Arcos Dorados Holdings Inc (ARCO) 2012 Q3 法說會逐字稿

Good morning and welcome to the Arcos Dorados third quarter 2012 earnings call. With us today are Woods Staton, Chairman and Chief Executive Officer, Sergio Alonso, Chief Operating Officer, and the Company's CFO, German Lemonnier, and Sophia Chellew, Investor Relations Director.

A slide presentation accompanies today's webcast and is available in the investor section of the Company's website www.arcosdorados.com. As a reminder all participants will be in a listen only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions).

The conference is being recorded. I would now like to turn the conference over to Sophia Chellew, please go ahead.

Hello 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 statements section of our earnings release and recent filings with the SEC.

We assume no obligation today 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 measures to comparable GAAP results which can be found in the press release filed with the SEC on form 6K.

I would now like to turn the call over to Woods Staton. Woods, please proceed.

Thank you, Sophia. Hello everyone and thank you for joining us. Let me begin with some brief comments on the current operating environment. Our third-quarter results reflected moderate consumption environment in Brazil as a pickup in economic activities and sales is taking longer to materialize than expected.

I am proud however to report continued his solid underlying growth in our business. Excluding the steep year-over-year depreciation of the Brazilian real versus the US dollar, we achieved a double digit organic revenue expansion in addition to strong growth in the year ago period.

Irrespective of economic uncertainty and sporadic slowdowns in Latin America, our operating businesses are healthy as the fundamental factors upon which our business is based remain in place. Population growth, a growing middle class, the best opportunity for the growth in QSR segment, and a growing preference for convenience.

Our superior brand positioning, product platforms, and innovation along with our execution capabilities are and will keep us well ahead of the competition as the region continues to grow.

Our expansion strategy is on track to reach our full year opening plan with all outstanding units currently under construction. We are also investing in our future earnings potential by further expanding our footprint in strategic locations in ensuring that that we have the adequate structure and capacity in place to match the pace of unit expansion.

Next year's unit openings are expected to continue a strong pace which will strengthen our leading market position and drive future sales. The overall impact of a sluggish external environment in Brazil as well as currency weakness in the quarter was a 2.2% fall in revenues compared to the year ago period.

Excluding the currency impact, organic revenues increased by 11.6%. Adjusted EBITDA was primarily impacted by Brazil which because of its currency decline was the only division to experience a lower year-over-year adjusted EBITDA. Consolidated adjusted EBITDA decreased 12% to $83.6 million. Excluding the currency impact and special items the year-over-year decline was 7.3%.

Systemwide comparable sales increased 6.5% year-over-year in the third quarter which is in addition to a double-digit increase in the year ago period. Along with low economic growth and consumption in parts of the region, third-quarter comparable sales were also impacted by the softer results of a traditionally strong promotion.

The August Happy Meal promotion did not perform in line with our expectations. The remainder of our marketing activities performed well and generated average check growth. We have grown comparable sales above the industry and we have been focused on driving business with great offers for a value platform is our core strategy to protect and increase market share.

While various economic and geopolitical headwinds persist in Argentina and Venezuela these regions continue to deliver solid growth in the quarter. The turnaround of our Mexican operation is ongoing and Made For You which is now fully implemented is generating expected results. The rollout of the combined average business which we are extending to Brazil is resonating with customers and generating additional consumption opportunities.

As you may know, we and many other market commentators expected Brazilian consumption to have picked up into the fourth quarter. For example, as recently as June thanks predicted fourth-quarter GDP growth would reach about 4.5%. By October, the forecasts have come down to less than 3% and retail sales in general and mall traffic reflected these figures.

In keeping with this outlook comparable sales growth remained soft in October. In this environment we are focused on maintaining and growing traffic and saucer with the absence of clear signs of recovery in Brazilian consumption in the near-term we now anticipate achieving the lower end of the revenue growth guidance provided for the year 2012 of between 15% and 17% on a constant currency basis and are revising our adjusted EBITDA growth to between 3% and 5% as compared to 2011.

Our full-year effective tax rate projections remain unchanged. From a broader perspective, while the region continues to experience occasional macroeconomic and geopolitical setbacks, the frequency and duration of the cycles a short and overall economies of the region have advanced significantly.

Meanwhile, we are determined to keep our focus on strengthening our brand, driving sales, and training up our cost structure. I will now hand over the call to Sergio Alonso who will go through Arco Dorados' key marketing initiatives and topline performance by division in the third quarter in more detail. Sergio?

Thank you Woods and hello everyone. I would like to take you through some of the key marketing initiatives that shape our third-quarter results which can be found on slide three.

During the quarter we launched a number of marketing initiatives at which resulted in average check growth overall and profit growth in most of our key markets. In Brazil, despite the prevailing consumer environment, that Big Mac promotion in September and the cheap triple cheeseburger in July and August were the main drivers of growth of comparable sales and traffic.

Increased sales resulting from the inclusion of the Big Mac in the affordability platform provided customers with the one of our most iconic sandwiches at an attractive price while at the same time advancing our check.

Although in the short term, this can affect margins, it also drives traffic and that eventually trades up as the environment recovers.

Corporate comparable sales performance was also impacted by lower August Happy Meals sales as Woods mentioned in his introduction. This promotion is traditionally strong and provides sound returns while also driving sales of incremental ticket items. While the Ice Age platform generated healthy sales during the quarter popularity was not sufficient to generate growth versus the Smurf Happy Meal promotion in the year ago period.

As we head into the fourth quarter and early 2013, we have a strong marketing calendar for the summer months in a large part of our territories located in the southern hemisphere. Just one week ago we sponsored the 5 kilometer women's race throughout the region. This event has become a tradition for us and is a key opportunity to reinforce the brand even further.

In October we joined forces with the Roche Brothers famous Colombian chefs to add a local touch to some of our premium products in that market.

Now please turn to slide four. I will now go through the divisional results starting with Brazil. System-wide comparable sales for the quarter grew 3.2% driven by increased traffic and to a lesser extent our check. Consumer spending continued to be weak in Brazil in the third quarter. This factor was compounded by the Brazilian real 25% decline versus the US dollar, resulting in a 12.4% decrease in reported revenues. Excluding the Brazilian currency steep decline organic revenues gained 9.2%.

The net addition of our 60 restaurants during the past 12 months also contributed with $29.3 million to revenues. Additionally, as Woods mentioned, [CBB] is in its initial phase. There is an attractive potential market for this product line in the market and early signs are promising.

Please go to slide five. Now turning to the North Latin America division where revenues grew 4.6% or 8.7% on an organic basis year-over-year. The increase included growth of system-wide comparable sales of 1.3% and the contribution of $6 million from the net addition of over 20 restaurants during the last 12 month period.

We continue advancing in the market with categories such as desserts that have been very popular in Mexico. NOLAD growth slowed on sequential and year-over-year basis due to the before mentioned softer comparable sales after additional strong promotional activities. Where economic condition remains sound and the progress of the turnaround in our Mexican operation is ongoing quarterly results were also impacted by price increases which in hindsight could not yet be supported by advances in the brand.

Please turn to slide six. The SLAD division revenues grew by 11.6% and 17.9% on an organic basis as conditions in Argentina and Venezuela remain well despite geopolitical headwinds. System-wide comparable sales increased 15.4% primarily reflecting our own check. The net addition of almost 30 restaurants during the last 12 month period contributed $12 million in the quarter from countries with attractive growth potential.

We continue to closely monitor conditions in this region but are confident of the brand strength in the market as demonstrated by customer loyalty.

Please turned slide seven. The Caribbean division produced stable revenues with reported growth of 0.2% reflecting ongoing weak economic output in the region. On an organic basis, revenues gained 4.3% year-over-year. System-wide comparable sales increased 1.9% which in part reflects the successful rollout of the combined average business earlier in the year. And in addition, we are encouraged with the growth in premium products such as wraps in the French islands and chicken McBites in Puerto Rico.

Now please to slide eight. We continue to strategically expand our regional footprint and are on track to execute our full-year restaurant opening plan. These restaurants have contributed with $47.7 million in cost and currency to revenues and it will drive sales growth over the coming years.

