Q2 2025 Pizza Pizza Royalty Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the pizza. Pizza royalty corpse earning call for the second quarter of 2025.
During the presentation, all participants will be in a listen-only mode.
After this remarks, there will be a question and answer session.
As a reminder, this conference is being recorded on August 7th.
2025.
At this time, all lines will be in listen-only mode.
Again, following the presentation, we will conduct a question and answer session.
I would now like to turn the conference over to Christine D Silva CFO. Please go ahead.
Good afternoon everyone and welcome to piece to Pizza. Pizza royalty corpse earnings call for the second quarter ended, June 30th 2025
Joining me on the call today is pizza pizza. Limited cheese, executive officer. Paul got it.
Just a quick note, our discussion today will contain 4 looking statements. That may involve risks relating to future events
Actual events May differ materially from the projections discussed today.
All 4 looking statements should be considered in conjunction with precautionary language. In our earnings release and the risk section included in our annual information form.
Please refer to our earnings release and the end DNA in the investor relations section of our website for a Reconciliation and other disclosures related to non-ifrs measures mentioned on this call.
As a reminder analysts are welcome to ask questions after the prepared remarks.
Portfolio managers media and shareholders can contact us after the call.
With that. I'd like to turn the call over to Paul Goddard to provide a business update.
Good afternoon everyone and thanks for joining us on today's call, especially on the midsummer Knights evening.
I'm pleased to report that Our Brands delivered another strong quarter of growth underscoring, the continued momentum of our business and the strength of Our Brands in a highly competitive qsr landscape.
Our second quarter performance reflects solid execution, strong customer demand, and strategic menu innovation that all translated into sales.
for the quarter, Our Brands, reported a combined, same store sales, growth of 2.1% with pizza, pizza restaurants reporting 2.1% growth, Pizza, 73 restaurants reporting growth of slightly less at 2.0%
at both Brands growth, this quarter was driven by increases in both C, guest traffic and the average customer check
It's great to see.
Impactful And Timely marketing issues and new product, launches resulted in an increase in traffic, and we're happy to see another quarter of growth in our organic delivery Channel as well, which helps increase the average check.
This quarter, we continue to our focus on building brand engagement through Innovative promotions products and Partnerships.
Delivering Great Value and celebrating key moments.
Speaking a little about our brand building promotions and Partnerships.
Initial playoffs leveraging, our Partnerships with the Leafs tabs Jets flames and Oilers.
Between digital discount codes and special offers such as the large white out, pizza for 1299 in. Winnipeg, pizza pizza and the Skinner dinner at Pizza 73 in Edmonton. We are actively in the game day conversation exactly when viewership and engagement were at their piece.
Additionally, we identified the opportunity to deepen our connection in Winnipeg.
This quarter, we became the official pizza of the Winnipeg Blue Bombers and launched several high-visibility concession stands in stadium broadcast assets. We are much-envied for our coveted score, SLICE program, to drive app downloads and usage in that market.
We also continue to build our brand engagement, so exciting menu Innovations.
With the immediate success of our stuffed crust pizza launched last year this quarter, we introduced two new stuffed crust cheese flavors: dill pickle and spicy habanero.
And expanded availability to include Excel and XXL sizes for those as well.
This Evolution, reinforces our commitment to Innovation, elevating flavor, options, and positioning ourselves as leaders in Crest varieties.
Meanwhile, a piece of 73 to launch our new signature wraps. We introduced a secret menu item revealed by 10 influencers, generating hundreds of thousands of organic Impressions and engagements while driving demand for the new category.
These crispy chicken wraps offered in 4 flavors, add variety to our menu and are a great addition to our expanding lunch State Park.
And beyond our Innovative marketing messages and promotions. We have our core of always on value offerings. Our job is to ensure that our customers constantly. See us offering the best food at the best price.
