Q3 2022 MTY Food Group Inc Earnings Call

Speaker 1: Good morning ladies and gentlemen. Thank you for standing by. Welcome to the MTY Food Group Inc Q3 2022 earnings conference call.

Speaker 1: At this time, all participants are in a listen-only mode.

Speaker 1: Following the presentation, we will conduct a question and answer session.

Speaker 1: Instructions will be provided at the time for you to queue up for questions.

Speaker 1: If anyone has any difficulties hearing the conference, please press star 0 for operator assistance at any time.

Speaker 1: Before turning the meeting over to the management, I would like to advise everybody that this conference call will contain statements that are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those

Speaker 1: I would also like to remind everyone that this conference call is being recorded today, Friday the 7th of October , 2022.

Speaker 1: I would now like to turn the call over to your host, Eric Lefebvre, Chief Executive Officer. Please go ahead, sir.

Speaker 2: Thank you.

Speaker 2: Good morning everyone and thank you for joining us for MTY's third quarter conference call for fiscal 2022. The press release and MDNA with complete financial statements and related notes were issued earlier this morning and are available on our website as well as on CEDAR.

Speaker 2: During the call, we will be referring to forward-looking statements and to certain numbers that are non-IFRS measures. You can refer to our MDNA for more details. I also remind you that all figures presented on today's call are in Canadian dollars, unless otherwise stated.

Speaker 2: Before we address the performance of MTY, I'd like to say a few words about the devastation caused by Hurricanes Fiona and Ian in many of the communities in which we operate. As you know, many regions from Puerto Rico, Florida, South Carolina, Newfoundland, Nova Scotia and many others suffered the impact of those natural disasters. Over 150 of our restaurants had to close, some for a day or two and some for much longer. Fortunately, all our employees and franchisees are safe and as power returns we expect all but a few restaurants will reopen.

Speaker 2: Many of our colleagues, franchisees and suppliers participated in efforts to support the local populations as the rebuilding efforts get underway.

Speaker 2: To brighter news now, MTOI continued to perform extremely well with record normalized adjusted EBITDA of $50.6 million and system sales of $1.1 billion in the third quarter of fiscal 2022, despite an ongoing challenging environment. We are very pleased with the post-pandemic recovery of our casual dining brands, which are now operating at full capacity, as well as by the progression of the locations that were most affected by the pandemic.

Speaker 2: We are also pleased with the ability of the concepts that performed well during the pandemic to capitalize on the momentum created during the pandemic to continue their growth.

Speaker 2: The efforts deployed by our teams and franchisees are generating the results we anticipated, as shown by our sales, which increased 9% year-over-year in the third quarter of 2022. Our top 20 brands, which account for approximately 85% of our network sales, were up on average 6.6%, indicating the health of the larger brands and the strong growth of the smaller ones.

Speaker 2: The performance of our Canadian segment was particularly noteworthy, growing system sales 16% in the third quarter as customers gradually returned to office and resumed travel in urban areas. For its part, US system sales rose 3% year-over-year while international sales increased 17%.

Speaker 2: Digital sales, meanwhile, improved 5% year-over-year to $194.1 million, or 18% of total sales in the third quarter of 2022. Canadian digital sales increased $3.3 million year-over-year. On the strength of higher fast-casual digital sales, mainly owing to the gradual return to the office for many customers, we increased the frequency of lunch orders and outings.

Speaker 2: US digital sales rose 5.3 million compared to the third quarter last year.

Speaker 2: Digital sales are a key strategic opportunity for MTY for the future and we're deploying efforts to increase the amount and proportion of those sales in the future.

Speaker 2: Another encouraging data point in the third quarter was reflected by the number of restaurant openings, climbing to 63, sequentially better than the 47 openings realized in the second quarter, and also better than the same period last year. As mentioned in last quarter's conference call, the construction of new locations remains under pressure due to ongoing supply chain permitting, construction, and final inspection issues.

Speaker 2: At the present time, we have more than 150 restaurants under construction and a very healthy pipeline for future locations. The store construction process is gradually improving and when combined with a strong pipeline of franchise owners, it bodes well for future growth at MTY.

Speaker 2: In terms of store closures, they totaled 117 in the third quarter of 2022. The total number of those closures came from the non-renewal of existing agreements in the U.S. and to a lesser extent in Canada.

Speaker 2: At the end of the third quarter, NTY's network had 6,606 locations in operation, of which 6,516 were franchised and 90 were corporate.

Speaker 2: Aside from our strong financial results,

Speaker 2: The other highlight of the third quarter was unquestionably the acquisition of barbecue holdings, which closed September 27.

Speaker 2: Barbecue Holdings is a franchise or an operator of more than 300 casual and fast casual dining restaurants across 37 states in the US, Canada and UAE.

Speaker 2: The seasoned team at BBQ Holdings, owners of flagship brands like Famous Dave's, Villagen, Baryo Queen and Granite City, are highly proficient in operating franchise systems as well as corporate owned restaurants, which account for roughly one third of the acquired locations.

Speaker 2: The dedication and creativity of everyone at BBQ Holdings is phenomenal and the culture is very similar to MTY's which will make the marriage more successful.

Speaker 2: Through the BBQ Holdings deal, we're building additional scale in the US. We're expanding our casual dining footprint. We're combining complementary franchise and corporate owned businesses know-how.

Speaker 2: We are acquiring an established retail sales operation and we are adding a talented management team and employee base.

Speaker 2: This latest acquisition will complement our primary expertise in running franchise-operated restaurants and expand our overall footprint to approximately 6,900 locations and pro-farma system sales close to $5 billion.

Speaker 2: MTY paid cash consideration of $284.2 million or $207.1 million for barbecue holdings, a valuation that falls in our sweet spot.

Speaker 2: I will now turn the call over to Renee who will discuss MTY's financial results in greater details.

Speaker 3: Thank you, Eric, and good morning, everyone. As previously mentioned by Eric, MTY delivered record normalized adjusted EBITDA of $50.6 million in the third quarter of 2022, which excludes $1.7 million in acquisition costs related to the barbecue acquisition.

Speaker 3: Major brands such as Coldstone, Creamery, Thai Express, Manchu Walk, Sweet Frog, Scores, Ben & Florence & Alumokoko greatly outperformed last year's results to help raise normalized adjusted EBITDA by 2% year-over-year in the third quarter of 2022.

Speaker 3: Canada continues its growth momentum, contributing to 48% of total normalized adjusted EBITDA in the third quarter, an improvement of $3.2 million from the same period last year, while the US and international normalized adjusted EBITDA decreased by 8%.

Speaker 3: Net income attributable to owners amounted to 22.4 million or 92 cents per diluted share in the third quarter of 2022, compared to 24.3 million or 98 cents per diluted share in the same period last year.

Speaker 3: The main contributing factors for the decline were for the most part non-recurring items, namely the barbecue holding transaction costs, a variance in the unrealized foreign exchange losses, and the impact of the revaluation of financial liabilities recorded at fair value.

Speaker 3: Company revenue meanwhile grew 14% year-over-year to $171.5 million in the third quarter, mainly due to a 41% surge in food processing, distribution and retail revenue in Canada.

Speaker 3: New listings and expansion to new territories greatly contributed to generate revenue growth on the retail side in Canada.

Speaker 3: Our newly acquired coup de contour at Tartare distribution and food processing center also generated an additional 1.4 million on the processing and distribution end.

Speaker 3: MCY also benefitted from a 15% increase in the number of cases in the past year.

Speaker 3: revenue increase from franchise locations north of the border. This increase was primarily driven by the return of customers to office towers and malls, which saw an increase of 40% in system sales compared to prior year.

Speaker 3: Streetfront locations also contributed to a large portion of the growth with year-over-year growth of 10% and contributing to 75% of the overall Canadian system sales.

Speaker 3: Altogether, revenue in Canada grew 28% in the third quarter of 2022, while revenue in the US and international segments declined by 1%.

Speaker 3: We're also extremely happy to note that total revenues and system sales in Q3 2022 outperformed Q3 2019 by 5% and 3% respectively.

Speaker 3: Now turning to liquidity and capital resources, cash flows from operations totaled 36.8 million in the third quarter of 2022 compared to 46.6 million in the third quarter of 2021, while free cash flows amounted to 35.5 million or $1.45 per diluted share in the third quarter compared to 45.6 million or $1.84 per diluted share in the same period last year.

Speaker 3: The increase in interest rates affected our free cash flow adversely and will continue to do so for the foreseeable future. However, we expect free cash flows to remain strong between 70 to 80% of EBITDA in the future as it has been in the past.

Speaker 3: In terms of capital allocation, we reimbursed $34.2 million of long-term debt and paid $5.1 million in dividends to shareholders in the quarter. We will continue to steadily repay our debt to maintain a comfortable leverage ratio and target future acquisitions following the BBQ holdings transaction.

Speaker 3: This disciplined approach will help us navigate through potential volatility should the economic environment deteriorate.

Speaker 3: At quarter end, long-term debt, mainly in the form of bank facilities and promissory notes on acquisition, stood at $315.3 million. We also closed the quarter with a cash position of $55.3 million.

Speaker 3: And with that, I thank you for your time and we'd now like to open the lines for questions. Operator.

Speaker 1: Thank you.

Speaker 1: Ladies and gentlemen, we will now begin the question and answer session.

Speaker 1: If you would like to ask a question, please press star followed by the number 1 on your telephone keypad.

Speaker 1: If you would like to withdraw your question, please press star followed by the number 2.

Speaker 1: One moment for your first question.

Speaker 1: Your first question will come from John Zamparo of CIBC. Please go ahead.

Speaker 4: Thanks. Good morning. I wanted to start on the labor shortages referenced in the outlook that's impacting system sales. I wonder if you could take a shot at quantifying that as a percentage of where you would like them to be. In other words, where are your operating hours compared to pre-pandemic levels.

Speaker 2: It's a good question. It's really hard to quantify because it varies from one restaurant to the other and it also varies in time.

Speaker 2: I would say in terms of opening hours, we're pretty much there versus where we were before. So, maybe we lost a day part in some restaurants that did all three day parts. Some have removed breakfast completely. But other than that, we're pretty much open the same hours we were for most of the network. But we do have sometimes...

Speaker 2: sections of restaurants might have to be closed because we're running out of staff or service might be a little bit slower and customers might not necessarily have the same experience. It does impact our sales but it's almost impossible for us to quantify.

Speaker 4: Okay, fair enough. Can you say relative to last quarter or quarter before how the labour situation looks? Is it improving at all or is it relatively similar to the past couple of quarters?

Speaker 2: It's improving very slowly but it's improving. I think the overall labor market is kind of stabilizing. I don't think we've found the right balance yet and I don't think we know where the baseline lies yet but we've seen some benefits lapse. I think the last leg of COVID benefits lapsed in September so I think we're going to see that impact if any in the coming weeks. This doesn't sound like it, but if we take it at a reasonable level, if there are thermchanging systems that weren't fully lit disclosureary that then it would definitely be in the best place to take those ex extreme years. What the trading playing weight is right now has an impact on victory pressure, on Ilya?

Speaker 2: But yeah, it's gradually improving, it's stabilizing, but it's still a tough situation in certain areas more than others. There are areas where we talk about it but it's not so bad, but there are areas that are significantly under pressure, but gradually getting better.

Speaker 4: Right, okay understood on the, the net closures in the quarter, those increased meaningfully in the US. I wonder if you could add some color on what channel or brands those were.

Speaker 2: Yeah, it's a little bit of everything. So it's hard to put exactly our finger on one brand or one cause for it. Obviously we have a few brands that have a few more closures for example. We have 12 that are Maui, Waui carts and as you know those carts don't necessarily open or close. Sometimes they just stop doing business because they're in the garage somewhere and then they might come back next year, we don't know.

Speaker 2: So those account for a large number of locations obviously, but the impact on sales and EBITDA are minimal. But it's a little bit of everything, so I don't necessarily want to point out one brand or one cause for it.

Speaker 2: A lot of non-renewals and a lot of consolidation of restaurants in the market where we have more concentration. Sometimes our owners decide to consolidate their labour into fewer restaurants, so we need to address that, but it's not necessarily related to one brand or one region in particular.

Speaker 4: Okay, okay. When you think about your, let's say, your largest five banners, were any of them net positive in terms of openings in the quarter?

Speaker 2: Yeah, Coldstone is doing really, really well. As you know, in terms of sales, it's our number two brand. In terms of profitability, it's our number one brand. So Coldstone is doing well. We're net positive in openings domestically and internationally. So a large number of openings for Coldstone, a lot more to come. So Coldstone is really firing on all cylinders. And we look forward to bringing folks back on board.

Speaker 2: Then you look at other brands like Thai Express for example, which is one of our larger brands, is also doing well in terms of development. There's always the odd closure here and there, but in general we're growing the store count. So that's doing well. So for the majority of our top 5 brands, or even our top 20 brands for that matter, we're doing pretty well.

Speaker 4: Okay, thanks. And then one last one for me on barbecue. Congrats on closing that deal relatively quickly. I wonder how we should think about potential for unit growth, net unit growth for that banner, or is it more of a comp growth story for you?

Speaker 2: No, we're already in franchising mode. I was in the market in Arizona this week and a lot of our barbecue holdings people were in town. We already talked about franchising with certain concepts that we'd like to develop that are purely corporate at the moment. We see an opportunity to develop smaller versions of the famous names. We see an opportunity to develop smaller versions of the famous names.

Speaker 2: to work with Villagen, the sales at Villagen are very high so we can refresh the restaurants and we can probably start opening again. We see huge opportunity for Barrio Queen which is a great, younger, trendier concept. So we see a lot of opportunities for a lot of concepts. It's certainly not a mature brand or mature group of brands that we want to coast on. We have high hopes for that. High hopes that we'll be able to grow with these applications and

Speaker 2: Trends in sales, you mean?

Speaker 5: Yeah, your system sounds good.

Speaker 2: Yeah, well you know it is...

Speaker 2: Q3 was a good quarter. We had a lot of, a little bit like last year, we had a lot of good tailwinds. So I think it was for the vast majority, I wouldn't call it smooth sailing because obviously we're facing some challenges with supply chain and with labor and with everything. But I would say that the trends are good and we're not seeing...

Speaker 2: major changes between June , July or August . It was pretty consistent throughout the quarter. So, yeah, again, training well and hopefully that will carry into the future.

Speaker 5: Okay, and are you associated with softening consumer confidence? Are you seeing that being reflected post the quarter?

Speaker 2: Nope. So far, customers are still showing up. We're not seeing traffic declines.

Speaker 2: Obviously price sensitivity is something that we're looking at and following.

Speaker 2: because we just don't want to cross that line where our price becomes out of...

Speaker 2: out of proportion, but so far the customer is there for us and and you know it's up to us to give them a good experience and they'll keep coming back.

Speaker 5: In the disclosure documents, management notes that the effort deployed is generating results as anticipated. Wondering if you could unpack that statement and what specifically are you referring to?

Speaker 5: and how investors can gauge the results of management's efforts. Are there any key metrics? Good point too. And on that as well, just wondering your view on same-source sales.

Speaker 2: Yeah, I knew that would come up. So in terms of efforts, it's hard to give you exact efforts. As you know, we have a large number of brands and each brand has their own set of parameters that they work with and priorities. So if I give you a set of efforts, it might be applicable only to one brand or two. But just as a general rule, we're looking at the

Speaker 2: constantly innovating in all of our brands and bringing new products and having new news available for our customers. We're trying to address the customers the best we can with new marketing tactics also, where social and digital are becoming more important, but traditional media is still valid if we do it right, and if we do it at the right time. So a lot of new strategies in there, obviously a digital sales channel are important.

