due to changes below the operating line and related to foreign currency exchange losses in our Venezuelan operations. German will provide more insight of this point in a minute.

Brazilian year-over-year revenue growth of 4.6% was in line with our expectations and reflects a reduced consumption environment in January. Comparable sales growth of 5.5% in the quarter primarily reflected average ticket increases during the past 12 months. We expect the sales environment to improve in coming quarters as wage increases, slower inflation and proactive government initiatives strengthen consumption and lower interest rates stimulate growth.

In NOLAD our revenues increased 8.8% or 14% on a constant currency basis. For this region we remain focused on driving traffic and increase in transactions per restaurant. As such, I am pleased to report that comparable sales growth of 6.8% reflected mainly higher discounts across all three countries. Mexico, for example, achieved a strong increase in traffic, which also demonstrates that our turnaround effort in the country continued to be on track.

In SLAD, revenues grew 26.4% year-over-year or 30.2% in constant currency. Despite increased average ticket and inflationary pressure, we increased our guest count in most of the countries. This led to comparable sales growth of 27.9%, an impressive result given a 25.6% rise in comparable sales in the first quarter of 2011.

Notwithstanding higher inflations in countries such as Argentina, domestic consumption is more than keeping pace and we're benefiting from higher spending. And finally, with respect to the Caribbean divisions, revenue grew 3.2% and 5% in constant currency amid general weak economic growth.

We are encouraged by the fact that comparable sales growth is positive for the first time in 12 months and grew 2.3% to the prior year period. I would like reiterate our commitment to this region and conviction in its long-term prospects. Later in the call, Raul will detail some initiatives we're implementing which underscore our dedication to this region.

During the past 12 months we opened 107 new restaurants, resulting in net openings of 86 restaurants for the period. Additionally, we opened 41 McCafes and 151 dessert centers, both of which delivered high returns on investment. We also reimaged 122 restaurants as part of our ongoing effort to provide consumers with a modern and pleasant dining experience.

As this figure demonstrates, we continued to strategically expand our regional footprint to capitalize on rapid population growth and middle class demand for our products, and at the same time, we're focusing on increasing profitability to additional operating efficiency and expect this initiatives to underpin strong growth in our business both in the short and long-term.

Now I will turn to German, who will comment of our financial performance.

Thanks, Sergio, and hello, everyone. First quarter revenues were $922 million, almost 12% higher than the same period of 2011. In constant currency terms revenues were up 16.6%. The year-over-year increase was driven by comparable sales growth of 11.6% and with a net addition of 86 restaurants. Our total restaurants in the region were 1,843 at the end of the quarter.

Adjusted EBITDA for the first quarter of 2012 was $78 million, 8% above the same period of 2011 on a reported basis and 12% increase in constant currency. Revenue growth and consolidated improvement in food and paper cost relative to revenues are key factors in the year-over-year improvement, but partially compensated by payroll cost pressures.

It's worth highlighting that the adjusted EBITDA in the first quarter reflects the higher corporate expense related to our growth strategy. The increase in corporate expenses was driven by the following significant items; higher payroll expense related to the impact of increased headcount together with the combined impact of an estimated 21.3% inflation in Argentina that significantly exceed the average currency evaluation of 8%. The majority of the corporate headcount is located in that country.

Increased professional services primarily related to training and expanding our IT capabilities, including implementing management information systems designed to support our continued growth and expansion plan in Latin America. Additionally, corporate expense also include share-based compensation that had been disclosed in prior quarters and resulted in a net gain for the quarter.

As a reminder, the historical liability award, phantom equity units or CADs, granted to certain employees under the Company's long-term incentive plan are incurred at the end of each reporting period based on the fair value, and the related compensation gain or expense is included within the general administrative expenses on the income statement.

The difference between the share price, $18.9 per share, at the period end of March 31st, 2012 and the share price, $20.53 per share, on December 31st, 2011 along with the ongoing accrual of the share-based compensation resulted in a net gain of approximately $1.3 million in the first quarter.

On a divisional basis adjusted EBITDA results were driven by, one, the adjusted EBITDA margin of the Brazil division, which is solid at 13.8%. The quarter includes the added CIDE tax on royalty fees, which was not charged one year ago, but which were recognized in the fourth quarter as mentioned previously.

