Q2 2025 MTY Food Group Inc Earnings Call
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Speaker Change: Good morning, and welcome to the empty life at 50025 second quarter results earnings call.
Operator: Good morning, and welcome to the MTY Food Group 2025 Second Quarter Results Earnings Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided for you at the time for questions. If anyone has any difficulty hearing the conference, you may press star zero for operator assistance at any time.
Speaker Change: This time, all participants are in listen only mode.
Speaker Change: One of the presentation, we will conduct a question and answer session instructions will be provided for you at the time for questions. If anyone has any difficulty hearing the conference you May press Star zero for operator assistance at any time he is.
Operator: Listeners are reminded that portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking scenario. For more information on MTY Food Group's risks and uncertainties related to these forward-looking statements, please refer to the company's annual information form dated February 13, 2025, which is posted on CDER Plat.
Speaker Change: I remind you that portion of today's discussion may contain forward looking statements. After the current views with respect to future events.
Speaker Change: Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward looking statements for more information on M. T Y foot groups risks and uncertainties related to these forward looking statements. Please refer to the company's annual information form dated February three.
Speaker Change: In 2025, which is posted on SEDAR class the company's press release, MD&A and financial statements were issued earlier this morning and available on its website and on SEDAR.
Operator: The company's press release, MD&A, and financial statements were issued earlier this morning and are available on its website and on CDER. All figures presented on today's call are in all Canadian dollars unless otherwise stated.
Speaker Change: All figures presented on today's call are in all Canadian dollars unless otherwise stated.
Operator: This morning's call is being recorded on Friday, July 11, 2025 at 8.30 a.m.
Speaker Change: This mornings call is being recorded on Friday July 11, 2025 at 830, a M eastern time.
Operator: Eastern I would now like to turn the call over to Mr. Eric Lefebvre, Chief Executive Officer of MTY Food Group. Please go ahead, sir. Thank you.
Speaker Change: I'd like to turn the call over to Mr. Eric Slifka, Chief Executive Officer of empty life with group B.
Speaker Change: Go ahead Sir.
Speaker Change: Thank you.
Speaker Change: Good morning, everyone and thank you for joining us for <unk> second quarter of 2025 conference call I'm joined today by our Chief Financial Officer.
Eric Lefebvre: Good morning, everyone, and thank you for joining us for MTY's second quarter of 2025 conference call. I'm joined today by our Chief Financial Officer, Rene Saint-Ong. Last quarter was a tale of two geographies. Current macroeconomic conditions remain highly fluid and in some cases challenging. U.S. consumers have been particularly affected by economic uncertainty, which is being reflected in our results and that of the broader restaurant industry. On the other hand, Canada was a bright spot throughout Q2. Following a soft Q1, business improved sequentially in March, April and May. Canadian same-store sales increased by 1.4%, reflecting broad-based strength across most of our banners, especially those in our casual dining segment.
Speaker Change: Last quarter was a tale of two geographies.
Speaker Change: Macroeconomic conditions remain highly fluid and in some cases challenging U S consumers have been particularly affected by economic uncertainty.
Speaker Change: Which is being reflected in our results and that of the broader restaurant industry.
Speaker Change: On the other hand, Canada was a bright spot throughout Q2, following a soft Q1 business improved sequentially in March April and May.
Speaker Change: Canadian same store sales increased by one 4%, reflecting broad based strength across most of our banners, especially those in our casual dining segment.
Speaker Change: The story was more challenging in the U S where the volatility we saw in Q1 became more pronounced resulting in a three 8% decline in same store sales.
Eric Lefebvre: The story was more challenging in the U.S., where the volatility we saw in Q1 became more pronounced, resulting in a 3.8% decline in same-store sales. The softness was broad-based across our U.S. portfolio, regardless of banner or restaurant segment. Although there were some bright spots, such as Village Inn, nearly all banners were impacted by a more cautious consumer, including Cold Stone Creamery and Wetzel's Pretzels. Performance was similar across all our restaurant segments via QSR, Fast Casual, or Casual Dining. Our year-to-date performance is largely in line with the North American restaurant industry.
Speaker Change: The softness the softness was broad based across our U S portfolio, regardless of banner or restaurant segment.
Speaker Change: Although there were some bright spots such as village in nearly all banners were impacted by a more cautious consumer, including cold stone creamery and wetzel spread cells.
Speaker Change: Performance was similar across all of our restaurant segments.
Speaker Change: <unk> fast casual and casual dining our.
Speaker Change: Our year to date performance is largely in line with the North American restaurant industry.
Speaker Change: In the current environment.
Eric Lefebvre: In the current environment, it's become even more important for MTY to intensify initiatives that will increase the pace, energy, and agility of our company. Over the past few years, we've made significant improvements to strengthen our roster of talent and increase the pace of innovation in food, technology, or business practices. I'm incredibly excited by what I see in the pipeline, and I believe we are in the early innings of an evolution that will gradually bear fruit. One fundamental change I'm especially enthusiastic about is our product innovation. Most brands typically have three to five new product launch or LTO windows per year, which in the past were organized just a few months in advance.
Speaker Change: Become even more important for MTI to intensify initiatives that will increase the base energy and the agility of our company over the past few years, we've made significant improvements to strengthen our roster of talent and increase the pace of innovation in food technology or business practices.
Speaker Change: I'm incredibly excited by what I've seen the pipeline and I believe we are in the early innings of an evolution that will gradually bear fruit.
Speaker Change: One fundamental change I'm, especially enthusiastic about is our product innovation.
Speaker Change: Most brands typically have three to five new product launch or LTE, a windows per year, which is the which in the past, Oregon, where we're organized just a few months in advance.
Eric Lefebvre: Due to the short lead times and the many departments involved in making a new product launch successful, execution sometimes suffered and launches were not as effective as they could have been. Fast forward to today, the vast majority of our brands plan their product launches 12 to 15 months in advance compared to the very few just 3-4 years ago. We are driving brands towards adding more product launches and LTOs to increasingly delight and excite our guests. All of this is part of our strategy of being a high-paced, high-energy and nimble company that will thrive in today's environment.
Speaker Change: Due to the short lead times and the many departments involved in making a new product launch successful execution, sometimes suffered in launches were not as effective as it could have been.
Speaker Change: Fast forward to today, the vast majority of our brands blend their product launches 12 to 15 months in advance compared to the very few just three or four years ago.
Speaker Change: We are driving brands towards adding more product launches and L. P o's to increasingly delight and excite our guests.
Speaker Change: All of this is part of our strategy of being a high based high energy and nimble company that will thrive in today's environment.
Speaker Change: Another investment that I'm ardent about this digital which you've heard me discuss in previous quarters.
Eric Lefebvre: Another investment that I am ardent about is digital, which you've heard me discuss in previous quarters. MTY is a company rich in consumer data, and combined with our growing investment in technology, data scientists, consumer data platforms, and AI, we believe we can unlock even more demand potential for our restaurants and improve our overall guest experience. Digital sales grew by 3% this quarter and now represent 21% of total system sales. Currently, our digital successes are more concentrated in some of our U.S. brands, and we're excited about the benefits this experience will bring to our Canadian business and smaller U.S.
Speaker Change: <unk> is a company rich in consumer data and combined with our growing investments in technology data scientists consumer data platforms and AI. We believe we can unlock even more demand potential for our restaurants and improve our overall guest experience.
Speaker Change: Digital sales grew by 3% this quarter and now represent 21% of total system sales.
Speaker Change: Currently our digital successes are more concentrated in some of our U S brands and we're excited about the benefits. This experience will bring to our Canadian business and smaller U S brands once it's rolled out across our network.
Eric Lefebvre: brands once it's rolled out across our network.
Speaker Change: Shifting gears to stork out we opened 76 locations and closed 77, resulting in a net decrease of one location for the quarter.
Eric Lefebvre: Shifting gears to StorkOut, we opened 76 locations and closed 77, resulting in a net decrease of one location for the quarter. Enhancing the profitability of our restaurant network remains a key focus, and we continue to strengthen our portfolio of locations through a combination of closures of underperforming locations and building a strong pipeline of openings. As of July 1st, we had a total of 108 locations under construction, and our goal of net location growth over the medium to long term remains unchanged. Of note, we opened 35 new locations in the month of June alone, indicating a good start to our third quarter.
Speaker Change: Enhancing the profitability of our restaurant network remains a key focus and we continue to strengthen.
Speaker Change: Our portfolio of locations through a combination of closures of underperforming locations and building a strong pipeline of openings.
Speaker Change: As of July 1st we had a total of 108 locations under construction and our goal of a net location growth over the medium to long term remains unchanged.
Speaker Change: Of note, we opened 35 new locations in the month of June alone, indicating a good start to our third quarter.
Speaker Change: Turning to our normalized adjusted EBITDA performance, we experienced a 5% decline this quarter.
Eric Lefebvre: Turning to our normalized adjusted EBITDA performance, we experienced a 5% decline this quarter. The decline was entirely driven by our corporate store segment, partially by design. As I just mentioned, we are focused on enhancing our store network and we made a strategic decision in the last few months to take back ownership of nearly 50 underperforming Papa Murphy's locations that have high potential. Our corporate stores were also impacted by the combination of cautious consumer and prime cost pressures. This quarter, normalized EBITDA margins of our corporate segment came in at 9%, which we believe is a healthy and acceptable level given the composition of our portfolio.
Speaker Change: Mine was entirely driven by our corporate store segment, partially by design.
Speaker Change: As I just mentioned, we are focused on enhancing our store network and.
Speaker Change: And we made a strategic decision in the last few months to take back ownership of nearly 50 underperforming Papa Murphy's locations that have high potential.
Speaker Change: Our corporate stores were also impacted by the combination of cautious consumer and Brian cost pressures.
Speaker Change: This quarter normalized EBITDA margins of our corporate segment came in at 9%, which we believe is a healthy and acceptable level given the composition of our portfolio.
Eric Lefebvre: It's also important to highlight that our franchising segment, which represents our bread and butter, delivered a growth of 3% while our retail segment also grew by 9%. Retail remains a powerful category for MTY with substantial growth potential. We're optimistic owing to the early success of several products in our nascent listings outside Quebec. MTY continues to generate very strong free cash flows, consistent with the strength of our asset-light business model. In the second quarter, cash flows from operations was approximately $40 million, and free cash flows net of lease payment came in at around $24 million. Both figures were largely flat compared to last year.
Speaker Change: It's also important to highlight that our franchising segment, which represents our bread and butter delivered a growth of 3% while our retail segment also grew by 9%.
Speaker Change: Retail remains a powerful category for MTI with substantial growth potential for.
Speaker Change: We are optimistic owing to the early success of several products and our nascent listings outside Quebec.
Speaker Change: MTI continues to generate very strong free cash flow consistent with the strength of our asset light business model in the second quarter cash flows from operations was up approximately $40 million and free cash flows net of lease payment came in at around $24 million.
Speaker Change: Both figures were largely flat compared to last year.
Eric Lefebvre: The second quarter typically generates lower cash flows than other quarters because of many annual recurring variances that happen consistently every year.
Speaker Change: The second quarter typically generates lower cash flows than other quarters because of many annual recurring variances that happened consistently every year.
Speaker Change: We remain committed to a balanced capital allocation strategy, one that support strategic growth, while also returning value to shareholders through dividends and share repurchases.
Eric Lefebvre: We remain committed to a balanced capital allocation strategy, one that supports strategic growth while also returning value to shareholders through dividends and share repurchases. During the quarter, we repurchased just under 300,000 shares under our normal forced issuer bid in line with the prior quarter. Going forward, we will continue to be flexible and opportunistic regarding our use of cash.
Speaker Change: During the quarter, we repurchased just under 300000 shares under our normal course issuer bid in line with the prior quarter.
Speaker Change: Going forward, we will continue to be flexible and opportunistic regarding our use of cash.
Speaker Change: Finally, I would like to take a moment to highlight the significant progress we've made on our ERP implementation, a truly foundational initiative for <unk> and.
Eric Lefebvre: Finally, I would like to take a moment to highlight the significant progress we've made on our ERP implementation, a truly foundational initiative for MTY. I'm pleased to report that our Canadian Go Live was completed on time and on budget, marking a major milestone for the organization. This type of change is never completely frictionless, but we're encouraged by how quickly and smoothly our teams have adopted the new system. I want to extend my sincere thanks to our head office staff across all functions for their exceptional effort, long hours, steadfast commitment throughout the process. Their dedication has been and continues to be instrumental to the successful rollout.
Speaker Change: I am pleased to report that our Canadian go live was completed on time and on budget, marking a major milestone for the organization.
Speaker Change: This type of changes is never completely frictionless, but we're encouraged by how quickly and smoothly. Our teams have adopted the new system.
Speaker Change: Want to extend my sincere thanks to our head office staff across all functions for their exceptional effort long hours steadfast commitment throughout the process.
Speaker Change: Their dedication has been and continues to be instrumental in the successful rollout.
Eric Lefebvre: Looking ahead, we're gearing up for the U.S. implementation, which will take place in two phases, the first in October, followed by a second one in December. We remain confident in our timeline and are leveraging the lessons learned from Canada to ensure a seamless transition.
Speaker Change: Looking ahead, we're gearing up for the U S implementation, which will take place in two phases. The first in October followed by a second one in December we remain confident.
Speaker Change: And our timeline and are leveraging the lessons learned from Canada to ensure a seamless transition.
Rene Saint-Ong: With that, I'll now turn it over to Rene, who will discuss MTY's financial results in greater detail. Thank you, Eric, and good morning, everyone. Looking more closely at our operating segments, Canadian franchising revenues increased by 4% to $37.5 million, mainly due to increases in both sales of material to franchisees and recurring revenue streams. Canadian recurring revenue streams increased as a result of the improvements in our organic system sales of 3%.
Speaker Change: With that.
Speaker Change: Now I'll turn it over to Renee, who will discuss <unk> financial results in greater details.
Renee: Thank you, Eric and good morning, everyone.
Renee: More closely at our operating segments Canadian franchising revenues increased by 4% to $37 5 million mainly.
Renee: Mainly due to increases in both sales of materials of franchisees and recurring revenue streams.
Renee: Canadian recurring revenue streams increased as a result of the improvements in our organic system sales of 3%.
Rene Saint-Ong: Meanwhile, in the U.S. and international segment, franchisee operations saw largely flattish year-over-year revenues at $65.3 million, a slight improvement of $0.3 million over prior year. This was the result of a favorable foreign exchange swing of $2.2 million, offset by a 4% decline in organic system sales. On the expense side, operating costs in Canada went up by $1.2 million year-over-year to $21.5 million, mostly due to cost of sale of material to franchisees. The cost of sale to franchisees fluctuated in line with the increase in revenues.
Renee: Meanwhile, in the U S and international segment franchisee operations, largely flattish year over year revenues at $65 3 million.
Renee: A slight improvement of <unk> 3 million over prior year.
Renee: This was the result of a favorable foreign exchange swing of $2 2 million offset by a 4% decline in organic system sale.
Renee: On the expense side operating costs in Canada went up by $1 $2 million year over year to $21 5 million, mostly due to cost of sales materials. The franchisees the cost of sales to franchisees fluctuated in line with the increase in revenues.
Rene Saint-Ong: Meanwhile, I am happy to report that in the U.S. and international segment, operating expenses decreased by 1.4% to $28.1M. This was the result of a $1.2M decrease in controllable expenses reflecting MTY's continued focus on disciplined cost management. This was partly offset by an unfavorable $1M foreign exchange impact. As for profitability, normalized adjusted EBITDA for the franchise operations came in at $54 million, an increase of 4% compared to last year's $52.6 million, with margins of 53%, a 1% improvement over prior year's margins of 52%.
Renee: Meanwhile, I'm happy to report that in the U S and international segment operating expenses decreased by one 4% to $28 1 million. This was the result of a $1 2 million decrease in controllable expenses, reflecting <unk> continued focus on disciplined cost management.
Renee: This was partly offset by an unfavorable $1 million foreign exchange impact.
Renee: As for profitability normalized adjusted EBITDA for the franchise operations came in at $54 million, an increase of 4% compared to last year's $52 6 million with margins at 53%, a 1% improvement over prior year's margins of 52%.
Rene Saint-Ong: Moving over to the corporate operations, Canadian revenues decreased by 5% to $11.2 million due to a reduction in the number of corporate stores. U.S. and international revenues declined by 1% to $120.3 million due to a decline in same-store sales, which was partially offset by a higher number of corporate locations compared to the second quarter of 2024. Operating expenses for the Canadian segment decreased by $1.1 million to $10.7 million, while the U.S. and international segment rose by 5% to $109.5 million due to a higher number of corporate stores as well as generalized pressures on prime costs.