As of September we have added over 100 net new restaurants throughout our territories during the past 12 months and have commenced contraction on all remaining units. While openings will once again be concentrated in the fourth quarter we have advanced significantly and executed a lower percentage of openings in Q4 this year than in Q4 last year.

More than half of the openings are located within Brazil which is our highest potential market. And at the end of this quarter 73% of the restaurants were company operated.

As you know, our expansion strategy is crucial to semantic our leadership position in Latin America and capitalizing on the low penetration of the QSR format. We are currently advancing with our operations planned for the following year in developing a very strong pipeline of attractive locations.

Now German will discuss our adjusted EBITDA generation, financial metrics, and our outlook for the remainder of the year.

Thanks Sergio. Please turn to the chart on slide nine to go over the components of adjusted EBITDA. Adjusted EBITDA was mainly impacted by Brazil decline and currency impact while the other division grew or remained stable. As a result, third-quarter consolidated adjusted EBITDA was $83.6 million, 12% lower than one year ago. Currencies had a negative impact of $14.1 million in the quarter. Special items in the quarter included (inaudible), the city tax charged in Brazil of $3 million, and the temporary royalty waiver in Venezuela of $1.2 million.

With regards to the CAD compensation program in the quarter the Company received for a charge of $0.9 million related to this CAD accrual while the hedge recorded a gain of $3.8 million. Additionally, CAD accrual in the third quarter of 2011 amounted to a charge of $8.5 million.

Finally, on organic basis adjusted EBITDA decreased by 7.3%. The adjusted EBITDA margin as a percent of total revenue declined 100 basis points to 8.7% in the quarter. The deterioration primarily reflected lower margins in the Brazilian division due to the increased cost of the portion of the US dollars denominated food and paper costs that were impacted by weaker Brazilian currency.

During the quarter we were able to achieve food and paper deficiencies a percent of sale since we have been expanding our Brazilian supplier base for key inputs. However this effort were upset by the mentioned currency effect.

On a positive note, margin expanded in SLAB and the Caribbean division and remained stable [in all that]. Similarly because the Company has maintained a fairly stable corporate and development structure throughout 2012, G&A a percentage of sales decreased compared to a year ago period including G&A levels and all divisions.

As a result, we are heavily impacted by the country's slow pace of consumer recovery which impacted comparable sales growth. Please remember that although we have two such as our affordability platform to defend our business. We are not totally immune. This, together with a sharp depreciation of the real versus the US dollar during the quarter offset the contribution of new restaurant and improvement from G&A leverage.

As a result, adjusted EBITDA in Brazil declined 37.6% on an organic basis EBITDA was down by 17.5%. In NOLAD adjusted EBITDA grew 3.7% in the quarter or 5.2% on an organic base. The adjusted EBITDA margin was stable at 7.4%. Food and paper efficiencies from improved control expenses such as Made For You were able to upset mild comparable sales growth of 1.3%.

In SLAB, adjusted EBITDA increased 18.4% or 23.1% on an organic basis. Temporary royalty relief in Venezuela along with food and paper deficiencies and G&A leverage offset the negative impact of higher payroll costs as a percent of sales.

Margins also improved to 12.2% in the quarter. In the Caribbean, adjusted EBITDA grew by $2.5 million and reached $4.3 million for the quarter. The adjusted EBITDA margin also increased to 6.3% of revenues, mainly due to efficiencies in payroll as well as G&A leverage.

In summary, consolidated revenues of $961.9 million were impacted by the depreciation of local currencies versus the US dollar. Excluding this impact, organic revenue growth was 11.6%. Consolidated adjusted EBITDA reached $83.6 million.

On slide 10, improved results reflected lower overall funding costs thanks to the debt restructuring process carried out during the past 12 months. This process has enabled us to reduce significant our overall funding costs. The debt restructuring process not only provide financing but also reduced the impact of the derivative variation, currency variation, and in the Company alone that previously affected the income statement.

Net income amounted to $32.6 million in the quarter up from $19.6 million in the third quarter of 2011 which included charges associated with the restructuring process in the year ago period. The Company reported basic earnings per share of $0.16 in the third quarter compared to $0.09 in the previous corresponding period, again mainly due to its debt restructuring charges.