We continue to lean into our value offerings. As we promoted our XXL, pizza, and our pizza and chicken combo. And we did a re hit on our 25% reverse tariff offer as well lining up, perfectly with Canada Day.
as mentioned earlier, you can Pizza, has always celebrated special occasions and this quarter was no different
He speaks to dominated the qsr share of voice during the 420, cannabis festivities with the return of the pizza free rolls exclusively on the menu during the week. And a cat collector of vinyl album, Pizza Pizza, dope jams, featuring 6, psyche, tracks inspired by the pizza, pizza, jingle. And I will mention we, these were specifically targeted at that particular demographic, not our family demographics. So we are careful where we promote that, but we are very happy with the relevant, social media demographic there, and the response.
Meanwhile our Pizza 73 where we are celebrating that Brand's 40th anniversary, we offered a buy 1, get 1 campaign for customers, and even celebrated oil country with free heart pizzas for fans during the Edmonton Oilers playoff run.
select Edmonton and Spruce Grove locations there, uh joined in showcasing the brand strong Community Roots there,
our plans for the second half of 2025 will see us continuing to leverage our brand assets and strengths. As we Implement new promotions, backed by our core product propositions ongoing menu, Innovation, conveniently located restaurants and an award-winning Tech platform.
All of these fundamental pillars, ensure a superb customer experience each and every time.
And that's something that we continually iterate upon as well, uh, customers and needs to evolve, and so do our capabilities as well. So it's a dynamic situation, we never rest on our laurels
and we are continuing to enhance our web and app. Experiences through iterative data driven improvements, including not just new menu items, but enhancements to various parts of the functionality and ordering process and to the speed and simplicity of ordering on our digital channels.
We will continue to leverage our competitive Tech Advantage with more customer focused, kill capabilities, as time goes on. Stay tuned for future updates, and future quarters.
Uh, before I turn the call over to Christine. I just also wanted to briefly discuss our restaurant Network growth.
We ended the second quarter with a total of 800 locations in Canada. A really exciting, Milestone, 696 repeats, Pizza sites, and 104 repeats of 73.
We opened 3 traditional and 5 non-traditional Pizza Pizza locations during the quarter.
Uh, and uh, I'll just add that uh, we are also adding some more non-traditional as well, this year. And we'll likely have a few closures there, too. But, we'll definitely be a net positive on the non-traditional as well.
So we have a solid uh, site expansion plan and we have a lot of uh, type pipeline frenches. Pardon me in the pipeline as well. So we feel good about that.
And we expect the pace to pick up uh in the remaining quarters.
Meanwhile at Pizza 73. We opened 1 traditional location and we closed 1 traditional and 4 non-traditional Pizza Pizza sites and 1 traditional Pizza. 72 location closed.
Continue to see opportunities right across Canada, but also in Ontario, where we have the highest concentration of restaurants.
I continuing momentum and guad laara.
Our Mexican Partners have cited, several, more locations, and have commenced the construction process on 2, new sites in guadalahara.
We continue to believe there is a significant potential to really scale up their New Mexico, especially given the population of 3x Canada in the coming years. And we do think it might take a little longer than originally expected to reach. Our Target of approximately 10 new restaurants per year. But we do feel that we've got great initial traction and the sales of the existing stores are, excellent. So we're pushing hard to get even more momentum there.
As we head into the second half of 2025, we expect to see restaurant Network expansion of roughly 2 to 3%. Traditional restaurant growth.
Now, some closing remarks.
Well, we're pleased with the deposit of growth. We reached this quarter at both Brands. The Canadian economy in general does appear to be showing signs and continued softening despite the strong TSX for instance since late spring.
Uh, but, uh, perhaps we'll see increased softening in consumer spending continuing. It's a little unsure, and when you look at the macroeconomic environment, but generally the trend is affecting, you know, much of the QSR industry, not just in Canada, but also in the United States. So, since we can't control the macroeconomic environment, we're staying proactive, we're sharpening our value messaging, optimizing promotions, and continuing to invest in digital and loyalty to drive customer frequency and retention.
