Q2 2025 A and W Revenue Royalties Income Fund Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the A&W Food Services of Canada. Second quarter 2025 Financial resolves conference call at this time, all lines are in less than only mode.
Speaker Change: Calling the presentation. We will conduct a question and answer session. If at any time during this call, you're requiring immediate assistance, please press Start zero for the operator. This call is being recorded on Thursday 24th of July 2025. We would now like to turn our conference over to Susan segno, please go ahead.
Today, I'm Susan senal. I'm president and CEO of A&W Food, Services of Canada Kelly blankstein. Our Chief Financial Officer is unable to attend our call today. So I'm joined by Lisa marzo a W's Director of Finance.
Speaker Change: Today we're presenting AWS results for the second quarter of fiscal 2025, which was a 12-week period that ended on June 15th 2025.
Speaker Change: As a reminder remarks on this call may include our expectations future plans and intentions. That may constitute forward-looking information,
Speaker Change: Touch forward-looking information is based on estimates and assumptions made by management regarding among other things, the general economic and geopolitical conditions as well as the competitive environment.
Speaker Change: Actual results May differ materially from the conclusions.
Speaker Change: Forecasts or projections expressed by the forward-looking information. We refer you to our Q2 2025 mdna and our 2024, annual information form, which included a summary of the material assumptions, as well as risks and factors that could affect aw's future performance and our ability to deliver on the forward-looking,
Speaker Change: Information.
We also refer you to Food Services with Q2 20225 mdna for definitions and reconciliations of any non-ifrs Financial measures mentioned on today's call.
Speaker Change: Our Q2 earnings release financial statements mdna, as well as our 2024, annual Information Form are available on Cedar plus, as well as our investor website at triple w investors.
Speaker Change: We're pleased to report that A&W had a stronger second quarter building on the positive momentum from q1.
Speaker Change: And we achieved system sales growth of 3.4%.
Speaker Change: And uh, same store sales growth of 1.6% in Q2.
Speaker Change: we also successfully opened 4 new A&W Restaurants during the quarter, bringing our year-to-date openings to 11
Speaker Change: Discontinued growth demonstrates and strength of our brand and the effectiveness of our strategic initiative even amid ongoing economic uncertainties.
Speaker Change: Our focus on providing exceptional value continues to resonate with guests.
Speaker Change: The 499 Burger promotion which ran during Q2 was significant success and contributed to our positive guest counts.
Speaker Change: We continue to see demand for a value offerings and this will remain a key part of our marketing strategy, moving forward.
Speaker Change: We remain strategically focused on growing restaurant. Counts across Canada with a particular emphasis on, Ontario and Quebec.
Speaker Change: And through our partnership with Suncor.
Speaker Change: 6 of our 11-year date openings are in the important markets of Ontario and Quebec. And 4 of those are a partnership with Suncor.
Speaker Change: Commitment to expanding our footprint across Canada.
Speaker Change: Regarding credit, we continue to make progress on our development plan.
Speaker Change: In Q2 2025, we signed a lease for a second.
Speaker Change: Cut location in downtown Toronto. The new location is expected to open in late 2025.
We also continue to actively pursue additional sites for new prep locations, in Vancouver, Toronto and Montreal. And we anticipate future expansion to primarily occur under a franchise model.
Speaker Change: We also continue to see the sales of drip coffee and espresso baked space to drinks, sold in A&W Restaurants to grow following the roll out of prep, coffee to all A&W Restaurants in September 2024.
Speaker Change: We launched aew rewards our new loyalty program.
Speaker Change: 222025.
Speaker Change: This initiative available exclusively through our aew mobile app allows guests to earn points on every order which can then be redeemed for free menu items.
Early results have been encouraging and are showing an increase in app downloads and usage.
Speaker Change: We believe this program will be a driver of future system, sales growth by encouraging more frequent visits and higher average checks from our loyal guests.
Speaker Change: Furthermore, we are making excellent progress on the systemwide implementation of our new 5-star operating system.
Speaker Change: As of today approximately 800 AMW restaurants have completed, the 5-star training and onboarding program and the remaining restaurants are expected to complete this training and onboarding program by the end of this year.
Speaker Change: The early results are positive demonstrating a more consistent system, that enhances food quality, guest service and adherence to standards leading to a notable Improvement in speed of service and guest feedback.
Speaker Change: We also continue to progress on our strategic Target of achieving 30.
Franchisee profitability over a 5-year period.
Speaker Change: We are a year and a half through that 5-year period and are on track to achieving our Target.
Speaker Change: We originally anticipated franchisee profit improvement with stem from both sales growth and expense efficiency. So, we're particularly satisfied with this outcome, considering the more challenging sales environment.
With that, I will now turn things over to Lisa who will take us through aw's financial highlights for Cutie.
Lisa: Thank you, Susan and good afternoon everyone. I will start off by giving a high level overview of our results for the second quarter of fiscal 2025. And then you have a brief update on our results here to date through Q2
Lisa: A&W achieve top and bottom line growth in Q2 2025, total revenue, increased by 4 and a half million, or 7% to 68.8 million driven primarily by a 4.4 million increase in franchising Revenue.
Lisa: This increase in franchising revenue is largely attributed to the opening of more TurnKey A&W Restaurants during the quarter and a 3.4% increase in system sales to 452.3 million system. Sales is the key driver of our revenue from service fees contributions to the National advertising fund and revenue generated from the distribution of food and supplies.
Lisa: Our same Source sales growth for Q2 2025 was 1.6% a significant improvement from 0.3% in Q2 2024, and was due to an increase in both, average check size and guest counts.
An increase in average check size is partly attributed to industrywide inflation, affecting good services and labor. While the increase in guest counts was largely driven by the success of our marketing campaigns including a team Burger promotion mentioned by Susan earlier on this call.
Susan Segno: We also saw continued positive sales volume at our corporate prep restaurant.
Susan Segno: Operating costs for Q2 2025 increased by 3 and a half million or 11% to 36 million. This increase is largely attributable to the increased marketing related costs, incurred by the national advertising fund.
Susan Segno: With expenses, exceeding contributions to the National advertising fund, by 2.4 million in Q2, due to timing differences that will reverse and subsequent periods.
Susan Segno: The remaining increase in operating costs correlates to the rise in franchise Revenue. Specifically the increase in cost of sales related to the turnkey restaurants open in the quarter.
Susan Segno: General and administrative expenses decreased by half a million or 4% to 11.1 million in Q2. 2025, this decrease is primarily due to the A&W National Convention, being held in Q2 2024, which is a banquet 5
Susan Segno: Expense on the Strategic combination in October 2024.
Susan Segno: It's important to note that our Q2 2024 results included a royalty expense of 13 million, which is no longer applicable.
Net Finance expense increased by 3.3 million in Q2 2025 primarily due to the increased average debt balance from financing the transaction in October 2024.
Susan Segno: We also recognize an unrealized loss of 0.8 million, on our interest rates swap, which is entered into in Q2, 2025 to manage in interest rate, risk associated with our credit facility, this is a non-cash expense.
Susan Segno: Adjusted evida increased by 4 million or 18% to 25 and a half million per 22 2025 our adjusted. Even margin also improved to 37.1% in Q2 2025 up from 33.4% in Q2 2024,
Susan Segno: The Improvement in adjusted evida is primarily attributable to the increase in revenue, and the decrease in general and administrative expenses.
Susan Segno: Now, I will briefly touch on how we're performing on our key reporting metrics here to date.
Susan Segno: For the 24- week. Year-to-date, period, end of June 15th, 2025 system, sales increased by 2.7% to 849.2 million and total revenue increased by 6% to 129.9 million.
Susan Segno: Income before taxes, grew by 48%, to 29.6 million in adjusted evaa increased by 10% to 44.9 million.
Susan Segno: We've opened 11 new A&W Restaurants here to date. Um, and we've also declared cash dividends totaling. 96 cents per share during the year to date period.
Susan Segno: We remain committed to maintaining the current level of quarterly dividends for the foreseeable future.
Susan Segno: during our q1 call, we updated our 2025 outlook for adjusted, evida systems of sales growth, since our sales growth and total units and there's been no change to the Outlook since
Susan Segno: I'll now hand it back over to Susan for closing remarks.
Susan Segno: Lisa, in summary, we're pleased with our comparatively stronger performance in Q2 and our progress here to date.
Susan Segno: Our ability to achieve top and bottom line growth. Despite ongoing. Economic headwinds is a testament to the resilience of the aew brand, the strength of our franchise system, and the dedication of our franchises and team members.
Susan Segno: Our strategic initiatives, including the successful launch of the aew rewards.
Susan Segno: And ongoing implementation of our 5-star operating system. Our enhancing the guest experience and driving operational efficiencies across our Network.
Susan Segno: We're confident that these initiatives combined with our continued focus on menu Innovation and new restaurant growth, particularly in strategic markets and through our partnership with Suncor will continue to fuel our sustained growth.
I'll also take the opportunity to mention and W's and annual Burgers to be Ms. Day that is coming up on August 21st.
Susan Segno: For every teen Burger purchase that day $2, will be donated to the MS Society to support Canadians living with MS.
Susan Segno: We appreciate the dedication of our employees, franchises and partners and we thank our shareholders for their continued support.
With that, I'll turn the call over to the operator for any questions.
Susan Segno: Thank you.
Susan Segno: Ladies and gentlemen, we will now begin the question and answer session.
Susan Segno: So you have a question, please press star, followed by the number 1 on your Touchstone phone and you will hear a prompt that your hand has been raised.
Susan Segno: To the far from the policy process. Please press star followed by the number 2.
Susan Segno: If you're using a speaker phone, make sure to list your handset before pressing any keys.
Your first question comes from the line of Mark pathy from cidc. Please go ahead.
Mark Pathy: Yeah, thanks. And, uh, good afternoon. Um, I wanted to ask maybe first
Mark Pathy: About the consumer. Um, how the consumer demand profile has evolved?
And when you sort of look at their behavior and parts that out, so you get the sense that value is more or less of a focus for them than it was, you know, say 6 months ago. And I apologize if I have a bad connection, I'm getting some feedback.
Mark Pathy: Um, thanks Mark.
Mark Pathy: Yeah, I can comment.
Mark Pathy: Very, very strong.
Caution with regard to the disposable income that that remains in light of the uncertainties that they're hearing about and seeing for jobs and all kinds of some issues that sort of affect the consumer on a day-to-day basis.
Okay, thanks. Um, and I wanted to ask, I mean you you highlighted the teen Burger, the success of the Teen Burger promotion in your press release. Uh, you commented on a couple times here on the call, um, just helping you could hoping you could frame that uh, in terms of materiality to the quarter. Um, and is is that specific promo, something that you would look to um deploy again or how do you sort of think about that specific promotion.
Mark Pathy: well, I think I mean,
Mark Pathy: I think promotion is an important part of our marketing campaigns, and our calendar, and bringing some some novelty. And some interest is really the goal of that.
Mark Pathy: So we were very pleased in terms of context around the whole quarter. It was a 2 week long promotion so it um it seemed to provide a little bit of momentum and energy beyond the 2 weeks if that's maybe the nature of your question. But it was certainly positive and 1 of the um I think key drivers of positive game store sales growth during the that quarter.
Each time you run any kind of activity, we always think about, you know, should we run it again? Is that is that the appropriate thing to do? And and that's, um, certainly under consideration for us as we sit here today
Mark Pathy: and pardon my uh lack of sort of history with this, but when was the last time you ran that promotion,
Mark Pathy: Like, is that an annual thing, or, or or when did have you run it?
Mark Pathy: Had that exact promotion. This was the first time that we ran it other than in tests. We do some Market testing to see how different um prices might resonate or the right type of promotion to to um, give our our guests.
Mark Pathy: So other than the tests that we ran in a limited number of restaurants, several months ago,
we've not run 499. We've had other team, Burger promotions in the past and other promotions where the price point on Burgers but not this particular 1. So that's why we're particularly happy to have something new in our repertoire that has resonated and created a lot of positive energy for um visits.
Yeah. Okay, helpful, thank you for that. Um, I also wanted to ask about beverage attachment, um, because that wasn't something that you specifically touched on. I know it's an important, uh, you know, longer term driver for you. And obviously, you've invested to set that up. I'm curious how that's progressing and if you how you think about that in the context of, um, you know, this sort of value oriented consumer environment that we're in.
I mean, anytime you run, instead of a price promotion on a particular item, it's always it can sort of distort what, um, other other kinds of things people buy. Sometimes they buy more because they've got more Scholars to spend other times. They might spend less because they want 2 burgers for a low price. But I would say that we're generally pleased with the direction of our beverage sales in particularly we highlighted coffee, which for most of Q2 was probably more relevant than other types of of cold beverages and so we're seeing growth there and that's some making our attachment rates uh, continue to progress in the way that we we were hoping for
Okay. Yeah, that's helpful. Um, and then I did want to ask maybe just sort of following up on that, I think, I think was effectively a weather comment. Um, you know, q1 was uh, hurt by unfavorable weather in February. Uh, I presume Q2 was somewhat impacted by the wet and, and cold May that we had across almost all of Canada. Um,
Mark Pathy: Could you just talk about the impact of weather in Q2 specifically and maybe versus what you have? And if you want
Mark Pathy: Well, I think the difference with q1 was there was intense whether you know in certain regions and we were able to easily see it. I think I mentioned on maybe our last call or or in other um materials that we could like visibly, see, double digit High, double digit changes on a day-to-day, or week to week basis. When there was, you know, 50 centimeters of snow or those type.
Mark Pathy: Types of things, what you refer to as the damper weather cooler, weather, I'm sure it has an impact, it's just a bit more widespread. So it's a bit hard to isolate. You know, if you just had sunny weather everywhere and then just 1 place where there was damp whether it's easier to to see what impact is. I agree with you that um that along with things like fires and so on created some I think downward pressure on results but mostly specific degree that we saw in q1. So I was trying to
Mark Pathy: answer the question. I'd say that it seemed to be less prominent in Q2 than it was in q1.
Mark Pathy: Um, loyalty you talked about the launch. Um, I'm curious just kind of what you're looking at, with regards to sort of kpis, that would help you gauge the success of that program and how you want to manage it going forward.
Creation.
Mark Pathy: there, in terms of
both of those, uh, factors were positive. We were seeing more accounts created and more people starting to use it. What? We've not had enough time to really start to look at or some of the other important kpis when you look at a loyalty program. So it's early to be able to pronounce ourselves on some of the others but we will be evaluating things like, you know what? What are the what types of purchases frequency those types of things as the program evolves and active usership and so on. But it's too early for us to really put very much, um, stock in those as we're still at the at the growth stage at the early growth stage of the program.
Yeah, I mean is it fair to say that? That that's going to be about a year to sort of, get a get a better sense of of the adoption and then and then you can probably look to leverage it more materially.
Mark Pathy: yeah, I mean, hopefully we'll start to see some Trends earlier than a year, but
It's nice to be able to cycle year-over-year results and see how they compare. So I'd I'd say for sure after a year we'll have we'll know more but hopefully we'll start to see things. Um, begin to establish some Trends in the next.
Mark Pathy: 6 to 8 months.
Speaker Change: Yeah. Okay. And then my last 1 last topic, um, is just Pratt, um, great to hear that you signed the second list. Um, just curious sort of, you know, what you're looking for before that growth becomes more material, um, you know, you've had the first location for some time. Um, I think there was a hope in the market that you might see or something earlier this year. Um, just curious sort of any sort of updated thoughts about what you're looking for. Um, before we hear anything more, uh, material growth.
Speaker Change: We're not pausing on any results.
Speaker Change: To correct real estate opportunities. We've started that activity I think
What the, what the reasonable amount of time to start to solidify. So we're happy to have our first deal signed, um but the the actual people side of of prep, we added the number of resources dedicated to that growth.
It was probably only, you know April or May by the time we sold those positions, so we're still quite early, but we're not. Um, there's nothing. There's no indicators that we're waiting for at the moment to say go or not go. We've already pressed the go button and now we're just working on getting the actual results and deal signed
Speaker Change: Okay, and that second location. That's, that's also a corporate location or is that going to be different?
Speaker Change: It's fairly close to, um, to the 90 Adelaide location and we think that there's probably some synergies about kitchen and so on. So it's another little piece of learning for us. But our our growth plans include primarily and maybe only franchise growth
That 1 just happened to land.
Speaker Change: Very close by where 90 Adell is located.
Yeah, understood. Okay. Looking forward to seeing it and thanks for all this and all the best.
So reminder, if you'd like to ask any question please press star, followed by the number 1 in our Touchstone account.
Speaker Change: The next question is from the line of love and reach from RBC Capital. Please go ahead and
Speaker Change: Hey, good afternoon. Thanks for taking the questions and and all the color. Um, I was just curious, um, on on the quarter, how did comps friends, um, maybe month-to-month, or, or maybe before and then after the teen Burger promotion, just trying to get an understanding of comp through the quarter and then maybe anything on quarter to date the beat simple.
Speaker Change: But I think I maybe might help it.
as that starts, I don't remember the exact week or months that it started in, but
Kind of go back to 4 or 5 weeks before the 2 2 weeks of 4.99. And then of course 4.99. And then subsequently we also experienced a growth as people, you know, kind of remember their last teen burger and rushed out to buy another 1.
Got it. No, that's that's helpful. I mean it sounds like you guys are seeing a sustained sort of demand following the following the team Burger.
I mean, are you just attributing that to maybe the rewards program or is that just
You know, awareness and and recency where people are coming back. Um, because they've made a transaction recently.
Speaker Change: Burger was also on air right after the 4999 too. So that that was also a product that sold really well and it's something that can invited team Burger. Lovers to come back for something else that they wanted to try.
Got it. Um,
And then I guess, just you to get sort of alluded to more value coming in the balance of the year. Like how do you just feel about your current value problem relative to competition and you know, is it is it going to be more things that sort of look, like the 2 weeks change of the promotion or how are you guys going to tailor that or maybe adjust that through the year?
So I think we're talking about maybe 2 things from the value perspective. I think we have a very, very strong position on value, what people pay for the quality that they receive is. Um, we always score very well and highly competitive in that area. Price is just more important to people today. So we need to balance out the quality and, you know,
convenience messages that we have whether that's on the app or on on air with, you know, some prices that really get people excited and say, Hey, you know, I wasn't planning on this but I think today's a good day to go out and enjoy a team burner. So, I think it'll be a balance of both, um, but when it comes to Value itself, we are, I think leaders in the market.
But maybe not in the way that you said it, which is maybe people think value menus and stuff like that. We look at Value from a perspective for the price, you pay the value that you receive and and that's always been very strong for us.
Speaker Change: Gotcha, that's helpful. And then I guess just like the competitive environment is the, do you see your competition getting a little bit more aggressive on on value or on pricing here? Like how do you feel about, you know, where where the competition is is moving in anything, uh, worth calling out recently.
Yeah, I'd say that um the entire Market is responding to Consumers needs for.
Low price attention, paid to disposable income. So we are seeing a lot more of that, not just in restaurants as I mentioned earlier, but also in other, you know, retail Industries. So I think that's just a general theme for, um, anybody in retail or or having things on the on their menus or in their stores today is that it's got to be great value for the for the consumer because they're a bit more bit, bit less discretionary in their spending, and a bit more thoughtful.
Speaker Change: Gotcha. Super helpful.
Speaker Change: And then just on the rewards for you. I mean, I
Speaker Change: Very early.
I sort of gave some color but I guess just like any metrics you guys are able to share or even just qualitatively how that's performing relative to expectations um I don't know anything specific to call out um in the rewards program thus far.
I think what we were um, happy with the initial response, you know, we've talked to some, you know, early quite significant numbers both um at the restaurant where you can use your app to just collect points, even if you're not part of the oil to grow the mobile program or if you have an ordered in advance. So I like that uh that that sense that people understand what a loyalty program is all about, and they're starting to use it in the way that they use it with other loyalty programs. So I think the consumer is quite well educated and now it's just a question of getting the message out to more people so that they're able to to join up. So we have we were very happy with the initial bump it. It happened very quickly and we, we can see
Speaker Change: Great familiarity with the kind of program and that we're meeting that need ourselves as well with with what we've got.
Gotcha, that's great.
Speaker Change: And then on the 5-star operating system, can you just give a little bit more detail on like, what exactly the changes and then any sort of like, kpis you guys are tracking in those restaurants with the new operating system and how those are performing relative to those who have an implemented it yet.
Speaker Change: Sure. Um,
Speaker Change: That's about restaurants, have it implemented it yet because there are fewer of those but in terms of where restaurants themselves were before they joined the program, there's clear improvements. So most of the most of the activities and this is sort of the the first phase of what we hope will be more than 1 phase. In terms of 5 Star operating system. This 1 was really focused on the guest experience. In particular, we wanted to do a really good job of serving guests who ordered on the mobile app, as well as for pickup for delivery, for example. So clearly labeled people know where to stand, um, the way that we've produced the, the food, the timing, all those kinds of things to really enhance that and, and protect that, if you will, from our restaurant experience perspective and then really efficiency. Um, so how we process orders the, um, length of time, it takes at the drive-thru. Both of those things have definitely shown an uptick when restaurants are changed and it's happened quite quickly. So we're pleased about that.
Super helpful. I would. Oh sorry. Go ahead.
Speaker Change: Service. That's the 1 that we can measure most accurately and it's the 1 that can experience the the quickest changes. So
Gotcha, I appreciate the call. I'll pass on
Speaker Change: There are no further questions.
I'll call over to Susan segno for closing comments. Ma'am. Please go ahead.
Attending our call today, we do.
Question that wasn't answered on our call today. Please feel free to send a follow-up email to investor relations Ava.
This concludes today's conference call. Thank you very much for your participation and I'll disconnect
Thank you.