We'll now review our debt indicators on slide 11. Our end of quarter net debt adjusted EBITDA ratio was 1.2 times. This ratio provides flexibility with respect to future development plans if it's necessary.

We ended the quarter with cash and cash and equivalents of $244.1 million. Capital expenditure for the quarter totaled $75.6 million bringing the year-to-date CapEx to $171.1 million. This is in line with the updated full year CapEx from $300 million to $320 million that we provided last quarter.

Over the past 12 months we have strengthened our balance sheet and financial ratios remaining at a healthy level and comfortably below any [covenant] requirement.

Turning to slide 12, the Company is maintaining its full-year effective tax rate guidance provided at the beginning of the year. However, given soft comparable sales in October and the absence of clear signs of recovering consumption in the Brazilian market we now expected to achieve at the lower end of the revenue growth guidance provided of between 15% and 17% and we are reducing our adjusted EBITDA guidance to 3% to 5% growth as we focus on driving traffic and strengthening customer loyalty.

This variation are based on constant currency and excluding the CAD related impact on results from stock price variations during 2012. I will now hand the call back to the Woods for some closing remarks.

Thank you German. Our third quarter results reflect challenging consumption environment at one of our largest markets, Brazil, despite this, we are maintaining and growing our market share and to have achieved ongoing strong underlying improvements in our business with significant progress for fortifying our balance sheet and managing our leverage.

We have achieved G&A leverage across the Company and our increasing our net income, our adjusted EBITDA net income yield. While we are focused on navigating the current environment I would also like to emphasize our long-term focus and the fact that we have faced and overcome many challenging circumstances over the years. Our dominant brand provides us with substantial long-term growth opportunities in an underpenetrated market particularly as a surging middle-class increasing new favors convenience and away from home heating.

In the meantime, we are maintaining our focus on building new restaurants, increasing sales from existing ones, and seeking out opportunities to improve our profitability while always providing a superior experience at our restaurants.

Thank you for your attention. We will now open the call up to questions.

We will now begin the question-and-answer session. We ask that you please limit yourself to one question and one follow-up. (Operator Instructions). Our first question will come from Mitchell Speiser of Buckingham Research. Please go ahead.

Thanks very much. My first question is on October. You did mention soft, could you maybe give us a little more detail? Is that across all regions? Is it just Brazil? You did mention in Brazil you did see some traction from the Big Mac on the value menu in September. I believe it is now removed in October is that a reason for the softness? And if you could maybe discuss if the other regions started off the fourth quarter soft as well.

Mitch, this is Sergio, how are you? Even though we do not focus solely on the one month particularly, compile of sales, we can say so far in October, mainly the Brazilian economy is not reflecting the recovery that we were all expecting. That's the main reason why we place that comment. So what we are doing is we continue to build on brand strength and as Woods mentioned in his introduction protect market share.

I guess my one follow-up just relates to profitability. And just relative to the guidance for 3% to 5% adjusted EBITDA growth excluding currency and 2012, what type of adjusted EBITDA growth is needed in the fourth quarter to get there? And I guess another way to ask the question, I would just like to know what that third-quarter year-to-date growth is. So perhaps we could just figure out what it takes in the fourth quarter to get to that 3% to 5% growth target.

Mitch, German, speaking. The original guidance we need to be slightly above last year results in the fourth quarter in terms of EBITDA margins but because you need to consider the slowdown in consumption vis-a-vis that we are expecting, we are focused in traffic again trying gain or keep market share.

Our next question will come from Lore Serra of Morgan Stanley. Please go ahead.

Yes thank you for taking the question. I guess I would just like to understand a little bit more about why you are seeing this weakness in Brazil and I know October has a tough calendar. I assume when you are saying it was tough you're adjusting for that tough calendar. The other companies were talking to in Brazil are not talking about things being this tough and I'm wondering we are reading about Burger King promoting a five real sandwich. I'm wondering if it's a competitive issue as opposed to an economic issue.

I guess why do you think if you are not seeing recovery as you are entering easier comps, is the competitive environment really the issue not the economy?

Hi Lore, this is Woods. No, listen, there is a 2.75% trading day affect in October which is affecting us. We are not having -- we don't feel any impact from competitive pressure affects. Our understanding is that our comp sales are doing more strongly than the competition.

I just want to say the BRL5 promotion that they run is -- it was focused on non-core products.

Yes, as Lore just explained in their BRL5 promotion was on the smaller sized sandwiches then our BRL6 big Mac. So you can't compare. They're not equally comparable.

Okay. But at this point would you expect the comps to get better in the fourth quarter or are we in this 3% -- I'm not trying to get if it's 3.5% versus 3%, but this is your expectation? This is the run rate in Brazil?

Yes we are having the economy still has not taken off in our estimation. We are doing well with traffic with guest counts. We are driving guest counts with affordability platform and I think we are doing okay. This is a long term business we are taking care of our market share and we are going now through some headwinds but we're fine.

The next question will come from Luiz Carvalho of Tree Capital. Please go ahead.

Hi everybody. Thanks for the opportunity to ask questions. To questions related to may be affects one in Brazil and one in Argentina and maybe drilling down on a prior question from Lore. On Brazil, if the traffic is good, isn't it a function of pricing because I keep hearing that the pricing especially the pricing in dollars for a big Mac in Brazil is the biggest in the world.

So isn't this like a little mark to market of the pricing of your products in Brazil that needed to be down question marks omitted that explains -- you're saying that it's not an effect of the competition and it's not traffic, so must be pricing. That's question number one.

Question number two is in Argentina. As I translate your EBITDA in the degenerating local currency in Argentina, am I using the [4.77] or like a [6.7]? Which affects rate do you guys use?

Let me answer the first part and I will let German answer the exchange question on Argentina. Look, the Big Mac price, the real has its value and we are offering the price of BRL6 which is competitive. So it is a mark-to-market and don't forget what we also mentioned in the third quarter that August was a bad month for us and Happy Meals sales all through the region. So that also has an impact.

And basically Luiz I tried to explain that we need to follow the accounting rules to translate local currency and to the US dollar then I need to use the official exchange rate that is [4.6] on average in the quarter.

Let me explain that from the currency risk point of view, in Argentina we have two things. We have the Argentine subsidiary that generates local currency results and at the same time that we have the corporate structure that balances this cash flow so in case of a potential devaluation in Argentina we don't expect any negative impact. In fact, the impact would be neutral or slightly positive.

Okay, thank you very much.

The next question is from John Ivankoe of JPMorgan. Please go ahead.

Hi, the first question is on the new unit average of volumes in Brazil and what you are seeing those a new store volumes trend if you can maybe give us a number versus average. The point is when those new stores come into the system, are they margin accretive, margin neutral or margin dilutive?

Hi John, this is Woods. As a new stores coming in in Brazil and all across the marketer coming in at the same basis as the new stores came in, in years before. So we're doing very well from that point of view.

In fact, our new stores in Brazil are coming in slightly higher than what we had planned so we are happy with that. Initially there are margin decreases or stable because you have to put in all of the opening charges opening costs in the (technical difficulty) but they rapidly ramp up to where they are supposed to be in the rest of the market is.

Okay, thank you. And the follow-up if I may. On CBB, did CBB influence the Caribbean margin and if it is that the case could you be a little bit more specific of when CBB goes into Brazil and if you expect a significant margin impact from the initiative in Brazil once it's rolled out?

Hello, John. This is Sergio. Yes, CBB is really contributing in a very strong manner in our operations in Puerto Rico and in Brazil we already have an initial number of restaurants so you can imagine that the ruling out of the market will take some time but the results we are getting so far are very encouraging for us.

Our next question will come from Bob Ford of Merrill Lynch. Please go ahead.

Hi thank you. Good day, everybody. Could you please give the net income number for Venezuela? I couldn't find it in the 6K this quarter.

We decided not to just close this number because you know the net income are impacted by the tax rate and the calculation in every quarter tax rate is very complicated. So we prefer to focus the tax rate guidance, the full-year results, 31% to 32%. But to your question, we are keeping our assumption that the devaluation is coming in Venezuela and that is basically now changed in the net income number in Venezuela because of the tax rate.

Fair enough. And with respect to Brazil, same-store sales. Can you maybe break out the mall-based stores from the freestanding stores please?

Hi, this is Sergio. What we can say is all perform in the same level. Actually if you recall in previous conference calls we mentioned that freestanding stores were performing better than shopping malls. That was due to reduction in traffic in the shopping malls. We sort of continue with that same trend but other than that considering that affect they are performing the with the same evolution level I would say.

(Operator Instructions). The next question will come from John Glass of Morgan Stanley. Please go ahead.

Thanks. My first question is two parts. One is can you first just be more specific about traffic versus ticket in both the third quarter for I guess of the overall the 6.5% as well as Brazil? And the second part of that is just in October if you factored out the calendar shift with sales of this celebrated from the third quarter or is this more than just a calendar shift issue in October?

John, let me answer the first part and then I will let Sergio answer is the October part. The average ticket in general in the Company is being driven mostly by price. In this specific case of Brazil it's been driven mostly by guest counts. So it depends on the country and it depends on the competitive set that we have. And as far as October, Sergio.

The 2.75% that was mentioned is a typical trending they adjust that all of the industry we use. It was positive in September. It was a negative in October in your overall month by month. It depends on the number of the weekends you have in the month and all of that, overall consumption, having said that, we are still waiting for the Brazilian economy to recover at a higher base.

Okay, maybe a follow-up off-line just to get the specific numbers. Can you talk about so what you are doing since the economy there seems to be slower than you anticipated? Can you talk about more specifically what you are willing to do in the coming quarters to drive better transaction counts? You can put the big Mac on or take it off, you have some of these lifts but they seem to be somewhat temporary.

So maybe an earlier question, what is necessary in your mind to overcome the macro situation rather than waiting for it? Are there more aggressive promotions for example coming this summer? Are you waiting for the CBB for example to drive incremental business in Brazil? What are the two were three key things we should measure you doing in the next couple of quarters that will overcome some of the sluggishness?

Hi John. This is Woods. First of all the overall global thing is we are going to drive affordability and that's number one. Number two also excitement. So what we are doing is we are coming out with the initial rolling out of CBB in Brazil which is going to open up a whole new category for our business and then were also going to extend the Angus burger which is a premium sandwich to defend margins and other parts of Brazil. So depending on the region of Brazil we are doing different things.

Also the Happy Meal is probably [pre utilization].

Sure, that part will be affordability as I mentioned earlier about the affordability, we are going to revitalize the Happy Meal and make sure that it's a driver of consumption to our stores as you well know. Children don't go to the stores by themselves. They go with their parents and that's an important thing for us.

Our next question comes from Robert Schweich of Burnham Securities, please go ahead.

I realized that you were at a very different stage of development compared to the parent company McDonald's, but over a long period of time they have used part of their cash flow not only for dividends but for share repurchases.

Given the fact that your shares are selling at very close to a historical low and there seems to be some continuing uncertainty as to who when the improvement is going to occur in the Brazilian economy, have you given any consideration to diverting any of the capital expenditures for expansion into a program of share repurchases?

Hi Bob, this is Woods. Quite frankly we are focused on opening and we are focused on maintaining share and being part of the growth story of Latin America and of Brazil and all of the countries. So we will continue to spend our -- invest our money in new stores and in other potentials for growth. We are here for the long term and that's where we feel that we will get the most bang for everybody's buck going forward.

Thank you. I'm not suggesting that that is an incorrect policy, I just wanted to know whether you had given any thought to the possibility of a change and it seems you have not.

That's correct.

Our next question is a follow-up from Mitch Speiser of Buckingham Research. Please go ahead.

Great, thanks very much. I'm just looking at the store level margins in the third quarter which were down about 200 basis points but the payroll and benefits line improved significantly. It was only up about 15 basis points or 16 basis points and that's been a source of pressure. Can you discuss how you were able to better leverage labor or less deleverage there?

And then on the flip side of the occupancy line was up significantly. Are there any changes to your thinking on the payroll and benefits line or the occupancy line given this new level of same-store sales growth?

Hi Mitch, this is Sergio. First part of the question about labor, we have been rolling out Made For You in our biggest markets and a significant portion of the reason why even though not the most important, the most important was quality, but after quality an important reason why we deployed the new system was increasing productivity.

The reality is for a company our size it takes some time for the system to keep up and get the pace to bring that productivity into the restaurants. That is pretty much what's going on. That's why you're seeing that leverage in labor lines. As we said since the very beginning that will help us to offset relevant portion of all the pressure we're getting out of the salary increases and that we have to provide in the markets the market by laws and all of that.

On the occupancy, and you want to pick it up?

Yes, and occupancy the comparison is not for last year the occupancy cost was relative, the occupancy was low. At the same time with the low volumes in sales some costs are semi-fixed costs so we received the impact of the deleveraging of these lines but we are focusing looking for efficiencies and going forward at the slide book because we believe that there are a lot of things to do there.

Our next question comes from Josephine Shea of Hartford Investment Management. Please go ahead.

Thank you for the calls. Financing needs, do you have any and can you also provide CapEx guidance and maybe dividends?

Hi, Josephine. And dividends, and there's no plan to change the policy and dividends. At this time there is no need for us to look at financing. We are always open to it but we will continue our CapEx plan and we are working on those plans right now by the way. We are here in Brazil working on them so that's where we are. We will provide full-year targets for next year further down the road and right now, that's basically it.

Okay, thank you

Thank you.

Our next question is a follow-up from Lore Serra for Morgan Stanley. Please go ahead.

Thank you for taking the question. I wondered if I could just ask a little bit about Argentina and Venezuela on two fronts. One is how you see the current and near-term environment in those countries. Your numbers decelerated but they still were not weak and you mentioned the Happy Meal issue.

And then I guess, looking into the margins you've actually been able to increase the margins and I know that's been supported by Venezuela and no royalty release but as you think about the next year, if some of the predictions of the economists come through, how should we think about the support that you might get from McDonald's or how you manage through the margins if some of that does come out to happen? Thanks.

Hi, Lore. This is Woods, thank you. Venezuela, we continue to follow the Venezuela market very closely. We have a very strong brand in Venezuela. Our operations continue with little change post-election. We've done a lot of sourcing shifts to Venezuela. We used to import more than we do now. We've done a lot of work to source in Venezuela and become a Bolivar dependent and not the dollar dependent.

There's a lot of talk about evaluations and how Chavez is going to pay for all of the things that he's done. So it's a challenging environment but the brand is strong. They have petroleum. We are not a strategic company. We're not -- we're very well-liked by everybody and we are considered a place where people can go off and have fun and have a nice time.

Given the margin increases in Venezuela we have done to pay for the local sourcing, we've done very well so were happy with that.

Argentina, it's a difficult economy as well. Don't forget it's a very based on soy and other grains and if this is the soy prices perform well it really depends on what happens I think in China going forward but we feel that the things in Argentina will continue to be -- we hope and feel that they continue well. If you look at sales of Argentina outside of Buenos Aires, in the interior, [Rosareo, Cordo] those areas, Mendosa. They're doing extremely well because there's more money in those parts of the country.

So we at this point feel that Argentina is going to be fine. There are a lot of issues of a centrally controlled economy but we've dealt with this before, same case with Venezuela.

This concludes our question-and-answer session. I'd like to turn the conference back over to Woods Staton for any closing remarks.

Yes, thank you. We've had a tough quarter but I think that our comp sales, given the tough quarter and the fact that we have this issue with the Happy Meals in August, we've done all right. We've had a G&A leverage. We've had EBITDA, the net income yield, and we are doing -- we've maintained our market share, in fact maybe even gained. We're the long-term in this business so it's been challenging, to say the least.

I'd like to thank all of you for being here and I hope all of you were able to storm -- go past the storm that you had in New York and I hope everybody is safe and your families are safe. And thank you for joining us today. It was great to have you with us. Thank you for your interest.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.