We're confident these options will help us maintain our momentum even as the macro macro, pardon me. Macular environment, appears poised to become more complex and potentially less favorable to us.
finally, I'd like to close by thanking our entire team, both our corporate employees and restaurant owner operators alike, for bringing their passion professionalism and ambition each and every day for our customers, our communities and for each other,
We're pleased with our performance in this highly competitive market environment and feel. We're really just getting started. The comes to realizing the potential of our iconic brands.
So, thank you for listening in.
On this warm summer night. And I'll now hand things back over to our CFO, Christine to wrap up the call.
As a reminder.
In exchange, for the use of the brand, Peak to speak to limited Pace, the partnership a monthly royalty calculator, this percentage of royalty pool sales.
The growth in the court is derived from increasing the same store sales of the restaurants in the pool. But also by adding new restaurants to the pool each year.
And as a man in Q1, we added 20 net new restaurants to the royalty pool on January 1st, 2025.
So, for fiscal 2025, there will be 794 restaurants in the pool.
Comprised of 694, pizza, pizzas and 100 Pizza 73.
Returning to the financial results, the combination of the 20 net new restaurants added to the pool on January 1st and the same-store sales growth resulted in an increase to royalty system sales and the corresponding royalty income.
Royalty school system sales for the quarter increased 3.9% to 161.4 million. From 155.4 million in the same quarter of last year.
By brand sales from the pizza, pizza restaurants in the pool increased 4.1% to 139.3 million and sales from the hundred Pizza to 73 restaurants in the pool increased. 2.4% to 22 million for the quarter.
The Partnerships' royalty income earned, as a percentage of royalty pool sales, increased 3.8% to $10.3 million for the quarter.
Beyond royalty income, the partnership also earns interest income on its cash and short-term investments.
For the quarter, the partnership earned 61,000.
Now to make sure the partnership expenses administrative expenses including listing costs as well as director legal auditor fees and other professional fees totaled $283,000 for the quarter compared to 194,000 in the prior quarter.
The increase requests non-recurring, 1-time, professional fees, and higher director fees, which were associated with the onboarding of 2 new directors.
As part of the overall succession plan.
In addition to administrative expenses the partnership was making interest-only payments on its 47 million credit facility.
Interest paid in the quarter was 309 to 2000 and as a reminder in March 2025 the company, renewed, the facility for 3 years with maturity set. Now for April 2028
The balance of the facility remains unchanged, however, the credit spread table increased slightly with the lowest tier increasing from 0.875 to 1%.
Additionally, this quarter in April 2025 the partnership entered into a new 3 year forward swap.
The new 3 year swap commenced when the existing ones expired at the end of April.
Overall the all-in rate for the credit facility, for the next 3 years will be 3.51% compared to the maturing rate of 2.685.
So now after the partnership receives its royalty and interest income, pays its administrative and interest expense, the net resulting hash is available for distribution to its two partners based on their ownership percentage.
After the vending and the true-up on January 1, 2025, Pizza Pizza's limited ownership increased to 26.2%.
Royalty Corp shares in the remaining 73.8% of the partnership distribution.
It pays taxes on its share of partnership earnings, and the residual cash is available for dividends to the company shareholders.
Now, to make your shareholder, David is a working capital. The company declared shareholder dividends of 5.7 million for the current quarter or 23.25 cents per share, which was consistent with the prior Year's quarter.
The payout ratio was 108% and resulted in working capital reserve, being used to the tune of 400,000 in the quarter, and we ended at June 30th with 4.8 million.
And the working capital is it?
This Reserve is available to stabilize dividends and find any expenditures in the event. A short to medium-term variability in sales
The company has historically targeted a payout ratio at or near 100% on an annualized basis and any future dividend changes will be evaluated in respect to that.
That includes our financial overview, I'd like to turn the call back to the operator, to pull for questions.
Uh, 1 moment for your first question.
Your first question comes from, Cheryl Zhang from TD.
Go ahead.