Speaker 2: and there's a large set of priorities for each brand. So I'm giving you some general items that might be applicable to all of our brands and probably applicable to our competitors as well. But this is more or less the best I can do to give you indications. Now in terms of same store sales, obviously for Q3, same store sales would have been applicable. We could have released same store sales, but unfortunately because of last year's restrictions, we...

Speaker 2: Same-store sales would have had to be taken out in Q4 and Q1 again. So instead of putting same-store sales for one quarter and then take them out for two quarters, we decided it was best for everyone if we wait until we have some stability and comparable periods that are consistent. So we're probably going to bring same-store sales back in Q2 of next year.

Speaker 5: Okay, thank you very much.

Speaker 1: Your next question comes from George Dumay of Scotiabank. Please go ahead.

Speaker 4: Hi, good morning, Eric. I just want to talk a little bit about VBQ again, and maybe if you can talk a little bit about some of the...

Speaker 4: so-called low-hanging kind of food synergies, maybe something that you envision for that business in the longer term. Just wondering are there any plans at all to franchise some of those, the majority at all, or some of those corporate stores?

Speaker 2: Yeah, well in terms of synergies, there's certainly not that much in terms of the costs. We don't plan on...

Speaker 2: on restructuring the way Barbecue Holdings is operating. We like the theme and we like the way they do things. So the goal for us is certainly not to generate cost synergies. There will be some synergies, I think, on revenues, on development where we have some strength. We have a good team of leaders that will drive, I think, development. We can probably accelerate that. We probably have a little bit more resources also to refresh.

Speaker 2: to get the best results we can from those stores. So there are some synergies but not necessarily the types of synergies that are easily measurable like you would expect from this type of transaction normally. In terms of franchising the corporate stores, this is not a priority. The corporate stores are very profitable. We're happy with where they are. We're happy with the ability of the team to generate performance from these corporate stores.

Speaker 2: Running corporate stores requires the company to be wired slightly differently and barbecue holdings is wired adequately to run those corporate stores and we have a group of great people that are generating performance from these stores. So right now it's certainly not a priority to franchise them. It doesn't mean we're not going to franchise a few stores here and there if they're outside of our addressable areas and become more difficult to manage, but...

Speaker 2: franchising is not a priority and we will hold on to these corporate stores.

Speaker 6: Can you give us a little bit of an update on Papa Murphy, how it did this quarter and maybe how the capital, I guess the competitive intensity has been trending? Has it been the same? Have you seen a tick up there? Just some general thoughts there.

Speaker 2: Yes, we have some good news for Papa Murphy's. We just launched, just after the end of the quarter, we launched our new website. We launched the new online ordering capabilities. We can now do EBT orders that are paid at the store but order online. So there are some good news, lots of innovations coming. So we're pretty happy with where we're going. If you're talking about performance in Q3.

Speaker 2: Unfortunately, it was a little bit...

Speaker 2: more of the same as Q1 and Q2, so trending in mid-single digit negative. We had a few store closures as well. So, it's still not where we want it to be, but I'm pretty confident with everything we're doing, and hopefully the trend will reverse. As you know, pizza is a very competitive environment. A lot of our competitors have gone into some...

Speaker 2: really significant discounting during the quarter, so it was a little bit harder for us to compete as we don't want to go too deep into the value offering. So, more to come on Papa Murphy's. We will have some better news in the short term, I'm sure, but for now it was a little bit more of the same as the previous quarters.

Speaker 6: Okay and just one last one maybe a bit of a crystal ball question on the openings. I mean they've improved sequentially. I'm not really sure if there's any kind of seasonality there or is that just kind of construction constraints easing? Can you talk a little bit about how we should think of that number maybe kind of for next year or anything you can provide maybe in terms of just general outlook on on that the strength of that opening?

Speaker 2: Yeah, to be honest, I was a little bit disappointed with the number in Q3. And nothing against our teams. Obviously, they face constraints. It takes longer to get permits now. It takes longer to get access to the material. You're always missing something. It takes longer even to get the stores inspected before you can open. Cities often want to get them inspected. So, everything takes a little bit longer. So, I'm not the patient type, but unfortunately, in this context, I have to be a little bit more patient.

Speaker 2: but we do have, like I mentioned, over 150 stores under construction and we do have a really good pipeline of stores for the future. So I'm confident we need to build them. The environment seems to be stabilizing but it's certainly not perfect yet but we are trending in the right direction.

Speaker 7: Okay, thanks for calling.

Speaker 1: Ladies and gentlemen, once again, if you would like to ask a question, please press star one at this time.

Speaker 1: Your next question will come from Michael Glenn of Raymond James. Please go ahead.

Speaker 5: Hey, Eric, thanks for taking the question. So, if we're looking at, there's a lot of conversation during the call about the store closings in the quarter, and with regard to same-store sales growth trends, is there any view internally about the amount of capital that MTY should be investing into some of these franchise networks? Is that something that could potentially turn some of those trends around?

Speaker 2: Yeah, it's something we look at every day.

Speaker 2: Money can do certain things and money can't necessarily make a difference. We are looking at these things, for example, in terms of refreshing our stores. We've been very consistent on...

Speaker 2: rejuvenating our casual dining stores over the last few years, and we still are. We have a certain number of other brands that are going through refresh programs. There will be more next year. So that's probably one way where MTY can make a difference for franchisees and help rejuvenate the network and put some oxygen into the network. But yeah, whatever we can do to improve the performance of any of our brands.

Speaker 5: restaurants moving forward.

Speaker 2: It's a possibility. I'm not saying yes or no. As I mentioned before, to run corporate stores efficiently, you need to be wired a little bit differently. And for it to be worth it, you have to have a certain number of stores. And then barbecue holdings has that critical mass, that number of stores that we need for it to be worthwhile to invest. So the company is wired a little bit differently. We're happy with the corporate stores we have.

Speaker 2: We've always been open to acquiring.

Speaker 2: corporate store brands or networks in the past. We just didn't find them at the right price or with the right attributes that we were looking for. So it's the first time we have that now with barbecue holdings. So it's a possibility that we might have some more corporate stores, but it's also a possibility we would stay with that number.

Speaker 5: And then just finally on my side, when you look at the stock, you look at the opportunity for that BBQ holdings offered the company. Is there any discussion as to from a capital allocation perspective, should we buy back the stock with that money? Should we allocate it to M&A? Is that something that even comes up internally? Is it increasing the pace of the buyback program? What is the future of the buyback program?

Speaker 2: Yeah, we talk about it all the time. It's always a decision we need to make as to how we want to allocate the capital and what we think creates the most value for our shareholders in the long run. So, yeah, it's a very valid point and it's a discussion where...

Speaker 2: we're pretty serious about. For now we decided that our money was best placed in acquiring brands because we believe we can generate a significant return for our shareholders with this acquisition. But again, it doesn't mean that we would go one way or another.

Speaker 2: You mentioned the stock, but we're disappointed with the valuation of our stock. We think our stock should be trading at a much higher price.

Speaker 2: So this is something that we need to...

Speaker 2: considering the discussion and the decision to allocate capital towards NCIB or acquisitions or debt repayments. But yeah, we talk about that all the time and we make decisions as a board. And right now the emphasis is on acquisitions. We believe there are some really good opportunities on the market, not only barbecue holdings, but others for the future. And we're happy to resume our discussion.

Speaker 6: with George's question, but obviously there was a bit of a more muted performance there excluding the 4x benefit, so just curious about the drivers there or was it all Papa Murphy's?

Speaker 2: Can you repeat that? I'm not sure I understand your question.

Speaker 2: Well, the US revenue growth was more muted than versus Canada. So I was just wondering what the trends are there in the US.

Speaker 2: Canada was and Canada we're still in post-pandemic recovery whereas the US the post-pandemic recovery was last year.

Speaker 2: So that explains the trend differences if you look at last year's MDNA, you'll probably see the US growing at a much faster click than this year. So yeah, we have plus and minuses. We're a portfolio of brands. So as you know, we have brands that are performing extremely well and some brands that are in a certain period of where it's a little bit more challenging. But all in all, we're happy with where the US business is. We're happy with the growth.

Speaker 2: 2021 was fully comparable to this year because of the post pandemic recovery.

Speaker 2: Okay, and maybe just to hit on the M&A again, I just wanted to get your thoughts on the current pipeline and how are you thinking about the activity or how the activity might shake out given the rising interest rate environment.

Speaker 2: Yes, well, there are a lot of opportunities on the market.

Speaker 2: is pretty active. I mentioned that in the last few quarters that there's, you know, normality seems to be coming back in that market. So, there are some good opportunities out there. Again, it's always competitive to be able to make the right acquisitions and make them, you know, bring them to the finish line. So, we're, I mean, we have a disciplined approach we always had, but there are some opportunities out there that we will be pursuing if we're given the opportunity.

Speaker 2: and we're pretty confident with our ability to...

Speaker 2: resume M&A more aggressively in the future. The pause we had was not necessarily because we wanted to pause, it was more because the market was not favorable to us. As you've seen, the valuations were very high and a few players were more aggressive on the market. When that happens, MTY tends to stay on the sidelines because we want to make the right acquisition at the right price and we're always disciplined, so barbecue holdings.

Speaker 2: fit that profile and there are others now that are coming into the market that might fit that profile, hopefully they will. So hopefully we'll be able to make more acquisitions in the future but as interest rates go up and as there's a certain amount of economic uncertainty even though we're not feeling it in our restaurants, there are a lot of people talking about it that might bring some more opportunities to the market. There's...

Speaker 2: There's always more opportunities when there's uncertainty than when things are going too well.

Speaker 6: Okay, and then one final one for me. I was curious on the, we talked about the recovery in Canada. Is the office, mall, location, like where are you in that recovery?

Speaker 7: specifically.

Speaker 2: Yeah, we had a really good performance in Q3 with our malls. So we're seeing customers coming back. I think the top malls were coming back a little bit earlier.

Speaker 2: I think the bad models will, you know.

Speaker 2: C malls, if you want to call them, will probably struggle for a little longer. But the A and B malls are really coming back. The traffic is there. And again, customers are showing with their wallets and happy to consume what we have to offer them. So the malls are doing better and better. I think people are gradually going back to the office, gradually more comfortable with being in a crowd. Um...

Speaker 2: and we're seeing tourism was also back in certain regions where we have some malls that depend on a certain influx of people from outside. So we are seeing sales gradually getting back. We're not yet at 2019 levels, but we're certainly inching towards that.

Speaker 7: Thanks for that, Eric. Have a good day.

Speaker 1: Your next question comes from John Zamparo of CIBC. Please go ahead.

Speaker 4: Thanks. Just a couple of follow-ups. Eric, you referenced 150 stores under construction in your earlier remarks. I wonder how that compares to a typical corridor pre-pandemic.

Speaker 2: Yes, it's more than normal and the main reason is normally we would open them faster, so you'd have fewer stores under construction. The construction process is taking a lot longer than it used to take, so 150 is a very healthy number.

Speaker 4: Okay, understood. And then on OPEX, if we ignore wage inflation for a moment, which I know is quite meaningful, but if we do ignore that, would you say this is a reasonable run rate in Canada and the US? Or is there additional headcount that you'll add or other costs you'll incur other than other than barbecue?

Speaker 2: No, I think if you exclude the noise from the acquisition cost, it's probably a good baseline.

Speaker 4: Got it. Okay, that's all for me. Thank you.

Speaker 1: Ladies and gentlemen, Mr. Lefebvre, as there are no further questions from the phone lines, this will conclude this morning's conference call. We would like to thank everyone for participating and you may now disconnect your lines.

Speaker 8: Center, please hold for the next available operator. Thank you for calling the conference center. Which conference are you joining? Hello, I'd like to attend MQI Food Group earnings call, please. Of course, can I have your name, please? Sure, that's David Brown. Thank you, sir. And let's see your company, please. Ira, that's A-I-E-R-A. Okay. Okay, one moment. I'll be sending you to the meeting. Please continue to call. Okay. The conference is now being recorded.