In this division we are seeing promising trends in consumption with momentum building in February and March. In addition, as mentioned earlier, food and paper improved as a percentage of sales. (inaudible) the mandatory minimum wage took effect in January 2012, which increased our labor cost above revenue growth.

Overall, we expect consumption to continue to increase in these coming months. This combined with our targeted marketing activities, which Raul will discuss later, reaffirmed our expectation for a stronger second half than the first.

Second, the adjusted EBITDA margin for NOLAD was 3.4% for the quarter, a 20 basis point reduction primarily affected by higher food and paper cost as a percentage of sales related to a shift in product mix, which we believe will drive further traffic to our restaurant while promoting our premium products. Nevertheless, we were able to leverage our fixed cost structure or G&A.

Third, SLAD recorded a strong improvement of 250 basis point in adjusted EBITDA margin, reaching 10.3%, which was primarily the result of increased comparable sales. We benefit from a strong brand presence in the region and average check ahead of inflation. As well we have also been working closely with MacDonald's corporation and have reached a temporary royalty relief agreement for Venezuela for 2012.

This relief contributed to the improvement in adjusted margin for Venezuela, along with improvement in food and paper cost as a percentage of sale despite payroll pressures from mandatory wage increases in countries like Argentina and Venezuela.

Fourth and finally, the economic environment and reduced consumption in the Caribbean division continued to put some downwards pressure on our results, accounting for adjusted EBITDA of $1.1 million or 1.6% of revenues compared to $3.2 million in the first quarter of 2011.

Overall, we are pleased with the consolidated adjusted EBITDA margin of 8.5%. Consolidated net income was $25.4 million in the first quarter of 2012 compared to $35.5 million one year ago, primarily impacted by non-operating and non-cash items including lower operating results; a net charge of foreign currency charges for $3.9 million, which includes a cash remittance from Venezuela operations to the holding company for a charge of $6.6 million on the income statement; as well as higher income tax for the quarter that amounted to $12.1 million and resulted in an effective tax for the quarter of $32.3%, which was line with our expectations for the full year effective tax rate.

This was partially offseted by lower overall corporate funding, including derivative instrument of almost $1 million as a result of the debt restructuring completed in July 2011 and detailed in the earnings release. Finally, earnings per share amounted to $0.12 for the quarter compared to $0.15 one year ago.

Moving on, cash flow provided by operating activities for the first quarter of 2012 reached $7.5 million. [Past year's] investment activities included a higher capital expenditure which amounted to $40.6 million in the first quarter.

We ended the quarter with cash and equivalents of $144 million. This was increased with the reopening on April 24th of the existing 10.25% BRL bond for a notional amount of BRL275 million, equivalent to roughly $146 million at the price of 102.529%. In addition, the Company consolidated existing coupon-only swaps and entered into a reverse cross-currency swap to hedge the cash flow of a portion of the 2016 note issue.

In this manner, we have significantly reduced the impact of the income statement of volatility of the Brazilian currency over our capital structure, including intercompany loans. Additionally, rating agencies maintained their recommendation on the Company and we remain comfortably with all of our existing government requirements.

Now, Raul will discuss our sales performance and key marketing initiatives.

Thank you, German, and hello everyone. Within this quarter we have reached 60 consecutive months of positive comp sales; that I think it's an impressive achievement in today's world.

During the quarter, we launched several important marketing initiatives which helped drive our performance. We started activation of our Olympics property with a promotion called 'Viviendo el Espiritu Olimpico' or 'Living an Olympic Dream', which sends a winning contest from our markets to this year's Olympics which McDonald's, as you know, is a worldwide sponsor.

We continued to run the free coffee sampling strategy and we were able to raise awareness of our breakfast offerings in markets like Brazil and Mexico and thereby strengthen this [department].

We also launched the McWraps across many of our territories in March. Given the initial success of this product, we are evaluating and extending to other areas. The product highlights our ability to consistently provide new and innovative products that cater to current trends and our customers evolving taste. Also, it provides a new carrier that is easy to customize from local flavors. And finally, we launched our combined beverage business strategy and our Chicken McBites in Puerto Rico.

In Brazil, comparable sales rose 5.5% over the previous year. As you will remember, we experienced a noticeable slowdown at the end of 2011, which continued into the month of January. We attribute this deceleration to a temporary low in Brazilian customer spending, which picked up in February and is expected to accelerate through remaining quarters.

As discussed in our last call, we expect government measures such as the increase of minimum wages, lower interest rate and our marketing initiatives and brand appeal to the derive sequential improvements.

In the interim, we adjusted the price of our value platform [GPBP] in April to address the needs of lower income and price sensitive consumers. Through this we will continue being the affordability and value top-of-mind brand in Brazil.

In our North Latin American Division or NOLAD, comparable sales grew 6.8% compared to 2011 due to increased traffic spinning from premium segment growth driven by the Angus Burger, which was launched during the second quarter of 2011; the Desayuno Delux or Deluxe Breakfast in Mexico, enhancing our dessert centers in Mexico with a more aggressive commercial approach which includes board pricings in operations.

Comparable sales in the South Latin American Division or SLAD were up to 27.9% versus the previous year and benefitted from our value platform, (inaudible). In addition, average ticket also increased compared to the previous year due to inflationary pressures in certain territories.

While as a general rule we don't focus on country-specific matters, I would like to make an exception and comment on Venezuela. The Company has proactively undertaken measures to mitigate some of the impact of exchange controls, and during the quarter worked with innovative and creative local marketing to sustain appeal of the brand, as well as some pricing tactics. Nevertheless, our original outlook for this territory has not changed and we are focused on remaining relevant and competitive while minimizing our exposure.

Lastly, comparable sales in our Caribbean division increased 2.3% in the first quarter, which reflected a notable year-over-year increase in average check, especially since the launch of Chicken McBites and our combined beverage business or CBB that we have rolled out in Puerto Rico with excellent results. At present we are offering smoothies, frappe's and lemonades and based on the impressive results in Puerto Rico, have also launched the CBB in Mexico in a targeted manner and we are evaluating the launch of McBites in other markets.

Additionally, systemwide sales were enhanced by the new territory of Trinidad & Tobago, which opened in September of 2011. Our efforts in the region are devoted to defending our brand presence and strengthening our effort.

All in all, I would like to highlight that the brand remained strong through the region and we continued to develop and evaluate new products and promotions to continually expand sales.

Sergio will now provide some additional information and closing remarks.

Thank you, Raul. Thank you very much. Our first quarter results showed the strength of the McDonald's brand throughout Latin America and Arcos Dorados' consistent ability to grow its customer base.

Today, and given what we are seeing in our different markets, our outlook for the year continues unchanged; basically, the expected growth in constant currency and based on the share price at year end of 2011.

Revenues should grow between 15% and 17%. Adjusted EBITDA should increase between 10% and 12%. Effective tax rate for the year should be in the range of 31% to 33%, and capital expenditures will be in the range of $340 million to $350 million.

We remained confident that population growth, market [under] penetration and the move to more modern lifestyles are factors ensuring the long-term sustainability of our business. In the meantime, we're overcoming current headwinds and taking advantage of opportunities to improve our profitability as markets pick up throughout the remainder of the year.

I also like to end my comments on a personal note. A couple of weeks ago many of us participated for McDonald's Worldwide Operator Convention in the US. I've been attending those meetings for over 20 years, and the reality is that we all came back with great enthusiasm for the way we contribute to the excellence in operations and the people practice of marketing innovations.

So for all of us, it is clear that McDonald's is under great leadership and we are all convinced that we also are advancing in our way to being best in class.

So that's it. I like to open the call for questions. Thank you.

(Operator Instructions).

John Glass, Morgan Stanley.

My questions relate to sales in Brazil. First you said that after slowing in January, they improved in February and March and your expectations of a further improvement. So can you just offer some specific evidence how have sales trended, say, over the last six or eight weeks to sort of -- to frame that?

And then, secondly, you talked about a lot of the sales improvement in Brazil was predicated on macro improvement. But what are you doing specifically about that; in other words, what kind of initiatives you are taking? I understand there is an adjustment to the value menu. Maybe if you could specifically talk about what prices you adjusted by how much and what other things you think you can do going forward to drive sales, given that macro is probably something out of your control. Thanks.

Yes. Well, first of all, the sales in Brazil for example we just closed April and we closed positive 1% in sales for that month, which is a tough month to compare also because of the impact of the Easter holiday in Brazil that was has an added impact. Brazil, we're a positive 1%.

Now don't misunderstand me. I mean, we are not indicating that the improvement comes from macroeconomic conditions in Brazil They are still sort of shaky. Now a little better, but still shaky.