Hi, good evening, uh Paul and Christina, hope you're doing well and thanks for taking our questions.
Thanks nice to hear Cher.
Hi. Um so our first question is uh on things or sales uh congrats on the very strong prints especially under this macro environment. Um what we're seeing many of the peers is still reporting negative figures so I'm just curious about what do you think, help you uh, to outperform your peers will help you send out.
Well, I think it's multiple factors. I try to touch on that a little bit in my initial comments, but I think, you know, value is probably the primary one, right? I mean, we really try and...
Emphasize value and I think our business model is is really set up for that, so I think that's 1, I think the tech Advantage is another 1.
And and I think the convenience is the fact that our scale that we have, you know, just pizza. Um you know, well sorry combined network over 800 locations, we're just very convenient. So whether you want to spend delivery or pickup, we have that big footprint that, you know, many others don't. So I think it's, it's that. And the other thing I'd like to say is I think just the sort of brand Aura if you like, um, this sort of innovative nature of our marketing. And, and some of the offerings, we have are just a little more unique, whether it's different types of crust. Different types of pizza, more options, on stuffed crust, things like that, that are just not.
You know, they're they're they're definitely distinguished from a lot of other competitors. And so those things are all bundled together or some examples where I think people say look you know I'm getting really good value here. It's convenient, it's super easy to get it on the app or whatever.
And I like it and you know as long as we do a great job on the quality then people will keep coming back.
No, it's great caller. Thank you. Uh, and I know that it's probably still early, but just curious, uh, considering, you know, your strong Q2 but also keep in mind the, uh, uh, soft macro backdrop. Uh, what I see in terms of momentum, uh, so far in Q3 compared to Q2,
To this that we like or we didn't see check how strong then we can really quickly pivot so we obviously want to stay ahead and we want to be positive every quarter. But it, you know, that macro backdrop is concerning. There are some consumer uncertainties and people are being very deliberate on how they spend. Um, but we just sort of, think we, we sort of plan for the customer being very, very value oriented. And so far that's been a good bet
You got it. Um, and I think you know, procurement Mark you uh mentioned that the organic delivery channel is uh, showing growth again, uh, just curious as if you could provide any color on, you know, any of the in initiatives that you've put in place to drive that growth and um are you seeing any changes in maybe a turn in consumer demand for delivery?
Yes, I'm glad you highlighted that because that is something that I think we are very excited about in particular, this quarter is and we always are pushing organic delivery, but it is proving to be quite a hard channel to grow. So to get that positive for both Brands. We're really excited about that. And so, 1 example, would be our game date promotions, for instance. So In the Heat of playoffs, we, you know, we had so much attention so much media spend there, um, you know, at both Brands as I tried to indicate on my prepared remarks, um,
But basically, we had Game Day specials, we had things like no delivery, if you come to our apps. And so that really generated a lot of incremental orders, especially when people are watching the orders game release game, and the latter stages of the playoffs. And so, once people try out that channel, they realize, oh, this is quite good. And you know what? It's actually a lot cheaper and in the case of pizza pizza, we even have the time guarantee. So there really are some advantages, you know, it's faster, you get a uniform driver. It's a, you know, often a trusted pizza. Pizza delivery driver. They might even recognize so things like that. It's kind of a nice Snowball Effect and so, it's more. Sometimes the trick is just getting them to try our app. You know, we have many customers that you, for instance, use our adaptive, web our mobile website on on mobile devices. But not all of them even have our apps. So we we want to make it really clear and really easy which is why we have a QR code to download our app on our packaging and we're really trying to incent people to do that and we'll be pushing that even harder in future. So right now, if someone orders, you know, even if they do it on a third party, delivery platform, if you look at our packaging, we've got QR code all over our, our boxes and packaging to incent them to them next.