Renee: Moving over to the corporate operations Canadian revenues decreased by 5% to $11 2 million due to a reduction in the number of corporate stores.
Renee: And international revenues declined by 1% to $123 million due to a decline in same store sales, which was partially offset by a higher number of corporate locations compared to the second quarter of 2024.
Renee: Operating expenses for the Canadian segment decreased by $1 $1 million to $10 7 million, while the U S and international segment rose by 5% to $109 $5 million due to a higher number of corporate stores as well as generalized pressures on prime costs.
Renee: Normalized adjusted EBITDA for the corporate store segment came in at $11 3 million down $5 $5 million from last year as Eric mentioned earlier. This decline explains our year over year decline in consolidated normalized adjusted EBITDA.
Rene Saint-Ong: Normalized adjusted EBITDA for the corporate store segment came in at $11.3 million, down $5.5 million from last year.
Rene Saint-Ong: As Eric mentioned earlier, this decline explains our year-over-year decline in consolidated normalized adjusted EBITDA. Globally, revenue from food processing, distribution, and retail grew by 4.4% to $40.2 million, driven by an increase in retail sales of 4% and an increase in food processing and distribution of 6%. The retail segment continues to be a segment with a multitude of growth opportunities across Canada and the U.S. Normalized adjusted EBITDA for the segment reached $4.7 million, up 9% from last year, with margins up to 12% from 11% last year.
Renee: Globally revenue from food processing distribution and retail grew by four 4% to $40 2 million driven by an increase in retail sales up 4% and an increase in food processing and distribution of 6%.
Renee: The retail segment continues to be a segment with a multitude of great growth opportunities across Canada and the U S.
Renee: Normalized adjusted EBITDA for the segment reached $4 7 million up 9% from last year with margins up to 12% from 11% last year.
Renee: Turning our attention to the income attributable to owners it amounted to $57 $3 million or $2.49 per diluted share compared to $27 $3 million or a dollar and 13 cents per diluted share in Q2 2024.
Rene Saint-Ong: Turning our attention to the income attributable to owners, it amounted to $57.3 million or $2.49 per diluted share compared to $27.3 million or $1.13 per diluted share in Q2 2024. The increase was mainly due to accounting for the positive foreign exchange variations on intercompany loans.
Renee: The increase was mainly due to accounting for the positive foreign exchange variations on intercompany loans.
Renee: Moving over to cash flows we continue to generate strong operating and free cash flows. The second quarter had cash flows from operating activities of $40 2 million compared to $40 6 million in Q2 of 2024.
Rene Saint-Ong: Moving over to cash flows, we continue to generate strong operating and free cash flows. The second quarter had cash flows from operating activities of $40.2 million compared to $40.6 million in Q2 of 2024. Free cash flows and out-of-lease payments decreased slightly to $23.6 million in the quarter compared to $24.3 million last year. The decline was largely due to lower EBITDA, partly offset by lower capital expenditures.
Renee: Free cash flows net of lease payments decreased slightly to $23 6 million in the quarter compared to $24 3 million last year.
Renee: The decline was largely due to lower EBITDA, partly offset by lower capital expenditures.
Rene Saint-Ong: As mentioned in previous quarters for 2025, we are targeting capital expenditure levels lower than 2024. As mentioned by Eric, during the three months ended May 31st, 2025, we repurchased and cancelled 297,000 shares for $12.6 million through our NCIB and paid $7.6 million in dividends to our shareholders. We ended the quarter with a net debt of $623.5 million, a net reduction of $32.7 million since November 2024. Since Q2 of 2024, we have repaid a total of $69.1 million in long-term debt. Considering our strong cash flow generating ability, our debt to EBITDA of approximately 2.4 times is a level of debt that continues to give us flexibility to make acquisitions should the opportunity arise.
Renee: As mentioned in previous quarters for 2025, we are targeting capital expenditure levels lower than 2024.
Renee: As mentioned by Eric during the three months ended May 31, 2025, we repurchased and canceled 297000 shares for $12 6 million through our NCI beam and paid $7 6 million in dividends to our shareholders.
Renee: We ended the quarter with net debt of $623 5 million and net reduction of $32 7 million since November 2024.
Renee: Since Q2 of 2024, we have repaid a total of $69 1 million in long term debt, considering our strong cash flow generating ability our debt to EBITDA of approximately two four times is the level of debt that continues to give us flexibility to make acquisitions should the opportunity arise.
Eric Lefebvre: And with that, I'd like to thank you for your time and turn it back to Eric for closing remarks. Thanks, Rene. Having experienced what I described as a tale of two geographies this quarter, we remain motivated by our strategic vision of strengthening MTY's dynamism, creativity, and entrepreneurial spirit.
Renee: And with that I'd like to thank you for your time and turn it back to Eric for closing remarks.
Eric Slifka: Thanks Renee.
Speaker Change: Having experienced what I described as a tale of two geographies. This quarter, we remain motivated by our strategic vision of strengthening empty wise dynamism creativity and entrepreneurialism spirit.
Eric Lefebvre: I personally have never been as inspired as I am today about our people and new initiatives that are taking hold. Whether it's the macroeconomic backdrop or tariff uncertainty, we are building MTY to be resilient and innovative in the face of any challenges that come our way. With our strong cash flow generation and balance sheet deleveraging, we believe we remain well positioned to take advantage of any opportunities that arise.
Speaker Change: Personally have never been as inspired as I am today about our people and new initiatives that are taking hold.
Speaker Change: Whether it's the macroeconomic backdrop, where tariff uncertainty we are building MTI to be resilient and innovative in the face of any challenges that come our way.
Speaker Change: With our strong cash flow generation and balance sheet deleveraging, we believe we remain well positioned to take advantage of any opportunities that arise.
Operator: I thank you for your time, and we will now open the lines for questions. Operator? Thank you.
Speaker Change: Hi, Thank you for your time, and we will now open the lines for questions operator.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your telephone keypad, you'll hear a prompt that you had has been raised and should you wish to cancel your request. Please press star followed by just you if youre using a speakerphone. Please lift the handset before pressing any Keith.
Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star 4 by the 1 on your telephone keypad. You will hear a prompt that your hand has been raised. And should you wish to cancel your request, please press star 4 by the 2. If you are using a speakerphone, please lift the handset before pressing any button.
Speaker Change: One moment. Please for your first question.
Operator: One moment, please, for your first question.
Speaker Change: Your first question comes from the line of Vishal sweetheart from National Bank. Please go ahead.
Vishal Shreedhar: Your first question comes from the line of Vishal Shreedhar from National Bank. Please go ahead. Hi, thanks for taking my question. I'm looking for more insight on how trends evolved through the quarter, you know, last quarter. And, you know, I know things are moving quickly. The last quarter management indicated that they weren't seeing any material change in consumer behavior. And you said the US is a little bit more choppy. So maybe you can describe what changed and maybe how it changed. I guess we're focusing on the U.S. here and what, in particular, the company did to Yeah.
Speaker Change: Hi, Thanks for taking my question I'm just looking for.
Speaker Change: More insight on how trends.
Speaker Change: Evolved through the quarter last quarter, and I know things are moving quickly.
Speaker Change: The last quarter management indicated that they werent seen any material change in consumer behavior.
Speaker Change: And you.
Speaker Change: You said the U S is a little bit more choppy. So maybe you can describe.
Speaker Change: What changed and maybe how it changed.
Speaker Change: We're focusing on the U S here and what in particular the company get to respond.
Speaker Change: Yeah.
Eric Lefebvre: So, yeah, the choppiness just became less choppy and more consistent in the negative, I guess, if you want to label it this way. In the US portfolio, in Canada, we're still seeing more stability. But yeah, I mean, what happened is hard to explain. There are certainly experts that can guide us through what happened. But what we're seeing is, and we're seeing the the same industry trends where the restaurant industry is down slightly. So, unfortunately, we're following the trend here. And as far as what it is that we're doing, it's not necessarily anything very different from what we were doing last quarter.
Speaker Change: So yes, the Choppiness just became.
Speaker Change: Less choppy and more consistent than the negative I guess, if you want to.
Label. It this way in the U S portfolio in Canada, where we're still saying seeing more stability.
Speaker Change: But yeah I mean, what happened is it's hard to explain.
Speaker Change: There are certainly experts that can lift.
Speaker Change: But can guide us through what happened, but what we're seeing is and we're seeing the same the.
Speaker Change: Same industrial trends, where it is.
Speaker Change: The restaurant industry is down slightly.
Speaker Change: So we're unfortunately, we are following the trend here.
Speaker Change: And as far as what it is that we're doing.
Speaker Change: Certainly anything very different from what we were doing last quarter we are.
Eric Lefebvre: We are doubling down for sure on everything we do digital, try to have more personalized marketing approaches. Those are long-term strategies that take time to implement, and we're certainly accelerating some of them. And we have accelerated also some of our marketing programs and marketing span to try to alleviate some of the pain. And brand by brand, we're looking at our portfolio, and some of them it needs to be maybe provide consumers with a more favorable entry point to go in our restaurants and have a more value offering. But what we're finding is alcohol consumption is down, value offerings are important, but they're also not the only thing that matters.
Speaker Change: Doubling down for sure on on.
Speaker Change: And everything we do digital.
I too have more personalized marketing approaches.
Speaker Change: Those are long term strategies that take time to implement and we're certainly accelerating some of them and we we have accelerated also some of our marketing programs and marketing spend to try to.
Speaker Change: Deviate some of the pain.
Speaker Change: And brand by brand and we're looking at our portfolio and some of them. It's it needs to be maybe provide consumers with a more favorable entry points.
Speaker Change: To go into our restaurants and have it more.
Speaker Change: You offering, but what we're finding is all.
Speaker Change: Consumption is down.
Speaker Change: Value offerings are important but they're also not the only thing that matters.
Eric Lefebvre: And we just need to go brand by brand and have a systematic approach on what it is that we're doing today and what it is that we were trying to accomplish on the long-term strategy point of view, and what we can do to accelerate it if we can. And if we can't, then we just need to keep that same systematic approach to deliver what we were planning to deliver on time and create that amazing consumer experience, not only in-store but also with all our various digital platforms, consumers are not in-store as much as they used to be, and we need to be able to replicate that consumer experience whether they're in-store or not.
Speaker Change: And we just need to go brand by brand and have a systematic approach on what it is that we're doing today and what it is that we that we were trying to accomplish on the long term strategy point of view and what we can do to accelerate it if we can and if we can't then we just need to have that keep that same systematic approach to deliver what we were planning to deliver on.
Speaker Change: I'm in and create that amazing.
Speaker Change: Amazing consumer experience not only in store, but also.
Speaker Change: With all our various digital platforms consumers are not in store as much as they used to be and we need to be able to replicate that consumer experience, whether they're in store or not so it's more of the same just a little bit of an acceleration on the spend.
Eric Lefebvre: So it's more of the same, just a little bit of an acceleration on the spend and trying to come up with various initiatives that are brand by brand. with respect to the price increases that you're taking. Are they targeted to specific brands or geographies? What can we put in for modeling purposes on the price increase? Should we expect it to be meaningful on the same story? Not necessarily. They are meaningful, for sure, and we are taking a very diligent approach. There's a science to it. We're trying to come up with price increases in areas that might not necessarily affect traffic as much, but we do have to take some pricing.
Speaker Change: Trying to come up with various initiatives that are brand by brand.
Speaker Change: Okay with respect to the price increases that you are taking.
Speaker Change: Are they are they targeted to specific brands or geographies in.
Speaker Change: What can we put in for modeling purposes on the price increase should we expect it to be a meaningful on the same store line.
Speaker Change: No not necessarily.
Speaker Change: They are meaningful for sure and we.
Speaker Change: We are taking a very diligent approach there is a science to it.
Speaker Change: We're trying to come up with.
Price increases in areas that might not necessarily affect traffic as much.
Speaker Change: But we do have to take some pricing as you know in the U S. We don't dictate price for our franchisees. So franchisees are free to take price whenever they like.
Eric Lefebvre: As you know, in the US, we don't dictate price for our franchisees, so franchisees are free to take price whenever they like, and we try to suggest price for them, but they don't necessarily have to follow our suggestions. Corporate stores, we hadn't taken price in many of our brands for two or three years for some of them, and now we're facing maybe a stiffer, There's a lot of pressure on food costs, primarily, and to a certain extent on labour costs as well. We reached a point where it was no longer sustainable to not take price, so we have to use a surgical approach and take price on certain commodities that are a little bit more expensive these days.
Speaker Change: And we tried to suggest price for them.
Speaker Change: Necessarily has to follow our suggestions corporate stores, we hadn't take price in many of our brands for two or three years for some of them.
Speaker Change: And now we're facing maybe you.
Speaker Change: Stiffer.
Speaker Change:
Speaker Change: Different pressure on the on the prime costs on food cost primarily.
Speaker Change: And to a certain extend on labor cost as well and we we reached a point where it was no longer sustainable to not take price. So we have to.
Speaker Change: He was a surgical approach.
Speaker Change: Take price on certain commodities that are a little bit more expensive these days.
Eric Lefebvre: Okay, so the pressure that you saw in the US corporate store line, to some degree that should alleviate with the pricing that Thank you, everyone, for joining us today. The portfolio is pretty broad. We have taken price on one of our brands already. There is some pricing going live now and there is some pricing scheduled also for later this quarter. It won't be fully reflected in this quarter, but it will be fully reflected in Q4. As far as creating a material lift on sales, I'm not sure. What we're going to try to do is direct consumers to where there are better profit margins for us.
Speaker Change: Okay. So the pressure that you saw in the U S. Corporate store line to some degree that should alleviate with the pricing.
Speaker Change: On EBITDA the pressured EBITDA you can see that alleviate to some degree next quarter as you implement the pricing is that a fair comment or are there other factors I should consider.
Speaker Change: Yeah, there is while the portfolio is pretty broad.
Speaker Change: And we're taking we're thinking price we have taken price on one of our brands already.
Speaker Change: There is some pricing going live now and there is some pricing scheduled also for later this quarter. So it won't it won't be fully reflected.
Speaker Change: In this quarter, but it will be fully reflected in Q4.
Speaker Change: As far as.
Speaker Change: Creating a.
Speaker Change: A material lift on sales I'm not sure.
Speaker Change: But what we're going to try to do is direct consumers may be two to where there is there is there is a better profit margins for us initially choose to go where there's not as much profit margins and it's going to be a little bit more expensive for them.
Eric Lefebvre: If they choose to go where there are not as much profit margins, it's going to be a little bit more expensive for them. Seeing a major difference on margins or same-store sales, I wouldn't necessarily go there. I think we're more in defensive mode here and protect what we have instead of being in a place where we can increase our margins at the expense of consumers. Okay, and just one last one here before I circle back, given the pressure you're seeing in the U.S. and exacerbating through the quarter. Can you comment on how that may impact the store pipeline, and could you see some of that pipeline, which you've indicated you're seeing some optimism in, fade its franchise needs, question the backdrop, if that's even a legitimate question?
Speaker Change: But as far as.
Speaker Change: Seeing a major difference on margins or our same store sales I wouldn't necessarily go there I think we are more in defensive mode here and protect what we have instead of.
Speaker Change: Being in a place where we can increase our margins at the expense of consumers.
Speaker Change: Okay, and just one last one here before I circle back given the pressure you're seeing in the U S.
Speaker Change: Exacerbating through the quarter can you comment on how that May impact the store pipeline and could you see some of that pipeline, which is indicated.
Speaker Change: Youre seeing some optimism in state its franchisees question the backdrop, if that's even a legitimate question Tom.
Speaker Change: I mean, we're not seeing it yet.
Eric Lefebvre: I mean, we're not seeing it yet. I'm not saying it's impossible that it would happen, but right now the pipeline is very strong. As I mentioned, we opened 35 locations just in the month of June, which is a great month. And then we're swinging hammers on a lot of stores as well. So, still feeling really confident about our pipeline of store openings. And I'm just looking at the new franchise we're awarding every day that are now 26 projects. And the pipeline is still strong and our franchising people are still delivering the number of stores that we're expecting.
Speaker Change: I'm not see I am not saying, it's impossible that it would happen, but right now the pipeline is very.
Speaker Change: Very strong as I mentioned, we opened 35 locations just in the month of June which is a great month.
Speaker Change: And then we're swinging hammers on a lot of stores as well so still feeling really confident about our pipeline of store openings in <unk>.
Speaker Change: I'm just looking at these new franchise, we are awarding everyday.
Speaker Change: <unk>.
Speaker Change: There are now 26 projects.
Speaker Change: And the pipeline is still strong in.
Speaker Change: Our our franchising people are still delivering the number of stores that we're expecting so.
Eric Lefebvre: So, I'm not saying it's impossible that there would be some delays or people with question marks in terms of investing in restaurants, but right now I'm not seeing it.
Speaker Change: I'm not saying, it's impossible that there would be some delays or people with question marks in terms of investing in restaurants with right now I'm not seeing it.
Speaker Change: Thank you.
Speaker Change: Thank you.
Michael Glen: And your next question comes from the line of Michael Glen from Raymond James, please go ahead. Hey, good morning, Eric. I'm just wondering if you can give us some insight into profitability across the banners. Is it kind of structured like the 80-20 rule, or is it something a little more concentrated on your top banners from a profitability perspective? So, I assume you're talking about profitability for the franchisor. Yes. Yeah, it's really the 80-20 rule for sure. Our larger brands will bring in more profits than the smaller ones. But the smaller ones accumulate because of the number of brands that accumulate to a material number.
Michael: Your next question comes from the line of Michael <unk> from Raymond James. Please go ahead.
Speaker Change: Hey, good morning, Eric.
Michael: I'm just wondering if you can give us some insight into profitability across the banners.
Speaker Change: The.
Speaker Change: Is it kind of structured like the 80 20 rule or is it something a little more concentrated on your on your top banners from a profitability perspective.
Speaker Change: So I assume you are talking about profitability for the franchise or.
Speaker Change: Yes, yes.
Speaker Change: Yes, it's really the 80 20 rule for sure.
Speaker Change: <unk> brands will bring in more profits than the smaller ones.
Speaker Change: But the smaller ones accumulate because of the number of brands and accumulate too to a material number but yes. There is definitely an 80 20 factor here.
Eric Lefebvre: But yeah, there's definitely an 80-20 factor here.
Speaker Change: Okay, and I think we've.
Michael Glen: Okay, and I think we've asked you this in the past, but what's the outlook for some of these, call it, the bottom 10% of brands, like is there, if you were to, are there some negative EBITDA brands in the portfolio that could lead to a lift? If you were to get rid of those. No, all our brands are profitable. We do make sure that our brands are profitable and some are marginally profitable. Some have highs and lows depending on where they are in their cycle. But divesting of brands would not result in higher profits. Now, there might be some.
Speaker Change: As to this in the past, but like what's the outlook for some of these call it the bottom.
Speaker Change: Bottom, 10% of brands like is there.
Speaker Change: If you were to.
Speaker Change: Are there some negative EBITDA brands in the portfolio that that could lead to a lift.
Speaker Change: If you were to get rid of those.
Speaker Change: No all our all of our brands are profitable.
Speaker Change: We do make sure that our brands are profitable.
Speaker Change: Some are marginally profitable.
Speaker Change: Some have heightened those depending on where they are in their cycle.
Speaker Change: But divesting of brands would not result in higher profits now there might be some.
Eric Lefebvre: One-offs here with locations that we could get rid of that that would result in higher profits. But as far as brands are concerned, no, all our brands are good.
Speaker Change: One offs here with locations that we could get rid of that debt.
Speaker Change: That would result in higher profits, but as far as.
Speaker Change: Brands are concerned.
Speaker Change: All our brands are good.
Speaker Change: Okay and.
Michael Glen: Okay, and I think you said there was a strategic decision to take on 50 Papa Murphy's locations. That was, is that post the quarter end, just to be clear? No, no, those are those happened mostly in late 2024 and early 2025. OK, those are those are stores that we talked about in previous quarters and they're. There's stores that have been... We're still in a place where we're losing money with these stores and investing in turning around the stores. We did re-franchise one location successfully after turning it to profit in the last few weeks. This is still the plan.
Speaker Change: Like you said there was a strategic decision to take on <unk>.
Speaker Change: Papa Murphy's locations that was is that post the quarter end just to be clear.
Speaker Change: No no those are those happened mostly in late 2024 and early 2025. Those are those are stores that we talked about.
Speaker Change: Previous quarters in there.
Speaker Change: There are stores that have been.
Speaker Change: Poorly operated in most cases, where we feel that the turnaround is possible. The turnaround does stay between nine and 12 months to realize.
Speaker Change: So we're still in a place where we're losing money with these stores and investing in and turning around the stores. We did re franchise one location successfully after turning it to profit.
Speaker Change: In the last few weeks.
Speaker Change: So this is this is still the plan, we want to turn them around and re franchise them and then repeat the cycle.
Eric Lefebvre: We want to turn them around and re-franchise them and then repeat the cycle.
Speaker Change: Okay and.
Michael Glen: Okay. And overall, like your view as MTY, as an operator of corporate stores, do you have, is that something that you think MTY is properly structured to do? Or do you need to add more resources there to your corporate store initiatives to add more cost? straightforward to your corporate stores to ensure they're successful in the long No, we have amazing people to run the corporate stores. So we're happy with where we are. We do have. I'm here to talk about the challenges with corporate stores here and there. I would say we've reinvested in the corporate store structure a little bit more in Canada in the past few months, because we didn't have that proper structure.
Speaker Change: Overall like your view as empty why as an operator of corporate stores do you have.
Speaker Change: Is that something that you think empty why is properly structured to.
Speaker Change: To do or do you need to add more resources there to your corporate store initiatives too.
Speaker Change: Add more cost.
Speaker Change: Just to be straightforward.
Speaker Change: To your corporate stores to ensure they are successful in the long term.
Speaker Change: No we have amazing people.
Speaker Change: To run the corporate stores. So we're happy with where we are we do have.
Speaker Change: Challenges with corporate stores here and there I would say we have reinvested in our corporate store structure, a little bit more antennas in the past few months.
Speaker Change: Because we didn't have that proper structure. It requires the company to be wired a little bit differently to run those corporate stores and we were purely wired as a franchisor in.
Eric Lefebvre: It requires the company to be wired a little bit differently to run those corporate stores, and we were purely wired as a franchisor. In today's environment, we have to be able to run some corporate stores, to, again, turn them around and refranchise them. In the U.S., we do have the proper structure. We have amazing people where we have a concentration of corporate stores in our BBQ Holdings portfolio and also in our Wetzel's portfolio. We have a little bit of a higher proportion, and we have great people to run the corporate store performance there. So, no need to reinvest, but there's always some churn, and where we need to invest is in really good quality restaurant managers, which are critical to our successes.
Speaker Change: In today's environment, we have to be able to to run some corporate stores to again turn them around and re franchise them.
Speaker Change: In the U S. We do have the proper structure, we have amazing people, where where we have concentration of corporate stores in our <unk> holdings portfolio and also in our <unk> portfolio we have.
Speaker Change: A little bit of a higher proportion and we have great people to run the corporate store performance there so no need to reinvest.
Speaker Change: But theres always some churn and where we need to invest is in really good quality restaurant managers.
Speaker Change: Which are critical to our successes, we can have all the great. The greatest people at the head office, but if we don't have someone.
Eric Lefebvre: We can have all the greatest people at the head office, but if we don't have someone's boots on the ground in the restaurant to run it, that makes it difficult. This is where there's a constant reinvestment, and there's a little bit more churn, as you know, in the restaurant staff. So, this is a continued effort.
Speaker Change: Boots on the ground in the restaurant to run it that makes it difficult and this is where there is a constant reinvestment and theres a little bit more churn as you know in the restaurant staff. So this is a continued effort.
Speaker Change: Okay.
Michael Glen: Okay, thank you for taking the question.
Speaker Change: Thank you for the question taking the question.
Speaker Change: Thank you and your next question comes from the line of Derek Postcard from TD Cowen. Please go ahead.
Derek Lessard: Thank you. And your next question comes from the line of Derek Lessard from TD Cohen. Please go ahead.
Derek Postcard: Yes, good morning, Eric I, just wanted to maybe touch on.
Eric Lefebvre: Good morning, Eric. I just wanted to maybe touch on your two geographies analogy. I was wondering if you had a sense as to what's behind the Canadian consumer resilience that's Yeah, great question. I don't know. All I can measure is traffic and whether they come to our restaurants or not. I'm not an expert into analyzing traffic. How and why the Canadian consumer is more resilient at the moment than maybe the U.S. But if you look at the past few years, we've certainly been a lot stronger in the U.S. than we've been in Canada. So there's maybe a little bit of that where Canada is a little bit more stable and on the upward trend, whereas the U.S.
Speaker Change: Your two geographies analogy I was wondering if you had a sense as to.
Speaker Change: What's behind the Canadian consumer resilience that Youre seeing.
Speaker Change: Yeah, Great question I don't know.
Speaker Change: All I can measure is.
Speaker Change: Traffic and whether they come to our restaurants or not.
Speaker Change: I'm not an expert into analyzing.
Speaker Change: How and why to continue to Canadian consumers more resilient at the moment than maybe the U S consumer, but if you look at the past few years, we've certainly been a lot stronger in the U S and we've been in Canada. So theres, maybe a little bit of that where again it is a little bit more stable than the upwards trend, whereas the U S is.
Eric Lefebvre: is probably taking a pause after many, many years of great results. Yeah, I was thinking along the lines, maybe it was due to, you know, the sort of the trade issues that we're having and more Canadians staying home, but that's okay. The EBITDA pressure in the U.S., you mentioned, was somewhat by design with taking in the 50,000. Papa Murphy stores. But in the press release, you did say that you were actively evaluating strategic options, including accelerating franchising efforts with one and broader transformative changes with the other. So I guess, number one, what's the other banner in question in those remarks?
Speaker Change: Probably taking a pause after many many years of great results.
Speaker Change: Yes, I was thinking along the lines, maybe it was due to the.
Speaker Change: Sort of the trade issues that we're having in more Canadians staying home, but that's okay. That's fair.
Speaker Change:
Speaker Change: The.
Speaker Change: The EBITDA pressure in the U S. You've mentioned was somewhat by design, we're taking in the 50.
Speaker Change: Papa Murphy stores, but in the press release, you did say that you were actively.
Speaker Change: Evaluating strategic options, including accelerating franchise zing efforts with with one in broader transformative changes with the other so I guess number one what's the other banner in question in those remarks and number two maybe you could just add some color around that the transformative changes you're talking about.
Eric Lefebvre: And number two, maybe you could just add some color around that the transformative changes you're talking about. Yeah, there's there's there's a few brands. Obviously, Papa Murphy's, we took back 50 stores. So that's that's pretty big transformation for the brand. And we we are learning as we're doing it. But certainly. So, we have a big effort on turning these stores around and showing what we can do and demonstrating the business model. In other brands that are concerned by some more fundamental changes, you're looking at, for example, Barrio Queen, which is a small chain with few restaurants, but they're highly profitable restaurants, and variations in their profitability becomes a little bit more material for that reason.
Speaker Change: Yes.
Speaker Change: Theres a few brands.
Speaker Change: Obviously Papa Murphy's we took back 50 stores, so that's pretty big transformation for the brand.
Speaker Change: And we are learning as we are doing it but.
Speaker Change: Certainly.
Speaker Change: Big effort on turning these stores around and showing what we can do.
Speaker Change: Demonstrating the business model.
Speaker Change: And other brands that are that are concerned by by some more fundamental changes youre looking at for example burial Queen.
Speaker Change: Which is it's a small chain with fewer restaurants, but they are highly profitable restaurants and variations in their profitability becomes a little bit more material for that reason.
Eric Lefebvre: So, we are in the middle of some franchising efforts here. We've never had a franchisee for Barrio Queen, and we're curious to see what a franchisee would do with these stores. Unfortunately, we had a little bit of delays in franchising. We wished it was done already, but we will franchise a few stores. For Barrio Queen, we also hired an external firm to come and assess our operations to see why our sales are declining, where is our traffic going, and how can we win back those customers and win back this traffic. The alcohol mix is a little bit higher at Barrio Queen, so I suspect that that probably plays a part, but there's probably something else as well.
Speaker Change: So we are.
Speaker Change: In the middle of some franchising efforts here, we've never had a franchisee for burial Queen and we're curious to see where the franchisee would do with these stores. Unfortunately, we had.
Speaker Change: We had a little bit of delays in franchising, we wish there was done already.
Speaker Change: So we will franchise a few stores.
Speaker Change: For burial Queen we also hired.
Speaker Change: An external firm to come in assess our operations to see.
Speaker Change: Why our sales are declining where whereas our dressy going in the house can we win back those customers and win back with traffic.
Speaker Change: <unk> is a little bit higher barrier Queen so I suspect that probably plays apart, but there's probably something else as well. So we're ready to implement some transformative changes. We've also changed the management team for some of our brands, including variably.
Eric Lefebvre: So, we're ready to implement some transformative changes. We've also changed the management team for some of our brands, including Barrio Queen. So, we're taking steps into figuring out what's happening with this brand specifically and where we go from there. There are other brands that are feeling a little bit more pressure, and I'll name, for example, Granite City. Again, that's a smaller chain. They're all corporate stores, very high proportion of alcohol. We're a brewery, so obviously that's what we do. So, feeling a little bit more pressure at the moment. We are also in the middle of implementing some changes there to try to regain our customers and win back those customers.
Speaker Change: So we are doing certain number we're taking steps to.
Speaker Change: Frigging figuring out what's happening with this brand specifically in.
Speaker Change: Where we go from there.
There's other brands that are feeling a little bit more pressure and I'll name for example, granite city again, that's a smaller chain, they're all corporate stores.
Speaker Change: Very high proportion of.
Speaker Change: Alcohol, where brewery, so obviously thats what we do.
Speaker Change: So feeling a little bit more pressure at the moment.
Speaker Change: So we are also in the middle of implementing some changes there too.
Speaker Change: To try to regain our customers and win back those customers and whatever it takes if it's if we need to win them back or using other products than than beer, then we'll do it.
Eric Lefebvre: Whatever it takes, if we need to win them back using other products than beer, then we'll do it. So, the team is actively looking at solutions for these brands.
Speaker Change: So the team is actively looking at solutions for new brands.
Eric Lefebvre: Okay, thanks for that, that color. And I guess on the Papa Murphy's, how far down the road or along the process do you think you are in, in, you know, getting them back up to profitability and then perhaps reframe? Yeah, we repurchased a few clusters of stores. So I'll go cluster by cluster. There's the first one we reacquired last year is at break-even now. So we're pretty much there. And then the other two clusters came in at a different timing. We're probably in the.
Speaker Change: Okay. Thanks for the color and I guess on the Papa Murphy's how far down the road or along the process do you think you are in.
Speaker Change: <unk>.
Speaker Change: Getting them back up to profitability and then perhaps refranchising them.
Speaker Change: Yes, we repurchased a few clusters of stores. So I'll go cluster by clusters Theres. The first one we reacquired last year as a breakeven now so.
Speaker Change: Pretty much there.
Speaker Change: And then the other two clusters came in at a different timing.
Speaker Change: We're probably in this six to nine months period, now and I'm thinking, it's probably going to take nine to 12 before we get we get them to breakeven.
Speaker Change: Somewhere poorly manage for a longer period of time, so it takes longer to convince consumers to come into the door. Once again and win back customers is more difficult than when you open a store and start fresh.
Operator: Hello, everyone.
Rene Zamparo: My name is Rene Zamparo, and I'm the CEO of Zamparo Food Group Inc. I'm here to talk to you about how we've been able to get to where we are today, and how we've been able to get to where we want to be. We've been able to get to where we want to be. We're there at break-even with these stores, and we're going to be successful. Okay.
Speaker Change: So we're probably three to six months away from being able to say where we are.
Speaker Change: Where they are at breakeven with these stores and we're going to be successful.
Speaker Change: Okay, and maybe one final one on weather.
Eric Lefebvre: And maybe one final one on weather. Just curious if there's any impact on, I guess, Cold Stone Creamery, but frozen tree sales in the Northeast. It was pretty cold in the lead up to summer here, or it took longer for summer to arrive. Just curious if you had any weather impact. Yeah, we're monitoring weather for sure, and you know, as much as I don't like to blame weather for everything, we sell ice cream, so it does have an incidence that's maybe higher than other restaurants. But yeah, northeast was a little bit more challenging, and also the timing of weather events was bad, and that includes Canada.
Speaker Change: Just curious if there's any impact on.
Speaker Change: I guess cold stone creamery, but frozen treat sales in the northeast it's been it was pretty cold.
Speaker Change: In the lead up to summer here, where it took longer for summer to arrive just curious if you had.
Speaker Change: Any weather impacts on the business.
Speaker Change: Yes.
Speaker Change: Monitoring whether for sure.
Speaker Change: And.
Speaker Change: As much as I don't like to blame weather for everything we sell ice cream. So it does have an incidence thats may be higher than other restaurants.
Speaker Change: But the northeast was a little bit more challenging.
Speaker Change: Also the timing of weather events was bad and that includes Canada.
Eric Lefebvre: When it's raining on Saturdays and Sundays and sunny on Mondays and Tuesdays, it doesn't necessarily help our business. So we do feel some impact on the weather, but probably... You know, weather happens every year, so we'll take it over a longer period of time to assess and hopefully we have a mild hurricane season this year and not too many wildfires impacting some of our some of our brands. Yeah, so weather is a thing, and obviously, when you sell frozen treats, it does have a bigger impact, but hopefully it stabilizes and we're better now.
Speaker Change: When it's raining on Saturdays, and Sundays, and Sunny on Mondays and Tuesdays it doesn't necessarily help our business.
Speaker Change: So we do feel some.
Speaker Change: Impact on weather, but.
Speaker Change: Yeah.
Speaker Change: Whether it happens every year, so we'll take it over a longer period of time to assess and hopefully we have.
Speaker Change: And mild hurricane season this year.
Speaker Change: Too many wildfires impacting some of our.
Speaker Change: All of our brands so.
Speaker Change: Yes, so whether whether its a thing and obviously when you sell a frozen treats it does have a bigger impact, but hopefully it stabilizes we're better now.
Speaker Change: Okay. Thank you Eric.
Eric Lefebvre: Okay. Thank you, Eric. Thank you.
Speaker Change: Thank you and your next question comes from the line of Jin from barrel from Scotiabank. Please go ahead.
Jen Zamparo: And your next question comes from the line of Jen Zamparo from Scotiabank. Please go ahead. Thank you.
Jin: Thank you good morning, I wanted to follow up on the strategic alternatives comment for your corporate banners or some of them.
Eric Lefebvre: Good morning. I wanted to follow up on the strategic alternatives comment for your corporate banners or some of Are potential brand divestitures among the alternatives? Nothing's off the table. So we're We're certainly not aggressively trying to market our brands. But nothing's off the table. I think it's part of a... A reasonable capital allocation strategy to look at acquisitions and divestitures, and that's certainly part of discussions we're having. We're not aggressively marketing any of our brands, but it's not impossible it would happen one day.
Jin: Our potential brand divestitures among the alternatives that you are considering at the moment.
Jin: Nothing is off the table.
Jin: So we are.
Jin: We're certainly not aggressively trying to market our brands.
Jin: But nothing's off the table I think it's part of our.
Jin: A reasonable capital allocation strategy to look at acquisitions and divestitures.
Jin: And that's certainly part of discussions we're having we're again, we're not aggressively marketing any of our brands, but it's not impossible. It would happen one day.
Jin: Alright, okay.
Eric Lefebvre: Okay, and coming back to the corporate store market. Independent of the price increases you talked about, I think you said in your prepared remarks that the nine-ish percent level you're at now, that that represents a reasonable number over the medium term. Is that a fair interpretation? Like, should we expect flat-ish margins over the next? Yeah, if you remember last year when we realized the margins we did in Q2, I did mention that we were on the very high side and people were asking me if there's further margin expansion and I remember saying no, we're probably a little bit too high.
Jin: And coming back to the corporate store margins.
Speaker Change: Independent of the price increases you talked about I think you said in your prepared remarks that the nine ish percent level, you're at now that that represents a reasonable number of over the medium term.
Speaker Change: Is that a fair interpretation like should we expect flattish margins over the next couple of quarters.
Speaker Change: Yes.
Speaker Change: If you remember last year when we.
Speaker Change: When we realize the margins we did in Q2 I did mentioned that we were on the very high end.
Speaker Change: We'll ask we're asking me if there is further margin expansion and I remember, saying no. There is this is we're probably a little bit too high so.
Eric Lefebvre: So last year we were probably a little bit too high, this year we're a little bit lower for various reasons, but I do think that being around the 9% is a reasonable place to be. I mean, there's going to be variations in our margins, whether they're up or down in the future, both can happen. But I think over a longer period of time, if we're in that 9% range, we're probably in the right place, given our portfolio, where we have some stores that are losing money that we're trying to turn around and some stores that are vastly profitable.
Speaker Change: Last year, we were probably a little bit too high this year, we're a little bit lower.
Speaker Change: Various reasons, but I do think that being.
Speaker Change: Around the 9% is a reasonable place to be.
Speaker Change: Sure.
Speaker Change: I mean, there's going to be variations in our margins, there, whether they're up or down in the future.
Speaker Change: Can happen, but I think over a longer period of time, if we're in that 9% range, we're probably in the right place given our portfolio, where we have some stores that are losing money that we're trying to turn around in some stores that are vastly profitable.
Speaker Change: Mhm, Okay. That's helpful.
Eric Lefebvre: OK, that's helpful. On the stored network, the commentary on openings, particularly in June, that's encouraging. I wonder about your sense of what closures might look like over the next few quarters. I know these can be lumpy and tough to predict, but any sense of how closures might evolve in the rest of twenty five versus the last? Yeah, there's always going to be some closures given the size of our network. So I do anticipate there's going to be more. Where we were, I think, in Q2 was probably a reasonable place, unfortunately. I'd like to close fewer, but this is probably what we should expect on average for the next few quarters.
Speaker Change: On the store network the commentary on openings, particularly in June that's encouraging I wonder about your sense of what closures might look like over the next few quarters. I know these can be lumpy and tough to predict but any sense of how closures might evolve and the rest at 25 versus the last couple of years.
Speaker Change: Yes.
Speaker Change: Theres always going to be some closures given the size of our network. So I do anticipate there is theres going to be more where we were I think in Q2 was.
Speaker Change: This is probably a reasonable place unfortunately, I'd like to close fewer but.
Speaker Change: This is this is probably what we should expect.
Speaker Change: On average.
Speaker Change: For the next few quarters.
Eric Lefebvre: So I don't expect that we would close dramatically fewer stores or dramatically higher stores unless there's a surprise out there. So I think the Q2 number is probably a reasonable place to pull an average.
Speaker Change: So I don't expect that we would close dramatically fewer stores or dramatically higher stores unless theres a surprise there.
Speaker Change: So I think I think the Q2 number is probably a reasonable place.
Speaker Change: To pull an average.
Speaker Change: Okay understood and then one last one and more broadly on the industry, we've lapped the launch of.
Eric Lefebvre: Understood.
Eric Lefebvre: And then one last one and more broadly on the industry. We've lapped the launch of, I would say, an increased focus on price. value offerings from some of the larger industry players, particularly within quick. Do you get a sense that the industry will start to focus more on profitability rather than traffic and pricing anytime soon or is the consumer not in the right state for your competitors to maybe Yeah, I'm not sure. Yeah, I think there's less intensity and certainly the The spotlight is less on just providing these crazy value offers but they're still out there and a lot of people are still focusing on traffic rather than profitability for various reasons.
Speaker Change: I would say an increased focus on price promotions and value offerings from some of the larger industry players, particularly within quick service do you get a sense that the industry will start to focus more on profitability rather than traffic and pricing anytime soon or is the consumer not in the right state for for your competitors to maybe shift their positioning.
Speaker Change: On messaging.
Speaker Change: Yes, I'm not sure, yes, I think theres less intensity.
Speaker Change: Certainly.
Speaker Change: The spotlight theres less on just providing these crazy value offers but they're still out there.
Speaker Change: A lot of people are still focusing on traffic rather than profitability.
Speaker Change: For various reasons.
Eric Lefebvre: So, I don't think that's going to change that much in the foreseeable future. There is less intensity on very aggressive price promotions than there was a year ago but it's still a thing.
Speaker Change: So I don't think thats going to change that much in the foreseeable future there is less intensity.
Speaker Change: Im very aggressive price promotions and there was a year ago, but it's still a thing.
Speaker Change: Got it okay I appreciate the color. Thank you.
Eric Lefebvre: Okay, I appreciate the call. Thank you.
Speaker Change: Thank you and your next question comes from the line of Freeland, Glenn <unk> from RBC capital markets. Please go ahead.
Friendland Concord: And your next question comes from the line of Friendland Concord from RBC Capital Markets. Please go ahead. Hey, good morning. Thanks for taking my questions. I guess just to start off, I'm curious from your perspective, how just the macro environment is evolving. I think last quarter, you mentioned Q2 started off stronger, and then in the press release, you do kind of call out macro headwinds as being short term. So could you just shed some light on how things progressed through the quarter and kind of the cadence of the performance in the US and just whether that broad-based pressure is being sustained so far into Q3?
Glenn Freeland: Hey, good morning, Thanks for taking my questions I guess just to start off I'm curious from your perspective, how is the macro environment is evolving I think last quarter. You mentioned Q2 started off stronger and then in the press release, you can kind of call out macro headwind thats being short term so.