We're doing a bunch of things in Brazil to improve sales, and had to do with the way we're marketing our desserts. We have just done some testing on the products. We have Quarter Pounder in our [GPBP] offer. We did a tactic reduction of price on GPBP on our main item from six to five mainly to manage perception, because at the same time we increase other prices ensuring our profitability and margins in that market. And the market reacted very well to that tactic and the way it was communicated.

As the Olympics are closer, we're starting with some promotion related to Olympics. We are finishing the launch of the Angus Burger across the territory of Brazil. So its many initiatives combined that are producing the results.

And, Raul, if you allow me, on top of that don't forget perhaps it's worth to mention that we are competing -- are you comparing against Big Mac last year (inaudible)?

Yes, well -- yes, absolutely. I mean, even though we worked for the health of the business not just to manage the comps sale. It's worth noting that last year during the second quarter, April through June, we were running Big Mac as the main item on GPBP. Big Mac is, as you know, is the flagship of McDonald's. So that produced comps in the range of 10% of sales for the second quarter last year. So the comp is not going to be easy, even though our sales are growing when you compare to February and March, and the growth is solid.

Okay. So your expectations of improvement are really more in the second half of the year. I don't see how second quarter could be better than the first in Brazil?

That's in line with everything we have been saying throughout the year, that the second half is stronger than the first half.

Thank you.

Thank you. Next question please?

Mitchell Speiser; Buckingham Research.

Are you there?

Sorry about that. Yes, thank you for sharing the April sales trends in Brazil, above 1% I believe you said. Just because of the Easter shift, can you give us a sense maybe of what April was last year, just kind of frame what the -- what the average growth rate is looking like in Brazil?

Last year was -- well, second quarter was around 10% and I think that April was in that line.

In that range, yes.

Yes, in that range.

Okay. Thank you very much. And just on -- if I could slip one other question in on the G&A, which was a little bit I believe de-levered in the quarter. Can you give us a sense in the second quarter as we build our models, do you expect any G&A leverage in the second quarter and perhaps if you can talk about the balance of the year, how we should view the G&A line as a percent of sales?

To be fair, in the first quarter we received some help in terms of share-based compensation. We always mentioned that we expect leveraged G&A in the second half of the year, and we continue with this plan in mind.

Okay. Thanks very much.

Thank you. Next question please?

John Ivankoe, JPMorgan.

We just took a quick look at the value menu adjustments in Brazil. It looks like you're still maintaining the same three (inaudible) safety price that maybe with just slightly higher value products. Does that have a margin impact at all? And I guess if it does, do you think it would be offset by increased traffic as --like people, for example, prefer a cheese burger more than the hamburger, for example, year-on-year?

Hello, John.

That's the first question if I may. I do have a second one before I get cut off. Thank you.

Let's go through the first one. Our value platform has more than one tier, so the lower tier remains at [$3.50]. The price reduction was in the higher tier, which was -- it's the [course] sandwich that came down from [$6 to $5], okay. That of course has a little bit of an impact in the gross profit, even though we did -- with Quarter Pounder has a better food cost to minimize it. And we compensate that with traffic and with the fact that other prices were adjusted. And as I mentioned earlier, we are finishing the launch of the Angus platform. It's a premium platform that contributes to the top line on the gross profit.

Okay. All right. That's helpful. And secondly, if I may, I mean there's -- I am sure you're already hearing it and I think we all will with much more volume in upcoming months. But one of your largest kind of global competitors, Burger King, is talking about Brazil in a much more specific way of increasing the growth in that market. And so I just wanted to get a sense of kind of how you are viewing kind of sustaining your success in Brazil against a well-capitalized and much better run competitor, if it's changing your strategy at all in terms of site development or may be advertising or even pricing? I mean, from your perspective, you continue to just grow the way that you're growing or do you take this competitive threat much more seriously this time around and maybe make some reaction to your business as a result of that?

Sure, John. To be honest, we always treat it seriously any action of our competitors in Brazil or elsewhere. That's at the core of our DNA. Having said that, we do have plans in every single market, also in Brazil. We do have a leadership position that we will protect, will defend. We trust in our capacity, in our forces. And we will continue to be focused on doing what we do best, that is operate restaurants and delivering good products at reasonable and affordable price, because we know that that will take to us to the place where we want to be.

Regarding what our competitors -- either they would be BK or anyone, any other competitors, we prefer not speculate on that. We rather be focusing on our plans.