Time become organic to the table and we'll even throw in a freebie or something, to get them to go to that stickier Channel and stay there. So it isn't easy. I will say, I mean, a lot of people, especially younger demographic gen, Zen and whatnot. They often use third-party channels. They don't really like having 20 restaurant apps on their phones for instance, but we are showing, you know, some indications of winning. Some people back into organic channels. So we're going to keep really pushing for that more and more.
Thought it was awesome to hear. I'm very helpful color. Um, just in terms of consumer behavior, um, other than, um,
Uh, the growth in delivery Channel. Like, are you seeing any other changes in their behavior in terms of, you know, whether it's uh, demographic, uh, groups or income cohorts?
It's probably um you know it does vary. I think 1 of some of the trends we see aside from the organic algebra growth is in a group commented on prior calls to this. And this trend is continued is pickup. So just in terms of consumer behavior, and this is across different consumer demographics, people are picking up a lot more that includes, you know, gen Zed. It includes people, you know, in the sort of Boomer segment, um, people are just seeing, especially on the third party platforms, very high Network charges, and things like that, and they may not get it as fast as they might, otherwise unless they're very close to where they're ordering from, um, and so pick up continues to really, really grow. Um, and we're not the only ones seeing that, but I do think that, you know, our business model is always really been, um, designed to take the customer, no matter whether it's delivery or pickup and some others out there in the market, there might have been more configured for delivery and they may not have as let's say as Prime locations as us. Um for instance in you know, the urban cities downtown Toronto Downtown, Edmonton downtown Calgary Vancouver, Etc. So I think that that is something that we feel
Happy to do. Um, you know, get those pickup orders, we'll take them, however, people want want us, we'll, we'll be there. But obviously delivery is really exciting because we can do very well with delivery and organic delivery, especially
You got it. Um, and in terms of the competitive environment, uh, are there any changes um, in the trend or the intensity in Q3? And how do you feel about the promotional intensity?
I would say we do see certain.
competitors that almost seem to have almost, uh,
We also participate in that from time to time. But we notice that, um, you know, some people will really almost overly chase sales by paying pretty expensive fees to third-party aggregators to get, you know, primary ad placement. But that's also quite a.
An expensive endeavor to keep that on always on. Those platforms are very expensive. So we see a little more of that going on, I would say, than we have in the past. It's not new, but we notice a little more of that, which just speaks to, I think, how everyone in the markets is generally struggling to get the same source.
They got it and maybe just 1 last 1 for me. Um, is there.
Any changes to your expectation.
Try. Um.
Try you, you said that it's around 3%. Network. Expansion 2025.
Yes, we did sort of temper that a little bit. I think just um I we're we're saying you know we right now. We we look really good for the next quarter or so on development. We've just had some development review today and um you know there's a lot in the pipeline for future disease and sites, you know, across the country. But we just 1 of the things that we're where we thought we will temper that potentially a little bit is because, um, that is an area where, you know, this the tariffs and the uncertainty around that are, you know, a headwind for us. Um, construction costs for things like ovens if they're coming from the US. I mean, we're looking at alternative Supply chains, but, um, that is something that can really, uh, with the uncertainty right now, especially the the minute, you know, the, the 35% type tariff makes us pause a little for sure. Uh, but we can sort of turn that tap on pretty quickly as well. And accelerate
Which means we see now, at the end of the year. So we're certainly still on offense. I would say we're motivated to get as many great sites as we can across the country. You know, 3% would be nice, but we just thought 2% might be more realistic, and I think we're going to try and achieve that and hopefully beat it. We still do expect some good net store growth from traditional and non-traditional sources here, regardless of us, you know, that tariff uncertainty causing us a little more hesitation.
Okay, that's very helpful. Um, thanks. Thanks so much for taking our questions, and congrats again on the trunk quarter.
Thanks very much, Cheryl. I appreciate your good questions.
There are no further questions at this time. I'll now turn the call over to Christine D'Sylva. Please continue.
Thank you very much everyone for joining us on the call today. If you have any questions after this call, please feel free to contact us. Our contact information is available online and on the price list.
Have a good evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect