Q2 2024 MTY Food Group Inc Earnings Call
Good day, and welcome to the MTY Group Fiscal 2024 Second Quarter Results Conference Call.
Operator: fiscal 2024, second quarter results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
All participants will be in a listen-only mode.
Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touch-tone phone. To withdraw your question, please press star, then two.
After today's presentation, there will be an opportunity to ask questions.
To ask a question, you may press star, then 1 on a touch-tone phone.
Operator: Please note, this event is being recorded.
To withdraw your question, please press star then 2.
Eric Lefebvre: I would now like to turn the conference over to Eric Lefebvre. Please go ahead. Good morning, everyone. Thank you for joining us for MPY's second quarter conference call for fiscal 2024. 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. During the call, we will be referring to forward-looking statements and certain numbers that are not IFRS measures. You can refer it to our MDNA for more details. Please note that all figures presented on today's call are in Canadian dollars, unless otherwise stated.
Operator: This concludes the 2024 Second Quarter Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star again. Please note, this event is being recorded. I would now like to turn the conference over to Eric Lefebvre. Please go ahead.
Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Eric Lefebvre. Please go ahead.
Eric Lefebvre: Good morning everyone. Thank you for joining us for MTY's second quarter conference call for fiscal 2024. The press release and MD&A with complete financial statements and related notes were issued earlier this morning and are available on our website as well as on CDAR. During the call, we will be referring to forward-looking statements and certain numbers that are non-IFRS measures. You can refer to our MDNA for more details.
Eric Lefebvre: Good morning everyone. Thank you for joining us for MTY's second quarter conference call for fiscal 2024. The press release and MD&A with complete financial statements and related notes were issued earlier this morning and are available on our website as well as on CDAR.
Eric Lefebvre: During the call, we will be referring to forward-looking statements and certain numbers that are non-IFRS measures. You can refer to our MD&A for more details.
Eric Lefebvre: Please note that all figures presented on today's call are in Canadian dollars unless otherwise stated. I'd like to open with a few highlights and a look at MTY's system sales for the quarter. Emerging from a difficult January and February period, MTY's second quarter produced positive system sales growth for our U.S. locations, along with higher profitability and EBITDA margins in our franchising segment. More specifically, in the second quarter of 2024, quick-service restaurants and fast-casual restaurants remained strong in the United States and reported same-store sales growth of 0.3% and 0.9%, respectively, for the three-month period ended May 31,
Eric Lefebvre: Please note that all figures presented on today's call are in Canadian dollars, unless otherwise stated.
Eric Lefebvre: I'd like to open with a few highlights on the look into MPY's system sales for the quarter, emerging from a difficult January and February period. MPY's second quarter produced positive system sales growth for our U.S. locations, along with higher profitability in EBITDA margins in our franchising segment. More specifically, in the second quarter of 2024, quick service restaurants and fast-casual restaurants have remained strong in the U.S. and reported same-store sales growth from 0.3 percent and 0.9 percent, respectively, for the three-month period ended May 31, 2024. The franchising segment normalized adjusted EBITDA increased to 1 percent to reach $52.6 million in a quarter, compared to $51.9 million in the second quarter of 2023, with normalized adjusted EBITDA as a percentage of revenues remaining stable at 52 percent.
Eric Lefebvre: The franchising segment Normalized Adjusted EBITDA increased 1% to reach $52.6 million in the quarter, compared to $51.9 million in the second quarter of 2023, with Normalized Adjusted EBITDA as a percentage of revenues remaining stable at 52%. Despite higher working capital outflows, we are happy with our free cash flow production, which amounted to $1.01 per share for the quarter and $5.21 per share for the last 12 months.
Eric Lefebvre: I'd like to open with a few highlights and a look into MTY's system sales for the quarter. Emerging from a difficult January and February period, MTY's second quarter produced positive system sales growth for our U.S. locations, along with higher profitability and EBITDA margins in our franchising segment.
Eric Lefebvre: System sales for the quarter remained relatively stable at $1,459,000,000, a decrease of 1%. Most of the decrease in system sales came from Canada with a decline of $13.8 million, or 3%, while the U.S. saw an improvement of $3.5 million. In Canada, the fast-casual concepts drove a large portion of the decrease, representing 70% of the drop. The slight increase in the U.S. of $3.5 million can be attributed to the gains of the QSR in fast-casual locations being partially offset by a decline in our casual dining restaurants. The snack category continued to perform extremely well in the U.S., with Cold Stone, Wetzel's Pretzels, Sweet Frog, Planet Smoothie, and Pinkberry all posting strong gains during the quarter.
Eric Lefebvre: More specifically, in the second quarter of 2024, quick service restaurants and fast casual restaurants have remained strong in the U.S. and reported same-store sales growth of 0.3% and 0.9%.
Eric Lefebvre: respectively, for the three-month period ended May 31st, 2024.
Eric Lefebvre: The franchising segment normalized adjusted EBITDA increased 1% to reach $52.6M in a quarter.
Eric Lefebvre: Compared to $51.9 million in the second quarter of 2023, with normalized adjusted EBITDA as a percentage of revenues remaining stable at 52%.
Eric Lefebvre: In spite of higher working capital outflows, we are happy with our free cash flow production, which amounted to $1.1 per share for the quarter, and $5.21 per share in the last 12 months. System sales for the quarter remained relatively stable at $1.459 million, a decrease of 1 percent. Most of the decrease in system sales came from Canada, with a decline of $13.8 million or 3 percent, while the U.S. saw an improvement of $3.5 million. In Canada, the fast-casual concepts drove a large portion of the decrease, representing 70 percent of the drop. The slight increase in the U.S.
Eric Lefebvre: Despite higher working capital outflows, we are happy with our free cash flow production which amounted to $1.01 per share for the quarter and $5.21 per share in the last 12 months.
Eric Lefebvre: System sales for the quarter remained relatively stable at $1,459,000,000, a decrease of 1%.
Eric Lefebvre: Most of the decrease in systems sales came from Canada, with a decline of $13.8 million, or 3%, while the U.S. saw an improvement of $3.5 million.
Eric Lefebvre: In Canada, the fast-casual concepts drove a large portion of the decrease, representing 70% of the drop. The slight increase in the U.S. of $3.5 million can be attributed to the gains of the QSR in fast-casual locations being partially offset by a decline in our casual dining restaurants.
Eric Lefebvre: of 3.5 million can be attributed to the gains of the QSR and fast-casual locations, being partially offset by a decline in our casual dining restaurants. The snack category continued to perform extremely well in the U.S., with Cold Stone, Wetshells pretzels, Sweet Frog, Planets Moody, and Pinkberry, all posting strong gains during the quarter. Regarding same-store sales, the quarter ended May 31st, 2024, saw a decrease of 2.1 percent over the last year. Same-store sales in the U.S. were sequentially better than in Q1, with a decline of 1 percent, while the Canadian and international locations saw same-store sales.
Eric Lefebvre: The snack category continued to perform extremely well in the U.S. with Cold Stone, Wetzel's Pretzels, Sweet Frog, Planet Smoothie, and Pinkberry all posting strong gains during the quarter.
Eric Lefebvre: Regarding same-store sales, the quarter ended May 31st, 2024 saw a decrease of 2.1% over the last year. Same-store sales in the U.S. were sequentially better than in Q1, with a decline of 1%, while the Canadian and international locations saw same-store sales declines of 3.6% and 8.1%, respectively. Digital sales for the second quarter of 2024 increased by 8% compared to the same period last year, from $266.8 million to $287.7 million. Digital sales represented 20% of total sales compared to 19% in the same period last year. Canadian digital sales are in line with the same period last year, while US digital sales saw a growth of $20.9 million.