And just to make one point. You mentioned about pricing and products, and I think that that's one of the keys, right. And our prices continue to be at a lower price points than competition, specifically the competitor you mentioned. And also our pipeline of products -- if you look back the past 12 months or 18 months, our pipeline of products was very strong. And I think it's stronger going forward, and we have not seen much innovation from our competitors. So we remain confident that we can sustain our leadership as the preferred QSR in Brazil.

Beginning to notice any impact in the market in terms of competition for sites, for example? Is it like something that might be an issue three or five years from now or are you actually seeing some change in the market today?

No, so far we're not seeing, John, honestly -- to be honest any major change in the way we do business.

Okay. That's helpful. Thank you.

Thanks.

You are welcome.

Thank you. Next question please?

[Roy Kulick], Bank of America.

Sorry, could you repeat the 2012 guidance? I missed that. And then I was curious if you have any projections for EBITDA performance and margin -- EBITDA margin in Brazil? Thanks.

Okay, yes. As I said before, the expected growth in constant currency based on the share price at year end of last year, 2011, revenues should grow between 15% and 17%; adjusted EBITDA should increase between 10% and 12%; effective tax rate for the year should be in the range of 31% to 33%; and capital expenditures will be in the range of $340 million to $350 million, and that is of course at the consolidated level.

In the case of Brazil particularly, even though we do not disclose figures, actual figures, we believe they will be in the high single-digits in terms of comp sales.

Okay. Thank you.

You're welcome.

Thank you. Next question please.

Celina Merrill, Credit Suisse.

And congratulations on another strong quarter. I wanted to know if you could provide a little bit more details regarding your CapEx plan for the rest of the year. Can you help me understand a little bit more of what countries you are going to be focused on or what regions and what formats within those regions you are focused on expanding your store base?

Okay. To put all in the same page, remember we plan to open approximately 130 restaurants this year. Almost 50% of the new units are going to the Brazilian market. We plan to grow in other markets like Colombia significantly and other stable markets like [DCR] and Chile. And we plan to -- other than opening, we plan to include another platforms like 'Made For You' implementation in Brazil, in Chile, in other countries. And in the mixed stores we plan to keep at least 40% to 45% freestanding units, because we believe that that give to the customer the full experience of our brand.

And I am sorry, for the 40% to 45% freestanding units that's for all your regions or is that more for Brazil?

Yes, for all.

All, yes.

Okay, thank you.

Thank you. Next question please.

Lore Serra, Morgan Stanley.

Thanks for taking my question, and I also want to ask two questions before I am cut off. The first is -- it's just back to Brazil, and I appreciate your giving us the guidance or the information rather than "April was 1%". And I know the comp is hard, but that's not in sync with sort of the improving numbers that you've talked about.

So when you dig down into that comp there's a lot of things that are different in terms of maybe the timing of Easter and the Big Mac promotion, but what are you seeing in those numbers that makes you feel confident about saying high-single digit for the quarter?

I mean, I guess my understanding is that the reinforcement of value platform was based on the assumption that you are going to try to get traffic up, and 1% up doesn't sound like the traffic's up. So is the pricing down and the traffic is just not coming back or is it just that it's clouded by some of the factors that you've mentioned?

I like to understand how April makes you still feel like you can do high single-digit for the year?

Yes, well, that has to be clear. When we mentioned high single-digit, it's for the year and not for the quarter. And then again when you look at the traffic or traffic improvements, the comp was with last year is one thing. And that's where (inaudible) place and not in our favor, because the comp last year was 10%.

We need to take a look also at the trending -- of the trend of the previous months, and that's when we see the improvement. And 1% on top of 10% last year, we believe it's a solid number that going forward will take us into the high single-digit for the year.

But I guess more specifically -- I mean, I don't know how you adjust for Big Mac versus Quarter Pounder, but are you seeing sequential improvements in store traffic, even though 1% is a bad number for April in my view. Are you seeing the traffic improving sequentially as a result of the promotion?

We see the traffic improving sequentially because of the activities that we have going forward; the marketing plan, the properties on Happy Meal and a promotion that we have later in the year.

The Olympics.

Okay. And then I just wanted to ask about SLAD and specifically Argentina. And you guys obviously live in Argentina and you are following all the macro developments, and I think as we can see in your very strong numbers in SLAD the business is being very resilient right now. How do you think about SLAD if I take a 12-month view? I mean, how do you think that the environment might change in Argentina and how can you get ahead of it, if that's the right way to think about it? I am not sure if it is.