Glenn Freeland: Could you just shed some light on how things progressed through the quarter and kind of the cadence of the performance in the U S and.
Glenn Freeland: Just whether that broad based pressure is being sustained so far into Q3.
Glenn Freeland: Yeah, I mean, we.
Eric Lefebvre: Yeah, I mean, we went from choppiness to more sustained drops during Q2. What we're seeing so far in Q3, and I only have one month of data, but it seems to be more of the same, unfortunately. So I'm not seeing a crazy reversal in June. So it's not worse, but it's also not better. Hopefully, the end of the summer will turn to the better, but right now we don't have visibility on a drastic change one way or another.
Glenn Freeland: Went from from Choppiness to more sustained drops during during Q2.
Glenn Freeland: What we're seeing so far in Q3 and I only have one month of data, but it seems to be more of the same.
Glenn Freeland: Fortunately, so I'm not seeing.
Glenn Freeland: The crazy reversal in June.
Glenn Freeland: So it is not the worst but it's also not better.
Glenn Freeland: Hopefully the end of the summer will turn to the better but right now were we don't have visibility on the drastic change one way or another.
Glenn Freeland: Okay.
Glenn Freeland: Okay got it and then just on the newly passed Republican Bill just targeting cuts to snap can you just remind us what Papa Murphy's system sales exposure to that program ends.
Eric Lefebvre: Got it. And then just on the newly passed Republican bill just targeting cuts to SNAP, can you just remind us what Papa Murphy's system sales exposure to that program is? Yeah, we're at 9%. Okay, that's helpful. And then just lastly, I know in your outlook, just the expectation for CapEx to be lower this year, you know, certainly a meaningful step down so far in the first half. So would that be a good run rate for the remainder of the year? Or should we expect any kind of step up? No, it's a good run rate. I don't anticipate a big step up on CapEx.
Glenn Freeland: Yes.
Glenn Freeland: We're at 9%.
Glenn Freeland: Yeah.
Glenn Freeland: 99 out of our sales are snap.
Glenn Freeland: Okay. That's helpful and then just lastly.
Glenn Freeland: And then your outlook this expectation.
Glenn Freeland: Capex to be lower this year.
Glenn Freeland: Certainly a meaningful step down so far in the first half so.
Speaker Change: Would that be a good run rate for the remainder of the year or should we expect any kind of step up.
Speaker Change: No. It's a good run rate I don't anticipate a big step up on Capex, we do have some spending left on SAP.
Eric Lefebvre: We do have some spending left on SAP. There's probably about $2 million left between now and the end of the year on SAP, but for the rest on CapEx, I don't anticipate any major... changes from the trend of Q1 and Q2.
Speaker Change: There's probably about $2 million left.
Speaker Change: Between now and the end of the year on our SAP, but for the rest on Capex I don't anticipate any major.
Changes from from the trend of Q1 and Q2.
Speaker Change: Okay perfect. Thank you I'll pass the line.
Eric Lefebvre: Okay, perfect. Thank you.
Operator: I'll pass the line. Thank you. Once again, should you have a question, please press star, then the number 1 on your telephone keypad.
Speaker Change: Thank you once again just you have a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Michael Glen from Raymond James. Please go ahead.
Michael Glen: Your next question comes from the line of Michael Glen from Raymond James. Please go ahead.
Michael Glen: Hey, Eric.
Eric Lefebvre: Hey, Eric, just wondering how you balance capital allocation between say, given where the share price is given, how would you capital allocation between an SIB or substantial issue bid versus M&A? Yeah, that's a question we we talk about all the time at the board, so... I mean, we weigh all these alternatives that we have, the SIB is not impossible, the M&A is also not impossible. Right now, we're repaying debt a little bit more aggressively in the last few weeks. So we're seeing that the interest rates are not going down as fast in the U.S. as we thought they would.
Speaker Change: Eric just wondering.
Speaker Change: How you balanced capital allocation between say, given where the share prices given.
Speaker Change: How would your capital capital allocation between.
Speaker Change: So it'd be our substantial issuer bid versus M&A.
Speaker Change: Yes, that's a question we talk about all the time at the board.
Speaker Change: So.
Speaker Change: I mean, we weigh these all of these alternatives that we have at ESI is not impossible. The M&A is also not impossible.
Speaker Change: Right now we are repaying debt a little bit more aggressively in the last few weeks.
Speaker Change: So we're seeing that the interest rates are not going down as fast and in the U S. As we thought they would so were being a little bit more depth building, our treasure chest and trying to bring our leverage down.
Eric Lefebvre: So we're repaying a little bit more debt, building our treasure chest and trying to bring our leverage down. But I would say SIB is certainly a possibility, and M&A is certainly a possibility like any other capital allocation strategy.
Speaker Change: But I would say, it's certainly a possibility and M&A is certainly a possibility like any other capital allocation strategy.
Speaker Change: And how would you characterize right now the M&A.
Eric Lefebvre: And how would you characterize right now? The M&A environment, do you see a favorable M&A environment? Are sellers reasonable with their assumption? In most cases, no, they're not reasonable, and that's why I haven't seen MTY do M&A recently. We need the right transaction at the right price. We haven't been able to cross the finish line with any of these transactions we found to be in that category. And a lot of what we see is fixer-uppers that we're not necessarily looking for at the moment. And we're also seeing a lot of good networks that are commanding very, very high multiples and that we're not necessarily willing to pay the price for...
Speaker Change: Hey environment do you see a favorable M&A environment, our sellers are reasonable with their assumptions.
Speaker Change: In most cases, no theyre not reasonable and Thats why that is.
Speaker Change: Why you Havent seen empty why do M&A recently, it's just.
Speaker Change: We need we need the right transaction at the right price.
Speaker Change: We haven't we haven't been able to cross the finish line with any of these transactions we found to be in that category.
Speaker Change: A lot of what we see as fixer uppers that we're not necessarily looking for.
Speaker Change: At the moment and we're also seeing a lot of.
Speaker Change: Good networks that are commending very very high multiples and that were not necessarily willing.
Speaker Change: Are willing to pay the price for.
Eric Lefebvre: We don't want to pay a high price for the wrong reasons. So we remain disciplined in our approach.
Speaker Change: We don't want to pay a high price for the wrong reasons. So we remain disciplined in our approach.
Speaker Change: Okay and my last one the Canadian the Canadian ERP implementation. So what are the what is the additional functionality or benefits to M. T Y from this.
Eric Lefebvre: Okay and my last one, the Canadian ERP implementation, so what is the additional functionality or benefits to MTY from this implementation? Yeah, well, first, it's the same ERP across all our networks, so we did the rollout in Canada first, but we just needed to go by division so we don't jeopardize the entire thing if it doesn't work. It was successful, but it's not an easy thing to do. So one of the benefits is we're going to remove a lot of these old, dated systems that are end-of-life or past-end-of-life that are vulnerable, and also that are not capable of...
Speaker Change: Implementation.
Speaker Change: Yeah, well the first stab its the same ERP across all our networks. So we did the rollout agenda first but.
Speaker Change: It's we just needed to go by Division. So we don't jeopardize the entire thing if it doesn't work.
Speaker Change: It was successful but there is.
Speaker Change: It's not an easy thing to do.
Speaker Change: So one of the benefits is where we're going to remove a lot of these old data systems that are end of life or past end of life.
Speaker Change: Our vulnerable.
Speaker Change: Also that are not capable of.
Speaker Change: Of producing the information, we need or accumulating the information we need to run our business in today's environment. So what we're seeing is.
Eric Lefebvre: of producing the information we need or accumulating the information we need to run our business in today's environment. So, what we're seeing is a system that's going to be a lot more flexible, a lot... A lot more robust also to take a lot of data and to spit out a lot of data when we need it as well. So, just better systems, state-of-the-art systems that will enable a lot of different things and unlock a lot of potential for MTY, while also reducing our vulnerability to older systems that needed to be changed anyway.
Speaker Change: A system, that's going to be a lot more flexible a lot.
Speaker Change: A lot more robust also to take a lot of data.
Speaker Change: To spit out a lot of data when we when we need it as well so.
Speaker Change: Just a better system is state of the art systems that will that will enable a lot of different things and unlock a lot of potential for MTI.
Speaker Change: While also reducing our vulnerability to older systems that needed to be changed anyways.
Eric Lefebvre: Okay, thank you. There are no further questions at this time. This concludes today's call. Thank you for participating. You may now disconnect.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: No further questions at this time. This concludes today's call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: No.
Speaker Change: Yes.