Eric Lefebvre: Regarding same-store sales, the quarter ended May 31st, 2024 saw a decrease of 2.1% over the last year.
Eric Lefebvre: Same-store sales in the U.S. were sequentially better than in Q1, with a decline of 1%, while the Canadian and international locations saw same-store sales declines of 3.6% and 8.1% respectively.
Eric Lefebvre: Digital sales for the second quarter of 2024 increased by 8% compared to the same period last year, from $266.8 million to $287.7 million. Digital sales represented 20% of total sales compared to 19% in the same period last year. Canadian digital sales are in line with the same period last year, while U.S. Digital sales saw a growth of $20.9 million.
Eric Lefebvre: Digital sales for the second quarter of 2024 increased by 8% compared to the same period last year, from $266.8 million to $287.7 million.
Eric Lefebvre: Digital sales represented 20% of total sales compared to 19% in the same period last year.
Eric Lefebvre: Canadian digital sales are in line with the same period last year, while U.S. digital sales saw a growth of $20.9 million.
Eric Lefebvre: Siviting to look at MTY location down, the company ended the quarter with 7,107 locations compared to 712 locations at the end of the previous quarter. During the second quarter, the company's network closed 9 locations and opened 85 for a net negative 5. This quarter marks the fifth consecutive quarter of net closures being between 3 and 5 locations. Of note, 25 of the closures in the second quarter are pop-up or fees locations, which brings the total closures for just brand to 38 in the first six months. Goldstone and Wetzel's Pretzels continue to outperform when it comes to openings.
Eric Lefebvre: Pivoting to look at MTY location count. The company ended the quarter with 7,107 locations compared to 7,112 locations at the end of the previous quarter.
Eric Lefebvre: Pivoting to look at MTY's location count, the company ended the quarter with 7,107 locations compared to 7,112 locations at the end of the previous quarter. During the second quarter, the company's network closed 90 locations and opened 85 for a net negative five. This quarter marks the fifth consecutive quarter of net closures being between three and five locations. Of note, 25 of the closures in the second quarter were Papa Murphy's locations, which brings the total closures for this brand to 38 in the first six months. Cold Stone and Wetzel's Pretzels continue to outperform when it comes to opening.
Eric Lefebvre: During the second quarter, the company's network closed 90 locations and opened 85 for a net negative 5. This quarter marks the fifth consecutive quarter of net closures being between 3 and 5 locations.
Eric Lefebvre: Of note, 25 of the closures in the second quarter are Papa Murphy's locations, which brings the total closures for this brand to 38 in the first six months. Cold Stone and Wetzel's Pretzels continue to outperform when it comes to openings.
Eric Lefebvre: As at the May 31st, 2024, 97% of locations were franchise or on their operator agreements, and the remaining 3% were operated corporately by MTY.
Eric Lefebvre: As of May 31st, 2024, 97% of locations were franchised or under operator agreements, and the remaining 3% were operated corporately by MTY. Lastly, the company renewed a normal course issuer bid program on June 28, 2024. During the three-month period ended May 31st, 2024, the company repurchased and cancelled 266,700 shares for a total consideration of $12.8 million. This brings the total to $337 million. 1,500 shares repurchased so far this year for a consideration of $16.4 million. I will now turn the call over to Rene, who will discuss MTY's financial results in greater detail.
Eric Lefebvre: As of May 31, 2024, 97% of locations were franchised or under operator agreements, and the remaining 3% were operated corporately by MTY.
Eric Lefebvre: Lastly, the company renewed a normal-course-issue or bid program on June 28, 2024. During the three-month period ended May 31, 2024, the company repurchased and cancelled 266,700 shares for a total consideration of $12.8 million. This brings the total to 337,500 shares repurchased so far this year for consideration of 16.4 million.
Eric Lefebvre: Lastly, the company renewed a normal course issuer bid program on June 28, 2024.
Eric Lefebvre: During the three-month period ended May 31st, 2024, the company repurchased and cancelled 266,700 shares.
Eric Lefebvre: for a total consideration of $12.8 million. This brings the total to $337 million.
Eric Lefebvre: 1,500 shares repurchased so far this year, for a consideration of $16.4 million.
Rene St: I will now turn the calls over to Renate, who will discuss empty-wise financial results in greater detail. Thank you, Eric, and good morning, everyone. During the quarter, empty-wise total revenues decreased slightly from 305.2 million in Q2 2023 to 303.7 million in the current year. Although overall revenues decreased, the U.S. Franchising segments saw an increase of 3%. This is mostly due to the increase in recurring revenue streams, as well as an increase in gift card breakage revenue, stemming from higher redemptions and usage of gift cards. The Canadian franchising segment, however, saw a decrease of 3%, mostly as a result of decreasing recurring revenue streams. This was the result of lower system sales, which, as mentioned by Eric, decreased by 3% for a quarter compared to the prior year.
Speaker Change: I will now turn the call over to Rene, who will discuss MTY's financial results in greater detail.
Rene: Thank you, Eric, and good morning, everyone. During the quarter, MTY's total revenues decreased slightly from $305.2 million in Q2 2023 to $303.7 million in the current year. Although overall revenues decreased, the U.S. franchising segment saw an increase of 3%. This is mostly due to an increase in recurring revenue streams as well as an increase in gift card breakage revenue stemming from higher redemptions and usage of gift cards.
Rene: The Canadian franchising segment, however, saw a decrease of 3%, mostly as a result of decreasing recurring revenue streams. This was the result of lower system sales, which, as mentioned by Eric, decreased by 3% for the quarter compared to the prior year. Globally, food processing, distribution, and retail revenue decreased by 8% due to lower sales in the Canadian retail segment, which is the result of market conditions and grocers' increased focus on promoting house labels.
Rene: Thank you, Eric, and good morning, everyone.
Rene: During the quarter, MTY's total revenues decreased slightly from $305.2 million in Q2 2023 to $303.7 million in the current year. Although overall revenues decreased, the U.S. franchising segment saw an increase of 3%.
Rene: This is mostly due to the increase in recurring revenue streams, as well as an increase in gift card breakage revenue stemming from higher redemptions and usage of gift cards.
Rene: The Canadian franchising segment, however, saw a decrease of 3% mostly as a result of decreasing recurring revenue streams.
Rene: This was the result of lower system sales, which as mentioned by Eric, decreased by 3% for the quarter compared to prior year.
Rene St: Globally, food processing distribution and retail revenue decreased by 8% due to lower sales in a Canadian retail segment, which are the result of market conditions and groceries' increased focus on promoting house labels. The U.S. retail segment, however, saw an increase of $0.6 million in revenues, resulting from new listing for a cost-stone creamer in 2024. In terms of normalized adjusted dividend, we saw a decrease of 1% with 73.7 million in the quarter compared to 74.6 million in Q2 2023. As a reminder, normalized adjusted dividend. It's also important to note that while our quarterly EBITDA was lower than that of last year, it still represents the second best quarter ever reported, with Q2 2023 being the best in the history of MTY.
Rene: Globally, food processing, distribution and retail revenue decreased by 8% due to lower sales in the Canadian retail segment, which are the result of market conditions and grocers' increased focus on promoting house labels.
Rene: The U.S. retail segment, however, saw an increase of $0.6 million in revenues, resulting from new listings for our Cold Stone Creamer in 2024. In terms of normalized adjusted EBITDA, we saw a decrease of 1% with $73.7 million in the quarter compared to $74.6 million in Q2 of 2023. As a reminder, normalized adjusted divida excludes our SEP implementation costs.