Okay. In the case of Argentina so far we have not seen any material change in our stores in terms of consumption. We believe that this -- government is taking measures to maintain the consumption high. We obviously are monitoring the situation closely, because there are a lot of noise coming from Argentina. But we don't see right now any --

Any major disruption.

-- major disruption or lower consumption at all.

Okay, thank you.

Thank you. Next question please.

Robert Schweich, Burnham Securities.

I'd like -- I have two questions. The first -- let's carry on further with the situation in Brazil. To get to a high single-digit figure for the year in comps, you're going to need pretty strong results in the third and fourth quarters. And is this primarily based on the increased Olympic promotional activity or is it based on feelings related to the Brazilian economy or both?

No, not really. The Olympic activity is mostly a [run] activity. It's not a big traffic driver. We have -- it helps sales in May, but it doesn't any affect throughout the year. We're projecting as a solid comp during the third and fourth quarter; products, pricing and market overall. And plus if you recall last year, the comps during the last quarter were pretty soft. So it's going to be an easier comp third and fourth quarter. When you put that together with activities that we're having this year, we expect a very solid third and fourth quarter.

All right.

But it's not one thing, it's a combination of several items that make that projections. How to pinpoint one thing -- there is no silver bullet.

You didn't comment on the economic picture.

Well, we expect it to be neutral or better. I mean, we don't see that the economy will go worse than it is going now. If anything, we will see improvements. In fact, we saw improvement for the past couple of months. So we think that this cyclical slowdown that we saw -- I'm not saying it's coming to an end, but definitely it's not going to be worse than it is today. So the economic -- again, it's going to be neutral or it's going to help us a little bit.

Yes, if you allow me, Bob, what I would say is the overall consensus in second half of the year will -- the economy will pick up. It is expected that a GDP growth in the range of 2.5% to 2.7%. So we believe that that will help the economy. And that combined with some measures that the government is taking in terms of interest rate reduction to push --

Diminish --

-- yes, consumption and minimum wages. And there a couple of factors in line that will surely help the second half of the year in the country.

And the same time, we have locked in prices in chicken and beef --

Well, that's for -- .

-- all the year and that helps us in margins. We have hedges [in place] and price for the first half of the year. So we are doing a lot of things that probably will see the impact in the second part of this year.

Second half, yes.

Second half.

My second question has to do with foreign currency. Now I know you don't predict earnings per share because you don't know what the foreign currency factor is going to be. But as I look at last year's foreign currency, Brazil dollar, you have very difficult comparisons more than likely in the third -- second and third quarters, and it doesn't likely get easier till the fourth quarter. Am I missing something?

No, you're right. This is things that are in the market; we need to play with that exchange rates. We try to minimize the impacts when we can, like hedge some food and paper cost. But you're right, the currency you are playing against has more strongly in the first part than the second part. It's true.

Thank you.

Thank you. Next question please.

Nitin Saigal, Bridger.

First question on -- two questions, first on comps. Could you tell how much did traffic actually grow year-over-year just in Brazil in the first quarter and then in April? I think you said the fourth quarter in the last call that it was down a bit. What was it for first quarter in April?

Brazil is negative 1% first quarter and April, I believe, is close to that also.

Both 1% up, you mean?

Down, down.

1% down, okay. And is it -- this traffic's generally consistent between Rio, Sao Paulo, and your stores outside those regions?

Yes. Well, we have differences among the regions, but the variations are small. The biggest differences that we see in the variation in traffic is between our restaurants within shopping centers and outside shopping centers. We are slightly positive outside shopping centers, negative inside shopping centers.

And that is because of the slowdown in the economy that we are talking about. There's less traffic in the shopping centers. So even though we a good capture rate -- less people you capture less people, so less traffic. But outside those shopping centers we're positive. So that's a factor also that will make us optimistic about most of the rest of the year.

45% of returns are in shopping centers --

Yes.

-- in the country.

And my second question -- thanks for that. My question is of the 130 gross openings. Do you expect it to be as backend loaded as last year? Is it all going to be basically in the fourth quarter or is there an acceleration that we could see in the second and third? How are you thinking about that schedule?

No, we obviously were in much better shape when it comes to the pace of the timing for the openings around the year. So we do not expect to have the concentration of openings that we had in the last couple of months in 2011. We are definitely good on track in that sense.

Sure. So I guess at this point relative to last year you have better comfort in the locations you've been able to identify and you think you could open them --

Yes, absolutely. We've got the vast majority -- not to say, over 90% of our sites already secured.

Got you. Okay. Thanks guys. All the best for the rest of the year.

Thank you, Nitin.

Thank you -- question?

Mitchell Speiser, Buckingham Research

Just a couple of follow-up questions. In Brazil just with the value menu adjustments and what you commented on in April, is it fair to say that the pricing -- that there's not a lot of pricing in the Brazil market right now given the lower value menu? Or if you can just give us a sense of what the price factor is in Brazil now given some of the price increases in some products and the price decreases in other products like the value platform?

Yes, we're basically even for these four months. Maybe a little bit -- the weight of the value platform is a little bit -- so may get a little bit of price reaction, but not significant overall. Going forward we may be able to do some increases towards the second half of the year, but we're not planning to do anything during this first half.

Also, because we have had a bigger success in terms of supply chain securing the food cost that help us to be a little bit more conservative on the pricing in Brazil.

Prices, as you know, is very dynamic and we need to reflect on what's going on in the economy and the market overall. So it's again very dynamic and we see the pricing plan every month and we adjust according to the needs and the market.

Okay, thanks. And the overall comp in the first quarter up 11.6. Can you give us a sense of just what the check in traffic was for the entire system, the components of the 11.6?

Yes. Overall, for the Company, it's 60% pricing, 40% traffic. I would tell you that some of the markets with high inflationary pressures like, for example, Venezuela, are pushing that 60.

Okay, great. And my last question is just on cash in general, and you did mention some royalty relief in Venezuela as I guess it's probably tough to take out money there. In Argentina are there any issues with taking out money in terms of paying a dividend or redeploying the cash to Brazil for unit growth, just any sense on the climate in Argentina and the ability to deploy cash when you want it? Thank you.

You know there are a lot of protocols in Argentina to take the money out. In our case, we don't have the need to take the money out. So we need to pay inputs. We obtained a solicitation with some delays. And remember that the headquarters are located here, so we can balance the cash flow and we don't need to inject cash flow inside.

And Remember too that our legal entity is located in [BBI]. We are not an Argentinean company. So only one of our subsidiaries is here in the country and the headquarters.

Thank you.

Welcome.

Thank you. Next question?

(Operators Instruction).

Howard Penney, Hedgeye Risk Management.

I also have a question on Brazil on the macro environment. The consumer facing data out of Brazil would suggest an acceleration, or did suggest an acceleration in retail sales I think by about 200 basis points in the first quarter. The March data hasn't been reported yet. So am I not looking at the right data to understand the macro factors that you are facing given you're reaching an acceleration in retail sales in Brazil as opposed to the --

Sure. There may be a delay -- typically, you may not see the same effects in every single industry at the same time. What we are fancying for sure is that the second half of the year the market will improve. We're seeing some early signs of this in our business and also combined with some measures that the government is taking.

So I would sign what you say. The reality is that it may not come at the same timing of the pace for recovery than any other retailer. I don't know which particular company --

Plus, information that we have from, for example, shopping centers, not our sales, but sales of the shopping centers and traffic of the shopping centers have not reflected that improvement for all the quarters. January was definitely not improved. February-March we saw some signs of that. I am not sure about the 200 basis points.

That's just the economic data that was reported from the government. So the supermarket industry -- and this might be a dumb question, but the supermarket numbers that were put out by the government suggested a 500 basis point acceleration. There wouldn't be a substitution effect for your products versus supermarkets, would there be?

No, no, no, certainly not (inaudible) because we're comparing -- depends on what happened in 2011.

Okay, thank you.

You're welcome.

All right. thank you. Sergio?

Well, to close -- we are all aware that the current environment is dynamic and some markets are tougher than other ones. But the reality -- what it really matters to us, and we tried to say it during the speech earlier is that the long-term remain strong for us, for our Company, for our brand, for our market and the fundamentals of our business are still there and they remain there.

So we are more than confident that we will achieve our targets and look forward to the months to come. So with that said, thank you for your time today. And as always, if you have any additional questions please contact Sofia Chellew, who is our Investor Relations Director. Thank you.

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