Top 10 Restaurant Companies To Buy Right Now

Top 10 Restaurant Companies To Buy Right Now: Arcos Dorados Holdings Inc (ARCO)

Arcos Dorados Holdings Inc., incorporated on December 9, 2010, is a McDonalds franchisee. As of December 31, 2010, the Company operated or franchised 1,755 McDonalds-branded restaurants, which represented 6.7% of McDonalds total franchised restaurants globally. It operates McDonalds-branded restaurants under two different operating formats, Company-operated restaurants and franchised restaurants. As of December 31, 2010, of its 1,755 McDonalds-branded restaurants in the territories, 1,292 (or 74%) were Company-operated restaurants and 463 (or 26%) were franchised restaurants. It generates revenues from two sources: sales by Company-operated restaurants and revenues from franchised restaurants, which consist of rental income, which is based on the greater of a flat fee or a percentage of sales reported by franchised restaurants. As of December 31, 2010, it owned the land for 510 of its restaurants (totaling approximately 1.2 million square meters) and the bui ldings for all but 12 of its restaurants. It divides its operations into four geographical divisions: Brazil; the Caribbean division, consisting of Aruba, Curacao, French Guiana, Guadeloupe, Martinique, Puerto Rico and the United States Virgin Islands of St. Croix and St. Thomas; North Latin America division (NOLAD), consisting of Costa Rica, Mexico and Panama, and South Latin America division (SLAD), consisting of Argentina, Chile, Colombia, Ecuador, Peru, Uruguay and Venezuela. As of December 31, 2010, 35.1% of its restaurants were located in Brazil, 29.7% in SLAD, 27.1% in NOLAD and 8.1% in the Caribbean division. The Company conducts its business through its indirect, wholly owned subsidiary Arcos Dorados B.V.

Company-Operated and Franchised Restaurants

The Company operates its McDonalds-branded restaurants under two basic structures: Company-operated restaurants operated by the Company and franchised restaurants operated by fr! anchisees. Und er both operating alternatives the real estate location may either be owned or leased by the Company. It owns, fully manages and operates the Company-operated restaurants and retains any operating profits generated by such restaurants, after paying operating expenses and the franchise and other fees owed to McDonalds under the Master Franchise Agreements (MFAs). In Company-operated restaurants, it assumes the capital expenditures for the building and equipment of the restaurant and, if it owns the real estate location, for the land as well. Under its franchise arrangements, franchisees provide a portion of the capital required by initially investing in the equipment, signs, seating and decor of their restaurants, and by reinvesting in the business over time. It is required by the MFAs to own the real estate or to secure long-term leases for franchised restaurant sites. It subsequently leases or subleases the property to franchisees.

In exchange for the lease and services, franchisees pay a monthly rent to the Company, based on the greater of a fixed rent or a certain percentage of gross sales. In addition to this monthly rent, it collects the monthly continuing franchise fee, which generally is 5% of the United States dollar equivalent of the restaurants gross sales, and pays these fees to McDonalds pursuant to the MFAs. However, if a franchisee fails to pay its monthly continuing franchise fee, it remains liable for payment in full of these fees to McDonalds. As of December 31, 2010, it was engaged in several joint ventures, which collectively owned 24 restaurants, in Argentina, Chile and Colombia.

Restaurant Categories

The Company classifies its restaurants into one of four categories: freestanding, food court, in-store and mall stores. Freestanding restaurants are the type of restaurant, which have ample indoor seating and include a drive-through area. Food court restaurants are located in malls and consist of a front counter and kitchen an! d do not ! have their own seating area. In-store restaurants are part of a larger building and resemble freestanding restaurants, except for the lack of a drive-through area. Mall stores are located in malls like food court restaurants, but have their own seating areas. As of December 31, 2010, 808 (or 46.2%) of its restaurants were freestanding, 359 (or 20.5%) were food court, 265 (or 15.1%) were in-stores and 319 (or 18.2%) were mall stores. In addition, it has four non-traditional stores, such as food carts.

Reimaging

As of December 31, 2010, the Company had completed the reimaging of 308 of 1,569 restaurants. Many of the reimaging projects include the addition of McCafe locations to the restaurant. It has developed system-wide guidelines for the interior and exterior design of reimaged restaurants.

McCafe Locations and Dessert Centers

McCafe locations are stylish, sep arate areas within restaurants where customers can purchase a range of customizable beverages, including lattes, cappuccinos, mochas, hot and iced premium coffees and hot chocolate. As of December 31, 2010, there were 267 McCafe locations in the Territories, of which 12% were operated by franchisees. Argentina, with 71 locations, has McCafe locations, followed by Brazil, with 67 locations. In addition to McCafe locations, it has Dessert Centers. Dessert Centers operate from existing restaurants, but depend on them for supplies and operational support. As of December 31, 2010, there were 1,306 Dessert Centers in the Territories.

Product Offerings

The Companys menus feature three tiers of products: affordable entry-level options, such as its Big Pleasures, Small Prices or Combo del Dia (Daily Extra Value Meal) offerings, core menu options, such as the Big Mac, Happy Meal and Quarter Pounder, and premium options, such as Big Tasty or Angus premium hamburgers and chicken sandwiches and low-calorie or low-sodium products, which are marketed through common platforms ra! ther than! as individual items. These platforms can be based on the type of products, such as beef, chicken, salads or desserts, or on the type of customer targeted, such as the childrens menu.

Advisors' Opinion:

• [By Asit Sharma]

  Arcos Dorados' (NYSE: ARCO  ) stock has remained basically flat this year, as a strong U.S. dollar has weakened the company's earnings, which are derived almost entirely from Latin America. As an example, the company's Brazilian division sales were up almost 11% in 2012 versus the prior year on an organic basis, from $1.8 billion to more than $2.0 billion. However, due to the depreciation of the Brazilian real, the division's revenues actually decreased by $93 million in dollar terms. In the accompanying video, Fool contributor Asit Sharma discusses Arcos' recent results, and why he sees a buying opportunity in Arcos Dorados stock.

• [By Geoffrey Seiler]

  Analyst John Ivankoe took Arcos Dorados (ARCO) from neutral to overweight and increased his target from $13 to $14. It is the first time the analyst has had a positive view on the stock since it IPO'd.

source from Top Stocks To Buy For 2015:http://www.topstocksforum.com/top-10-restaurant-companies-to-buy-right-now-3.html