Rene: The U.S. retail segment, however, saw an increase of $0.6 million in revenues resulting from new listing for our Cold Stone Creamer in 2024.
Rene: In terms of normalized adjusted EBITDA, we saw a decrease of 1% with $73.7 million in the quarter compared to $74.6 million in Q2 of 2023. As a reminder, normalized adjusted EBITDA excludes our SEP implementation costs.
Rene: It's also important to note that while our quarterly EBITDA was lower than that of last year, it still represents the second best quarter ever reported, with Q2 2023 being the best quarter in the history of MTY. The U.S. and international normalized adjusted EBITDA contributed to 73% of total normalized adjusted EBITDA, realizing an increase of 3% or $1.7 million, while Canada contributed 27% of total normalized adjusted EBITDA and a decrease of 12% or $2.6 million compared to the same period last year.
Rene: It's also important to note that while our quarterly EBITDA was lower than that of last year, it still represents the second-best quarter ever reported, with Q2 2023 being the best in the history of MTY.
Rene St: The U.S. and International Normalize Adjustment Abidda contributed to 73% of total normalize adjusted EBITDA, realizing an increase of 3% or 1.7 million, while Canada contributed 27% of total normalize adjusted EBITDA and a decrease of 12% or 2.6 million compared to the same period last year. For both the Canadian and U.S. and international segments, the fluctuations were primarily impacted by the changes in recurring revenue streams, with operating expenses remaining relatively flat for the quarter year over year. Our franchising segments, margins, as well as our overall company margins, stayed steady at 52% and 24%, respectively, when compared to prior year.
Rene: The U.S. and international normalized adjusted EBITDA contributed to 73% of total normalized adjusted EBITDA, realizing an increase of 3% or $1.7 million.
Rene: While Canada contributed 27% of total normalized adjusted EBITDA and a decrease of 12% or $2.6 million compared to the same period last year.
Rene: For both the Canadian and US and international segments, the fluctuations were primarily impacted by the changes in recurring revenue streams with operating expenses remaining relatively flat for the quarter year-over-year. Our franchising segment margins, as well as our overall company margins, stayed steady at 52% and 24%, respectively, when compared to the prior year. Corporate store margins saw a slight dip to 13% compared to 14% in the prior year due to an overall increase in minimum wages and supply chain costs. We are optimistic, however, on the supply chain side as we see inflationary pressures stabilizing to some degree.
Rene: For both the Canadian and U.S. and international segments, the fluctuations were primarily impacted by the changes in recurring revenue streams with operating expenses remaining relatively flat for the quarter year over year.
Rene: Our franchising segment margins, as well as our overall company margins, stayed steady at 52% and 24% respectively when compared to prior year.
Rene St: Corporate store margins, like DIP, to 13%, compared to 14% in prior year due to an overall increase in minimum wages and supply chain costs. We are optimistic, however, on the supply chain side as we see inflationary pressures stabilizing to some degree. Turning our attention to the income attributable to owners, it amounts to 27.3 million or $1.13 per diluted share compared to $30.4 million or $1.24 per diluted share in Q2 2023, representing a decrease of 10% year over year. The decrease is primarily attributable to lower normalize adjusted EBITDA, as well as impairment charges of 3.2 million taken on some corporately owned restaurants and higher foreign exchange losses reported on the P&L.
Rene: Corporate store margins saw a slight dip to 13% compared to 14% in prior year due to an overall increase in minimum wages and supply chain costs.
Rene: We are optimistic, however, on the supply chain side as we see inflationary pressures stabilizing to some degree.
Rene: Turning our attention to the income attributable to owners, it amounted to $27.3 million or $1.13 per diluted share compared to $30.4 million or $1.24 per diluted share in Q2 2023, representing a decrease of 10% year-over-year. The decrease is primarily attributable to lower normalized adjusted EBITDA as well as impairment charges of $3.2 million taken on some corporately owned restaurants and higher foreign exchange losses reported on Moving on, we look at cash flows.
Rene: Turning our attention to the income attributable to owners, it amounted to $27.3 million or $1.13 per diluted share compared to $30.4 million or $1.24 per diluted share in Q2 2023, representing a decrease of 10% year-over-year.
Rene: The decrease is primarily attributable to lower normalized adjusted EBITDA, as well as impairment charges of $3.2 million taken on some corporately owned restaurants and higher foreign exchange losses reported on the P&L.
Rene St: Moving on to look at cash flows, the second quarter had cash flows from operating activities of $40.6 million compared to $51.9 million in Q2 2023, a decrease of $11.3 million, mainly attributable to an unfavorable working cap variance during the quarter. The negative working capital variance stems mostly from the timing of collections and payables, including promotional fund spending, third party gift card sales collection, and a material outstanding sum from an insurance carrier related to one of our corporate locations. Three cash flows net of lease payments decreased to $24.3 million in the quarter, or $1.1 per diluted share, compared to $29.5 million, or $1.21 per diluted share, in Q2 2023.
Rene: The second quarter had cash flows from operating activities of $40.6 million compared to $51.9 million in Q2 of 2023, a decrease of $11.3 million, mainly attributable to an unfavorable working cap variance during the quarter. The negative working capital variance stems mostly from timing of collections and payables, including promotional fund spending, third-party gift card sales collections, and a material outstanding sum from an insurance carrier related to one of our corporate locations. Pre-cash flows net of lease payments decreased to $24.3 million in the quarter, or $1.01 for diluted share, compared to $29.5 million or $1.21 for diluted share in Q2 2023. The decline is the result of the working capital variance I mentioned, partly offset by a decrease in investments in capital assets during the quarter compared to the prior year.
Rene: Moving on to look at cash flows, the second quarter had cash flows from operating activities of $40.6 million compared to $51.9 million in Q2 of 2023.
Rene: A decrease of $11.3 million, mainly attributable to an unfavorable working cap variance during the quarter.
Rene: The negative working capital variance stems mostly from timing of collections and payables, including promotional fund spending, third-party gift card sales collections, and a material outstanding sum from an insurance carrier related to one of our corporate locations.
Rene: Pre-cash flows net of lease payments decreased to $24.3 million in the quarter, or $1.01 for diluted share, compared to $29.5 million, or $1.21 for diluted share, in Q2 2023.
Rene St: The decline is the result of the working cap variance I mentioned, partly offset by a decrease in investments in capital assets during the quarter compared to the prior year. Regarding liquidity and capital stock resources, as of May 31, 2024, the amount held in cash total $52.3 million, a decrease of $6.6 million since the end of the 2023 fiscal period. As Eric mentioned during the three months and the May 31, 2024, we repurchased and cancelled 266,700 shares for $12.8 million through our NCIB and paid $6.7 million in dividends to shareholders. We recently had to pause our NCIB due to a COVID restriction in our credit facility agreement, limited dividend and NCIB distribution to $50 million per year.
Rene: The decline is the result of the working-cap variance I mentioned, partly offset by a decrease in investments in capital assets during the quarter compared to prior year.
Rene: Regarding liquidity and capital stock resources, as of May 31, 2024, the amount held in cash totaled $52.3 million, a decrease of $6.6 million since the end of the 2023 fiscal period. As Eric mentioned, during the three months ended May 31st, 2024, we repurchased and canceled 266,700 shares for $12.8 million through our NCIB and paid $6.7 million in dividends to our shareholders. We recently had to pause our NCIB due to a covenant restriction in our credit facility agreement limiting dividend and NCIB distributions to $50 million per year. I'm happy to report that we signed an amendment yesterday which removed this restriction.
Rene: Regarding liquidity and capital stock resources, as of May 31, 2024, the amount held in cash totaled $52.3 million, a decrease of $6.6 million since the end of the 2023 fiscal period.
Eric Lefebvre: As Eric mentioned, during the three months ended May 31st, 2024, we repurchased and cancelled 266,700 shares for $12.8 million through our NCIB and paid $6.7 million in dividends to our shareholders.
Speaker Change: We recently had to pause our NCIB due to a covenant restriction in our Credit Facility Agreement limiting dividend and NCIB distributions to $50 million per year. I'm happy to report that we signed an amendment yesterday which removed this restriction.
Rene St: I'm happy to report that we signed an amendment yesterday, which removed this restriction. Regarding our long-term debt, at the end of the second quarter, we had $725.6 million drawn from our revolving credit facility. We repayments of $16.3 million made during the quarter. During the last 12 months, we have repaid a total of $77.9 million towards our long-term debt. Interest on long-term debt decreased by $1.6 million as a result of entering into fixed interest rate swap, which I've resulted in savings of $1.5 million US dollars, or $2 million Canadian, this quarter, compared to $0.6 million US dollars in the same period last year.
Rene: Regarding our long-term debt, at the end of the second quarter, we had $725.6 million drawn from our revolving credit facility, with repayments of $16.3 million made during the quarter. During the last 12 months, we have repaid a total of $77.9 million towards our long-term debt. Interest on long-term debt decreased by $1.6 million as a result of entering into fixed interest rate swaps, which resulted in savings of $1.5 million U.S. or $2 million Canadian this quarter, compared to $0.6 million U.S. in the same period last year.
Speaker Change: Regarding our long-term debt, at the end of the second quarter, we had $725.6 million drawn from our revolving credit facility, with repayments of $16.3 million made during the quarter.
Speaker Change: During the last 12 months, we have repaid a total of $77.9 million towards our long-term debt.
Speaker Change: Interest on long-term debt decreased by $1.6 million as a result of entering into fixed interest rate swaps, which have resulted in savings of $1.5 million U.S. dollars, or $2 million Canadian this quarter, compared to $0.6 million U.S. dollars in the same period last year.
Rene St: As mentioned in our subsequent events note, we sold in early June of this year our fixed interest rate swap of $200 million for a sum of $4.8 million US dollars, which will be recorded in our cash flows in our third quarter.
Speaker Change: As mentioned in our subsequent events notes, we sold in early June of this year our fixed interest rate swap of $200 million for a sum of $4.8 million, which will be recorded in our cash flows in our third quarter.
Rene St: Looking ahead, I'd also like to note the upcoming quarterly dividend payment of $0.28 per share on August 15, 2024.
Speaker Change: Looking ahead, I'd also like to note the upcoming quarterly dividend payment of $0.28 per share on August 15, 2024. And with that, I thank you for your time and will now open the lines for questions. Operator?
Rene St: And with that, I thank you for your time, and we'll now open the lines for questions.
Rene: As mentioned in our subsequent events note, we sold in early June of this year our fixed interest rate swap of $200 million for a sum of $4.8 million, which will be recorded in our cash flows in our third quarter. Looking ahead, I'd also like to note the upcoming quarterly dividend payment of $0.28 per share on August 15, 2024. And with that, I thank you for your time and will now open the lines for questions. Operator?
Operator: Operator? We will now begin the question and answer session. To ask the question, you may press star, then one on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star, then two.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your touchtone phone.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Vishal Shreedhar with National Bank. Please go ahead. Vishal, your line is open. You may ask your question. Oh, hi.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.
Operator: At this time, we'll pause them materially to assemble our roster.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Vishal Shreedhar: The first question today comes from the Shaw Shredar with National Bank. Please go ahead. Michelle, your line is open. You may ask your question.
Eric Lefebvre: Can you talk about the lifting of the $50 million restriction related to the credit agreement? Also, is that an indication that management may get more active on buybacks? How does that relate to the comment you made last quarter regarding possible smaller acquisitions this year? Should we think that that view may have changed?
Speaker Change: The first question today comes from Vishal Shreedhar with National Bank. Please go ahead.
Speaker Change: www.microsoft.com.ca
Speaker Change: Rene St, Eric Lefebvre
Vishal Shreedhar: Oh, hi.
Eric Lefebvre: Sorry, I was on mute. Can you talk about the lifting of the $50 million restriction on the credit agreement? And also, is that an indication that management may get more active on buybacks? And how does that relate to the comment that you made last quarter regarding possible smaller acquisitions this year? Should we think that you may have changed? Yeah, well, the priority for us in terms of capital allocation remains to do more acquisitions in the future, so the $50 million restriction was there since 2016 when we first got into that credit facility. So, I mean, it was historical, I guess, restrictions that no longer applied, so our bankers were supportive, and it was a really smooth amendment that we did to remove the cap.
Speaker Change: Vishal, your line is open, you may ask your question.
Speaker Change: Oh, hi. Sorry, I was on mute. Can you talk about the lifting of the $50 million restriction on
Vishal Shreedhar: Is that an indication that management may get more active on buybacks and how does that relate to the comment that you made last quarter regarding possible smaller acquisitions this year? Should we think that that view may have changed?
Eric Lefebvre: Yeah, well, the first thing is that our priority for us in terms of capital allocation remains to do more acquisitions in the future, so the $50 million restriction was there in 2016 when we first got into that credit facility. It was historical restriction that no longer applied, so our bankers were supportive, and it was a really smooth amendment that we did to remove the cap that basically frees us up if we need to do more on the NCIB or more on the dividend.
Speaker Change: Yeah, first thing is the priority for us in terms of capital allocation remains to do more acquisitions in the future, so the $50 million restriction was there since 2016 when we first
Speaker Change: and I got into that credit facility. So, I mean, it was historical.
Speaker Change: I guess restrictions that no longer applied so our bankers were supportive and it was a really smooth amendment that we did to remove the cap that basically frees us
Eric Lefebvre: That basically frees us up if we need to do more on the NCIB or more on the dividend. But priority remains to do M&A. That's what MTY does. That's how we've created value over the years, and that's how we intend to create value. But that being said, we had reached our cap for the last 12 months, and we needed to do something about it.
Speaker Change: If we need to do more on the NCIB or more on the dividend, but priority remains to do M&A. That's what MTY does. That's how we've created value over the years and that's how we intend to create value.
Eric Lefebvre: But priority remains to do M&A. That's what MTY does. That's how we've created value over the years, and that's how we intend to create value. But that being said, we had reached our cap for the last 12 months, and we needed to do something about it, so Rene and her team went with the bank and amended the facility so we can resume buying back, probably next week at some point.
Speaker Change: But that being said, we had reached our cap for the last 12 months and we needed to do something about it. So Rene and her team went with the bank and amended the facility so we can resume buying back probably next week at some point.
Eric Lefebvre: So, Renee and her team went with the bank and amended the facility, so we can resume buying back probably next week at some point.
Eric Lefebvre: Okay. And with respect to acquisitions, the view is still smaller acquisitions possible this year and larger acquisitions unlikely. That still be the view? Yeah, that would probably be the view. Although nothing's impossible, but we're still looking for the right acquisition at the right price. Obviously, given our current share price, it makes it a little bit more complicated. But I mean, if we find the right acquisition at the right price, we'll make sure we figure it out, and we're going to make the M&A for the right reasons, but it's still the priority for us.
Speaker Change: Okay, and with respect to acquisitions, the view is still smaller acquisitions possible this year and larger acquisitions unlikely. Is that still the view?
Eric Lefebvre: Okay. And with respect to acquisitions, the view is still that smaller acquisitions are possible this year and larger acquisitions unlikely. Is that still the view?
Eric Lefebvre: Yeah, that would probably be the view. Although nothing is impossible, we're still looking for the right acquisition at the right price. Obviously, given our current share price, it makes it a little bit more complicated. But, I mean, if we find the right acquisition at the right price, we'll make sure we figure it out. We're going to make the M&A for the right reasons, but it's still a priority for us.
Speaker Change: That would probably be the view, although nothing is impossible. We're still looking for the right acquisition at the right price. Obviously, given our current share price, it makes it a little bit more complicated.
Speaker Change: I mean, if we find the right acquisition at the right price, we'll make sure we figure it out and we...
Speaker Change: We're going to make the M&A for the right reasons, but it's still the priority for us.
Eric Lefebvre: Could you contrast for us the differences in same-store sales between Canada and the US? Is there any specific reason for that, or is that just generally economic factors?
Eric Lefebvre: Okay. And could you contrast for us the differences in the same store between Canada and the US? Is there any specific reasons for that, or is that just generally economics factors? Well, the mix of brands we have in both countries is very different. So I wouldn't necessarily call out on the difference in the consumer behavior or anything. I would probably call out the mix of brands we have. Our snack category in the US performs extremely well. And that's a category we don't have as much in Canada. Whereas in Canada, for example, the two sushi brands that performed spectacularly well since COVID had a little bit more of a sluggish quarter, maybe because of the price point or maybe because of other factors that we're still exploring.
Speaker Change: Okay, and could you contrast for us the differences in same store between Canada and the U.S.? Is that due to... is there any specific reason for that or is that just generally economic factors?
Eric Lefebvre: Well, the mix of brands we have in both countries is very different, so I wouldn't necessarily call out the difference in consumer behavior or anything; I would probably call out the mix of brands we have. Our snack category in the U.S. performs extremely well, and that's a category we don't have as much in Canada, whereas in Canada, for example, the two sushi brands that have been doing spectacularly well since COVID had a little bit more of a sluggish quarter, maybe because of the price point or maybe because of other factors that we're still exploring. So I think the mix of brands we have in both countries is probably the main differentiator.
Speaker Change: Well, the mix of brands we have in both countries is very different.
Speaker Change: So, I wouldn't necessarily call out on the difference in the consumer behavior or anything. I would probably call out the mix of brands we have. Our snack category in the U.S. performed extremely well, and that's a category we don't have as much in Canada. Whereas in Canada, for example, the two sushi brands that performed...
Speaker Change: spectacularly well since COVID, had a little bit more of a
Speaker Change: And we're going to be talking about the next phase of a sluggish quarter, maybe because of the price point or maybe because of other factors that we're still exploring. So I think the mix of brands we have in both countries is probably the main differentiator here.
Eric Lefebvre: So I think I think the mix of brands we have in both countries is probably the main differentiator here.
Eric Lefebvre: Okay. And then maybe just to get your thoughts on, you know, we've been hearing comments, particularly related to some of these large US QSRs related to increasing promotional activity and value offers. And if you're seeing that percolate more into the brands that you operate in terms of the aggressiveness of promo, is it so more an experiential focus for you guys. Yeah, well, the activity definitely intensified. So there's a lot more focus on one, even call it value; I'll call it price. So definitely a lot more focused, maybe more so in the US and in Canada.
Eric Lefebvre: Okay, and then maybe just get your thoughts on, you know, we've been hearing comments, particularly related to some of these large US QSRs, related to increasing promotional activity and value offers, and if you're seeing that percolate more into the brands that you operate in terms of the aggressiveness of promotion, or is it so much more an experiential focus for you guys?
Speaker Change: Okay, and then maybe just to get your thoughts on, you know, we've been hearing...
Speaker Change: [inaudible]
Eric Lefebvre: Yeah, the activity definitely intensified, so there's a lot more focus on, I won't even call it value; I'll call it price. Definitely a lot more focus, maybe more so in the U.S. and in Canada. But, I mean, we can't necessarily play that game with the big guys, so we're going to focus on the experiential nature of what we're doing with our restaurants. We do have to have some value offers with each of our brands.
Speaker Change: I'll focus for you guys.
Speaker Change: Yeah, the activity definitely intensified. So there's a lot more focus on, I won't even call it value, I'll call it price. So definitely a lot more focus, maybe more so in the US and in Canada.
Eric Lefebvre: But I mean, we get necessarily played that game with the big guys. So we're going to focus on the experiential nature of what we're doing with our restaurants. We do have to have some value offers with each of our brands. We need to have a price point that will attract consumers into our stores. And we are trying different things, and we are testing the water with different brands, with different promotional activities, to see what gets traction and what doesn't. So, but yeah, you're correct in saying the promotional activities dramatically intensified, especially in some spaces. If you look at pizza and burgers, for example, it's really intensified in other spaces, maybe not as much.
Speaker Change: But, I mean...
Speaker Change: We can't necessarily play that game with the big guys. We're going to focus on the experiential nature of what we're doing with our restaurants. We do have to have some value offers with each of our brands. We need to have a price point that will attract consumers into our stores.
Eric Lefebvre: We need to have a price point that will attract consumers into our stores, and we are trying different things and testing the water with different brands and different promotional activities to see what gets traction and what doesn't. But, yeah, you're correct in saying the promotional activities are dramatically intensified, especially in some spaces. If you look at pizza and burgers, for example, it's really intensified. In other spaces, maybe not as much so.
Speaker Change: We are trying different things and we are testing the water with different brands, with different promotional activities to see what gets traction and what doesn't.
Speaker Change: But yeah, you're correct in saying the promotional activities dramatically intensified, especially in some spaces. If you look at pizza and burgers, for example, it's really intensified. In other spaces, maybe not as much. So we need to...
Eric Lefebvre: So, we need to keep the standard for our brand, and we don't want to set a new standard where the price point would be too low or the expectations would be too low. We also need to preserve the food quality that we have, but it's definitely a lot more competitive than it's been in the last few years. Okay, thanks.
Eric Lefebvre: So we need, we need to, we need to keep the standard for our brands, and we don't want to set a new standard where price point would be too low or the expectation would be too low. We also need to preserve the food quality that we have, but it's definitely a lot more competitive than it has been in the last few years.
Speaker Change: We need to keep the standard for our brand and we don't want to set a new standard where price point would be too low or the expectation would be too low. We also need to preserve the food quality that we have, but it's definitely a lot more competitive than it has been in the last few years.
Operator: Okay, thanks. I'll pass it on.
Vishal Shreedhar: Okay, thanks. I'll pass it on.
Speaker Change: Okay, thanks, I'll pass it on.
Tom Callaghan: The next question comes from Tom Callaghan with RBC Capital Markets. Please go ahead. Thanks. Morning, good morning, guys. Maybe just follow up on St. George Doumet.
Operator: The next question comes from Tom Callahan with RBC Capital Markets. Please go ahead.
Speaker Change: The next question comes from Tom Callahan with RBC Capital Markets. Please go ahead.
Eric Lefebvre: Thanks. Morning. Morning, guys. Maybe just a follow up on Sainsbury's sales there, Eric. Can you talk a bit about what you're kind of seeing in terms of traffic or average spend and the kind of drivers between the two?
Tom Callahan: Thanks, morning guys. Maybe just a follow-up on Zane's story down there. Eric, can you talk a bit about what you're kind of seeing in terms of traffic or average spend and kind of the drivers, but between the two?
Eric Lefebvre: Eric, can you talk a bit about what you're kind of seeing in terms of the traffic or average spend and kind of the drivers between the two? Yeah, it really depends for which brand we're looking at. For some brands where we have a little bit more promotional activity or we're in a space that's a little bit more competitive, we really need to focus on traffic. And the average basket is a little bit more complicated. For some other brands, I mean, we haven't really taken pricing in the last 12 months for most of our brands. So we need to drive traffic.
Eric Lefebvre: Yeah. It really depends on which brand we're looking at. For some brands where we have a little bit more promotional activity or where we're in a space that's a little bit more competitive, we really need to focus on traffic, and the average basket is a little bit more complicated. For some other brands, I mean, we haven't really taken pricing into account in the last 12 months for most of our brands.
Tom Callahan: Yeah.
Eric Lefebvre: It really depends for which brand we're looking at. For some brands where we have a little bit more promotional activity or where we're in a space that's a little bit more competitive, we really need to focus on traffic.
Eric Lefebvre: And the average basket is...
Eric Lefebvre: For some other brands, we haven't really taken pricing in the last 12 months for most of our brands. We need to drive traffic, we need to drive the average basket, we need to drive the experience.
Eric Lefebvre: So I mean, we need to drive traffic. We need to drive the average basket. We need to drive the experience. But it's tough. To preserve the existing basket compared to 12 months ago, it's a little bit more difficult. So we really need to drive traffic to maintain sales.
Eric Lefebvre: We need to drive the average basket. We need to drive the experience. But it's tough to preserve the existing basket compared to 12 months ago. It's a little bit more difficult. So we really need to drive traffic to maintain sales.
Eric Lefebvre: But it's tough to preserve the existing basket compared to 12 months ago. It's a little bit more difficult, so we really need to drive traffic to maintain sales.
Tom Callaghan: Okay, thanks for that. And then maybe just follow up.
Eric Lefebvre: Okay, thanks for that. And then, maybe just to follow up, can you provide, you know, maybe a bit of an update with respect to what you're seeing thus far in California, just given the wage legislation that came in a few months ago?
Eric Lefebvre: Can you provide maybe a bit of an update with respect to what you're seeing that's far and in California just given the wage legislation that came in a few months ago? Yeah, California is not the easiest environment for restaurant operators, for sure. What we're seeing is that the consumers were, for the most part, ready to receive the price increase. They expected it. I think pretty much everyone in the industry has increased their prices to some level to compensate for the increased cost. But we're, I mean, we don't make the rules. We have to follow them.
Speaker Change: Okay, thanks for that. And then maybe just to follow up, can you provide, you know, maybe a bit of an update with respect to what you're seeing thus far in California, just given the wage legislation that came in a few months ago?
Eric Lefebvre: Yeah, California is not the easiest environment for restaurant operators, for sure. But what we're seeing is that consumers were, for Duvon Spark, ready to receive the price increase. They expected it.
Speaker Change: California is not the easiest environment for restaurant operators, for sure.
Speaker Change: What we're seeing is that the consumers were, for Duvon Spark, ready to receive the price increase. They expected it.
Eric Lefebvre: I think pretty much everyone in the industry has increased their prices to some level to compensate for the increased costs. I mean, we don't make the rules; we have to follow them. Unfortunately, that has adverse consequences for us. But we haven't seen a dramatic impact on prices or on consumer traffic yet. Not saying there's not going to be one, but for the moment, I guess, people are getting accustomed to it.
Speaker Change: I think pretty much everyone in the industry has increased their prices to some level to compensate for the increased costs.
Eric Lefebvre: Unfortunately, that has adverse consequences on us. But we haven't seen a dramatic impact on the price on the consumer traffic yet. I'm not saying there's not going to be one, but for the moment, I guess if people are getting accustomed to it.
Speaker Change: I mean, we don't make the rules, we have to follow them. Unfortunately, that has adverse consequences on us. But we haven't seen...
Speaker Change: A dramatic impact on the price, on the consumer traffic yet. I'm not saying there's not going to be one, but for the moment, I guess people are getting accustomed to it.
Tom Callaghan: Okay, thanks for the color. I'll turn it back.
Operator: Understood. Thanks for the call. I'll turn it back.
Speaker Change: Thanks for the color. I'll turn it back.
Michael Glen: The next question comes from Michael Glenn with Raymond James. Please go ahead. Hey, good morning.
Operator: The next question comes from Michael Glen with Raymond James.
Speaker Change: Rene St, Eric Lefebvre
Speaker Change: The next question comes from Michael Glen with Raymond James. Please go ahead.
Michael W. Glen: Hey, good morning. Just to start on the sale of the fixed interest swap, maybe Rene, how does this actually impact me? your interest expense relative to where it's been over Q1 and Q2, does it change it meaningfully? It actually won't have an impact as it's going to be amortized because this was a perfect hedged instrument. It's going to be amortized interest expense until the original end date, which was April 2026. So, you'll continue to see about half a million dollars a quarter hitting our interest expense. Okay, perfect. And then, Eric, can you provide an update on the ERP implementation and how that's progressing, and what we should expect over the coming quarters?
Michael Glen: Just to start on the sale of the fixed interest swap, maybe Renee, like how does this actually impact your interest expense relative to where it's been over Q1 and Q2? Does it change it? It actually won't have an impact as it's going to be amortized because this was a perfect hedge instrument. It's going to be amortized to interest expense until the original end date, which was April 2026. So it'll continue to, you'll continue to see about half a million US on a quarterly basis hitting our interest expense. Okay, perfect.
Michael W. Glen: Hey, good morning.
Michael W. Glen: Just to start on the sale of the fixed interest swap, maybe, Rene, how does this actually impact...
Michael W. Glen: Your interest expense relative to where it's been over Q1 and Q2.
Michael W. Glen: Does it change it meaningfully? It actually won't have an impact as it's going to be amortized. Because this was a perfect hedged instrument, it's going to be amortized interest expense until the original end date, which was April 2026.
Speaker Change: So you'll continue to see about half a million U.S. on a quarterly basis hitting our interest expense.
Eric Lefebvre: And then Eric, can you provide an update on the ERP implementation and how that's progressing, what we should expect over a few other than the coming quarter? Yeah, it's progressing well. Actually, we're still on budget with this one. I know that's the major concern for everyone. The team is progressing really well. We have a really strong team around that project. Going up for the next 12 months, the intensity of the spend and the intensity of the effort is going to increase.
Speaker Change: Okay, perfect. And then Eric, can you provide an update on the ERP implementation and how that's progressing, what we should expect over the coming quarters?
Eric Lefebvre: Yeah, it's progressing well actually. We're still on budget with this one. I know that's the major concern for everyone, but the team is progressing really well. We have a really strong team around that project. We wanted to make sure we had tight controls around it, and it's progressing well. I think now that it's about to intensify, as we start really programming the solution and deploying modules, you should see the intensity going up for the next 12 months; the intensity of the spend and the intensity of the effort are going to increase.
Eric Lefebvre: It's progressing well actually. We're still on budget with this one. I know that's the major concern for everyone. The team is progressing really well. We have a really strong team around that project. We wanted to make sure we had tight controls around it.
Eric Lefebvre: And it's progressing well. I think now that it's about to intensify as we started really the programming of the solution.
Eric Lefebvre: Deploying modules, so you should see the intensity going up for the next, I guess for the next 12 months, the intensity of the spend and the intensity of the effort is going to increase.
Eric Lefebvre: And what's the risk that investors see some type of operational disruption as you go through deploying modules and intensifying this? I'm just trying to get a sense of it. Is that something that could happen?
Eric Lefebvre: What's the risk that we that investors see some type of operational disruption as you go through deploying modules and intensifying this? I'm just trying to get a sense. Is that something that could happen? Yeah, I don't see how that would disrupt the business. It might make some people's lives a little bit more complicated during the transition period, but again, we have pretty tight processes around that for the training and the change management. But I don't think there would be anything external-facing that could possibly happen that would disrupt our business. It's not connected to our POS.
Speaker Change: And what's the risk that investors see some type of operational disruption as you go through deploying modules and intensifying this? I'm just trying to get a sense. Is that something that could happen?
Eric Lefebvre: I don't see how that would disrupt the business. It might make some people's lives a little bit more complicated during the transition period, but again, we have pretty tight processes around that for training and change management.
Speaker Change: I don't see how that would disrupt the business. It might make some people's lives a little bit more complicated during the transition period, but again we have pretty tight processes around that for for the training and the change management.
Eric Lefebvre: But I don't think there would be anything external facing that could possibly happen that would disrupt our business. It's not connected to our POS. It's not connected to the main systems we use to do business. Maybe that's the difference between MTY and some, for example, manufacturing or distribution companies that really depend on these systems to make production, schedule production, or schedule routes, for example. In our case, it's all. It's all different systems that will be integrated, but that won't necessarily depend on SAP or that won't be affected by the SAP solution.
Speaker Change: But I don't, I don't think there would be anything.
Speaker Change: external facing that could possibly happen that would disrupt our business. It's not connected to our POS, it's not connected to.
Eric Lefebvre: It's not connected to the main systems we use to do business. Maybe that's the difference between MTY and some manufacturing or distribution companies that really depend on these systems to make production schedule, production or schedule routes. For example, in our case, it's all different systems that will be integrated, but that won't necessarily depend on SAP or that won't be affected by the SAP solution. Okay.
Speaker Change: The main systems we use to do business, maybe that's the difference between MTY and some, for example, manufacturing or distribution companies that really depend on these systems to make production, schedule production, or schedule routes, for example. In our case, it's all...
Speaker Change: It's all different systems that will be integrated but that won't necessarily depend on SAP or that won't be affected by the SAP solution.
Eric Lefebvre: Okay. And can you speak to, I think you've been looking at some initiatives over time, but like where delivery penetration sits with MTY in the US and Canada right now? Is this still an opportunity for the company? Have you been, are there investments that have been made? I'm just trying to get an assessment of where the business sits on delivery.
Eric Lefebvre: Can you speak to, I think you've been looking at some initiatives over time, but where delivery penetration sits with MTY in the US and Canada right now? Is this still an opportunity for the company? Have you been? Is there investment set up and made? I'm just trying to get an assessment of where the business sits on delivery? Yeah, for sure, it's still an opportunity. We're at 20% digital. You know, it's not all of it is delivery. Obviously, we have a lot of takeout. What we're seeing right now is that the consumer is a little bit more sensitive to the cost of these aggregators.
Speaker Change: Okay.
Speaker Change: Can you speak to, I think you've been...
Speaker Change: Looking at some initiatives over time, where delivery penetration sits with MTY in the U.S. and Canada right now, is this still an opportunity for the company? Is there investment set up and made? I'm just trying to get an assessment of where the business sits on delivery.
Eric Lefebvre: Yeah, for sure, it's still an opportunity. We're at 20% digital. Not all of it is delivery. Obviously, we have a lot of takeout. What we're seeing right now is that the consumer is a little bit more sensitive to the cost of these aggregators. It adds up.
Speaker Change: Yeah, for sure it's still an opportunity. We're at 20% digital. Not all of it is delivery, obviously we have a lot of take-out. What we're seeing right now is that...
Speaker Change: Consumer is a little bit more sensitive to the cost of these aggregators. It adds up. Obviously, we increase our prices on the delivery apps.
Eric Lefebvre: It adds up. Obviously, we increase our prices on delivery apps. And then they take their deliveries and everything. So it really adds up. So we're seeing consumers being a little bit more sensitive to that cost and maybe using the takeout or skip the line options a little bit more, which is more favorable for MTY, obviously. So there's a little bit of both. So we want to grow both. But the important factor here is that deliveries need delivery orders need to be incremental. If they're, if the delivery just substitute in an order that would have been internal before, then that becomes very unfavorable for us.
Eric Lefebvre: Obviously, we increase our prices on the delivery apps, and then they take their delivery fees and everything, so it really adds up. We're seeing consumers being a little bit more sensitive to that cost and maybe using the takeout or skip the line options a little bit more, which is more favorable for MTY, obviously. There's a little bit of both. We want to grow both, but the important factor here is that delivery orders need to be incremental.
Speaker Change: And then they take their liver fees and everything, so it really adds up. So we're seeing consumers being a little bit more sensitive to that cost and maybe using the...
Speaker Change: Take out or skip the line options a little bit more, which is more favorable for MTY, obviously.
Speaker Change: So, there's a little bit of both, so we want to grow both, but the important factor here is that delivery orders need to be incremental.
Eric Lefebvre: If a delivery just substitutes an order that would have been internal before, then that becomes very unfavorable for us. We're trying to maximize both, and we're trying to grow all the sales channels, but we're trying to be smart about it at the same time.
Speaker Change: If the delivery just substitutes an order that would have been internal before, then that becomes very unfavorable for us. So we're trying to maximize both and we're trying to grow all the sales channels, but we're trying to be smart about it at the same time.
Eric Lefebvre: So we're trying to maximize both, and we're trying to grow all the sales channels, but we're trying to be smart about it at the same time.
Eric Lefebvre: Okay.
Eric Lefebvre: Okay, and just one more for me, the corporate stores. It looks like you sold a handful of corporate stores in the quarter. Is there any strategic shift, or should we think about the sale of some more corporate stores as we go through the balance of this year and into next year?
Eric Lefebvre: And just one more for me. The corporate, it looks like you sold a handful of corporate stores in the quarter. Is there any strategic shift, or should we think about a sale of some more corporate stores as we go through the balance of this year and into next year? Yeah, this quarter was actually pretty quiet on the sale of corporate stores. We will have a few corporate stores being sold in Q3. We don't want to do; at least there's no intention in the short term to shift a portfolio dramatically. We're still a franchise or at heart.
Speaker Change: Okay, and just one more for me. The corporate, it looks like you sold…
Speaker Change: A handful of corporate stores.
Speaker Change: in the quarter. Is there any...
Speaker Change: strategic shift or should we think about the sale of some more corporate stores as we go through the balance of this year and into next year?
Eric Lefebvre: This quarter was actually pretty quiet on the sale of corporate stores. We will have a few corporate stores being sold in Q3. At least, there's no intention in the short term to shift the portfolio dramatically.
Speaker Change: This quarter was actually pretty quiet on the sale of corporate stores. We will have a few corporate stores being sold in Q3.
Operator: We're still a franchisor at heart, and that's important for us. So we don't plan on adding on corporate stores. We will sell some corporate stores. We'll be opportunistic about that. So we will see a few sales in Q3, probably in Q4 as well, but it's not going to be a massive shift of selling 100 stores or something like that. There's no such initiative at the moment. Okay, thank you.
Speaker Change: At least there's no intention in the short term to shift the portfolio dramatically. We're still a franchisor at heart and that's important for us, so we don't plan on adding on corporate stores.
Eric Lefebvre: And that's important for us. So we don't plan on adding on corporate stores. We will sell some corporate stores. We'll be opportunistic about that. So we will see a few sales in Q3, probably in Q4 as well. But it's not going to be a massive shift of selling 100 stores or something like that. There's no such initiative at the moment.
Speaker Change: We will sell some corporate stores. We'll be opportunistic about that.
Speaker Change: So, we will see a few sales in Q3, probably in Q4 as well, but it's not going to be a massive shift of selling 100 stores or something like that. There's no such initiative at the moment.
Operator: Okay, thank you for the question.
Eric Lefebvre: Okay. Thank you for the questions.
Speaker Change: Okay, thank you for the questions.
Cheryl Zhang: As a reminder, if you would like to ask a question, please press star, then one, to be joined into the question queue. The next question comes from Cheryl Zhang with PD Cowan. Please go ahead. Good morning, Eric. This is Cheryl calling for Derek. Thanks so much for taking our questions. So my first question is on the wage.
Operator: As a reminder, if you would like to ask a question, please press star and 1 to be joined in the question queue. The next question comes from Cheryl Xiong with TD Callan. Please go ahead.
Speaker Change: As a reminder, if you would like to ask a question, please press star and 1 to be joined into the question queue.
Speaker Change: The next question comes from Cheryl Zhang with TD Callen. Please go ahead.
Cheryl Xiong: Good morning, Eric. This is Cheryl calling in on behalf of Derek.
Speaker Change: Good morning, Eric. This is Cheryl calling in for Derek. Thanks so much for taking our questions. So, my first question is on the wage. So, would you be able to quantify or maybe give us a rough sense of any impact of the California wage increase on your U.S. EBITDA margin this quarter?
Eric Lefebvre: Thanks so much for taking our questions. So, my first question is on the wage increase. Would you be able to quantify or maybe give us a rough sense of any impact of the California wage increase on your U.S. EBITDA margin this quarter?
Eric Lefebvre: So we just be able to quantify or maybe give us a sense, a rough sense of an impact of the California wage increase on your US, even a margin is quarter. Yeah, I don't have the number handy, but we did have to increase price for to compensate for it. We did not fully reflect the price increase the increase in the price. So there's a little bit to Renee made a comment about it that it did affect our margins adversely. It's not a super material amount, but it's something we're watching for. Thanks for that.
Eric Lefebvre: I don't have the number handy, but we did have to increase the price to compensate for it. We did not fully reflect the price increase, the increase in the price, so there's a little bit that Rene made a comment about it, that it did affect our margins adversely. It's not a super material amount, but it's something we're watching.
Eric Lefebvre: I don't have the number handy, but we did have to increase price to compensate for it.
Speaker Change: Fully reflect the price increase, the increase in the price, so there's a little bit that Rene made a comment about it, that it did affect our margins adversely. It's not a super material amount, but it's something we're watching for.
Eric Lefebvre: And then I believe previously you announced some cause control measures, and it looks like it may have started to show your margins, particularly on the US side. Just curious if you could talk about some of the initiatives that you have implemented so far and maybe give us a sense of where you are in the process. Yeah, in the US, we combined a few divisions. So we combined the pop on Murphy's division and barbecue division. We also combine the Wetsel spread cells with Kahala. So we basically reduced our the number of divisions, try to have our strongest people work on the brands and consolidate where consolidate the knowledge and consolidate the expertise we have for different things.
Eric Lefebvre: Okay, thanks for that. I believe you announced previously some cost control measures, and it looks like you may have started to show your margins, particularly on the U.S. side. Just curious if you could talk about some of the initiatives that you have implemented so far and maybe give us a sense of where you are in the process.
Speaker Change: Okay, thanks for that and then
Speaker Change: I believe previously you announced some cost control measures, and it looks like you may have started to show your margins, particularly on the U.S. side. Just curious if you could talk about some of the initiatives that you have implemented so far, and maybe give us a sense of where you are in the process.
Eric Lefebvre: Yeah, in the U.S., we combined a few divisions. So we combined the Papa Murphy's Division and the Barbecue Division. We also combined Wetzel's Pretzels with Kahala. So we basically reduced the number of divisions, tried to have our strongest people work on the brands, and consolidated the knowledge and consolidated the expertise we have for different things for these various brands. For the U.S., I would say we're pretty much done. There's probably some action to come in the future in Canada and in other functions, but there's nothing coming in the U.S. that I'm aware of.
Speaker Change: Yeah, in the U.S. we combined a few divisions. So we combined the Papa Murphy's divisions and the barbecue division. We also combined the Wetzel spretzels with Kahala. So we've basically reduced the number of divisions, tried to
Speaker Change: Have our strongest people work on the brands and consolidate the knowledge and consolidate the
Eric Lefebvre: For these various brands, so for the US, I would say we're pretty much done. There's probably some action to come in the future at Canada and in other functions.
Speaker Change: The expertise we have for different things, for these various brands, so for the U.S. I would say we're pretty much done. There's probably some action to come in the future in Canada and in other functions.
Eric Lefebvre: But there's there's there's there's nothing to do something in the US that. Okay, that's very helpful.
Speaker Change: But there's nothing major coming in the U.S. that I'm aware of at the moment.
Eric Lefebvre: Okay, that's very helpful. And last one before I run, so you know the strong performance of your snack brands, particularly Cold Stone, lots of pretzels, and Sweet Frog. So these are arguably on the more discretionary side, and Cold Stone is a higher-priced dessert brand. So in an environment where consumers are looking for value and are cautious about spending, I just wonder if you could help us understand what's really driving the strong performance in those brands.
Eric Lefebvre: And last one was by the queue. So you know that strong performance of the stock brands, particularly on coastal was oppressors and Sweet Frog. So these are arguably on the more discretionary side, and Coastal is a higher price point dessert brand. So in our environment, we're consumers are looking for valuing our cautious spending. Just wondering if you could help us understand what's really driving the strong performance. Yeah, it's just we have terrific brands with terrific products and that's always the key success factor. If you have something that's Cravable and if you have something that consumers would really want and that's experiential, then that helps. And then we have really good teams with really good franchises; the marketing is outstanding. So we just need to be exceptional at every function we have and everything we do, and those brands are so you talk about Cold Stone, you talk about Wetzel's Pretzels, and you know those are exceptional brands we have. And this needs to set the tone for all the other brands we have in the portfolio. Okay, thanks so much for the color. This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation; you may now disconnect.
Speaker Change: Okay. That's very helpful. And the last one before I recue, so you know that the strong performance of the snack brands, particularly on coleslaw, pretzels, and Sweet Frog.
Speaker Change: So these are arguably on the more discretionary side, and Cold Stone is a higher price point dessert brand. So in an environment where consumers are looking for value and are cautious about spending, just wonder if you could help us understand what's really driving the strong performance in those brands. Thank you.
Eric Lefebvre: Yeah, it's just a... We have terrific brands with terrific products, and that's always the key success factor. If you have something that's craveable, and if you have something that consumers will really want, and that's experiential, then that helps. And then we have really good teams with really good franchisees. The marketing is outstanding, so we just need to... We just need to be exceptional at every function we have and everything we do, and those brands are, so you talk about Cold Stone, you talk about Wetzel's Pretzels, those are exceptional brands we have, and this needs to set the tone for all the other brands we have in the portfolio.
Operator: Okay, thanks.
Speaker Change: Yeah, it's just a...
Speaker Change: We have terrific brands with terrific products and that's always the key success factor if you have something that's craveable and if you have something that consumers will really want.
Speaker Change: [inaudible]
Speaker Change: We just need to be exceptional at every function we have and everything we do, and those brands are. So you talk about Cold Stone, you talk about Wetzel's Pretzels, those are exceptional brands we have, and this needs to set the tone for all the other brands we have in the portfolio.
Operator: Okay, thanks so much for the call.
Speaker Change: Okay. Thanks so much for the caller.
Operator: This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: This concludes our question and answer session.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.