Arcos Dorados: the New King of Comps

Every industry and every investor has one particular metric that prevails in importance above the rest. In the banking industry, it's the net interest margin. In the mining industry, it's commodity prices. And in the restaurant and retail industry, it's same-store sales, or "comps."

As its name suggests, this figure measures sales growth at locations open for at least a year and is important for two reasons. First, by holding all else equal, it communicates how effectively a company is growing its customer base. And second, growth through higher comps is more accretive to the bottom line because it typically doesn't require significant capital outlays to finance it.

A particular restaurant chain's comps are a function of multiple variables. For example, while higher prices, increased traffic counts, and revamped stores all influence it in the positive direction, deteriorating product quality and service apply downward pressure.

Given the variety of influences, in turn, it's difficult to lay down a single, hard-and-fast rule to distinguish between good and bad comps. While 5% may be unbelievable for a company like McDonald's (NYSE: MCD  ) because it returns so much of each additional sales dollar to its shareholders, it may take double-digit comps to satisfy investors in newer companies like Chipotle Mexican Grill (NYSE: CMG  ) or Panera Bread (Nasdaq: PNRA  ) . Yet at the end of the day, one thing's for certain: the higher the comps, the better.

With this in mind, I scoured the industry's quarterly filings to find the restaurant chain with the best comps for the most recently concluded quarter. And as you can see below, the proverbial blue ribbon for last quarter goes to Arcos Dorados (NYSE: ARCO  ) , the massive franchisee of McDonald's restaurants in Latin America, which turned in double-digit comps of 11.6%, nearly four times the industry average.

Source: Quarterly earnings releases. When available, only domestic comps were included.

Foolish bottom line
While it's difficult to argue with Arcos Dorados' performance in such an important metric, like I said above, making an investment decision based on one number alone is never a good idea. This is merely a place to start.

Another place you could start is our free report, "The Motley Fool's Top Stock for 2012," which identifies a fast-growing retail stock that's similarly making waves south of the border. To learn the identity of this highly promising growth stock, simply click here to download the free report instantly.

Fool contributor John Maxfield does not have a financial position in any of the companies mentioned above. The Motley Fool owns shares of McDonald's, Panera Bread, Chipotle Mexican Grill, and Arcos Dorados Holding. Motley Fool newsletter services have recommended buying shares of Chipotle Mexican Grill, Panera Bread, and McDonald's. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 30, 2012, at 9:24 PM, jerryz11 wrote:

    I wonder how much of ARCO's strong comps come from the much higher inflation in Latam. Another point about ARCO, unrelated to comps, is that, while its revenue grows at 13% p.a., its adj. EBITDA grows at a slower 12% and its EBITDA/store increased less than 2% p.a. between 2008 and 2011 (all in USD), well below local inflation. That's well below PNRA. what's going on?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2002326, ~/Articles/ArticleHandler.aspx, 10/22/2014 7:13:46 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement