Q2 2026 Pizza Pizza Royalty Corp Earnings Call

August 5, 2026

Operator: Ladies and gentlemen, thank you for standing by, welcome to the Pizza Pizza Royalty Corp.'s earnings call for Q2 of 2026. During the presentation, all participants will be in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star, then the number one on your telephone keypad. As a reminder, the conference is being recorded on 5 August 2026. I will now turn the call over to Christine D'Sylva, CSO.

Speaker #1: Ladies and gentlemen, thank you for standing by, and welcome to the Pizza Pizza Royalty Corp's earnings call for the second quarter of 2026. During the presentation, all participants will be in a listen-only mode.

Speaker #1: After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star, then the number 1 on your telephone keypad.

Speaker #1: As a reminder, the conference is being recorded on August 5, 2026. I will now turn the call over to Christine D'Sylva, CFO.

Speaker #2: Thank you. Good afternoon, everyone, and welcome to Pizza Pizza Royalty Corp's earnings call for the second quarter ended June 30, 2026. Joining me on the call today is Pizza Pizza Limited's president and chief executive officer, Paul Goddard.

Christine D'Sylva: Thank you. Good afternoon, everyone, welcome to Pizza Pizza Royalty Corp.'s earnings call for Q2 ended 30 June 2026. Joining me on the call today is Pizza Pizza Limited's President and Chief Executive Officer, Paul Goddard, and Chief Operating Officer, Philip Goudreau. Just a quick note, our discussion today will contain forward-looking statements that may involve risks relating to future events. Actual events may differ materially from the projections discussed today, and all forward-looking statements should be considered in conjunction with the cautionary language in our earnings release and the risk factors included in our annual information form. Please refer to our earnings release and the MD&A 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.

Speaker #2: And chief operating officer, Philip Kudrow. Just a quick note, our discussion today will contain forward-looking statements that may involve risks relating to future events.

Speaker #2: Actual events may differ materially from the projections discussed today. And all forward-looking statements should be considered in conjunction with the cautionary language in our earnings release and the risk factors included in our annual information form.

Speaker #2: Please refer to our earnings release and the MD&A in the investor relations section of our website for a reconciliation and other disclosures related to non-IFRS measures mentioned on this call.

Speaker #2: 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 to provide a brief business update.

Christine D'Sylva: Portfolio managers, media, and shareholders can contact us after the call. With that, I'd like to turn the call over to Paul to provide a brief business update.

Speaker #3: Thank you. And good afternoon, everyone. Thanks for joining the call. This afternoon, we released our results for the second quarter of 2026, which you can find posted on our website.

Paul Goddard: Thank you, and good afternoon, everyone. Thanks for joining the call. This afternoon, we released our results for Q2 2026, which you can find posted on our website. The overall macroeconomic environment remained challenging throughout Q2. Persistent pressures on consumer confidence, discretionary spending, and overall QSR demand continued to weigh on our retail sales and guest traffic across both brands. In Q2, our overall same-store sales decreased by 5.0%. Pizza Pizza restaurants were down 4.9%, while Pizza 73 restaurants were down 5.3%. Before addressing our operational highlights, I want to comment on the dividend adjustment we announced in May. In light of the ongoing macroeconomic headwinds and lower overall sales volume across the network, our board took the prudent step to reduce our monthly dividends by 12.9%, and it was at CAD 0.01 per share from CAD 0.0775 to CAD 0.0675.

Speaker #3: The overall macroeconomic environment remained challenging throughout the second quarter. Persistent pressures on consumer confidence, discretionary spending, and overall QSR demand continued to weigh on our retail sales and guest traffic across both brands.

Speaker #3: So in the second quarter, our overall same-store sales decreased by 5.0%. Pizza Pizza restaurants were down 4.9%, while Pizza 73 restaurants were down 5.3%.

Speaker #3: Before addressing our operational highlights, I want to comment on the dividend adjustment we announced in May. In light of the ongoing macroeconomic headwinds and lower overall sales volume across the network, our board took the prudent step to reduce our monthly dividend by about 12.9%.

Speaker #3: It was one cent per share, from 7.75 cents to 6.75 cents. This decision was made to ensure our distribution payout ratio remains sustainable while preserving our working capital balance.

Paul Goddard: This decision was made to ensure our distribution payout ratio remains sustainable while preserving our working capital balance. Maintaining financial stability and protecting long-term shareholder value remain core priorities for our leadership team and our board. Beyond broader economic pressures, a few additional factors impacted our top-line sales comparisons this quarter. First, tough prior year comps with the 2025 NHL playoff runs, which everyone I am sure remembers. We faced a difficult comp against Q2 2025 as a result, and last year's Q2 benefited significantly from that deep extended NHL playoff runs, multiple runs by multiple teams, which generated exceptional home viewing, event-based sales at our non-traditional locations, and late-night pizza consumption that did not repeat to the same extent this year. Second, declines in international student enrollment affecting many of our non-traditional sites at colleges.

Speaker #3: Maintaining financial stability and protecting long-term shareholder value remain core priorities for our leadership team and our board. Beyond broader economic pressures, a few additional factors impacted our top-line sales comparisons this quarter.

Speaker #3: First, tough prior-year comps with the 2025 NHL playoff runs, which everyone I'm sure remembers. We faced a difficult comp against Q2 of 2025. As a result, last year's second quarter benefited significantly from that deep extended NHL playoff runs—multiple runs—by multiple Canadian teams which generated exceptional home viewing event-based sales at our non-traditional locations and late-night pizza consumption that did not repeat to the same extent this year.

Speaker #3: Second, declines in international student enrollment affecting many of our non-traditional sites at colleges. So reduced numbers of international students across Canada, at many of these post-secondary campuses.

Paul Goddard: Reduced numbers of international students across Canada at many of these post-secondary campuses, I think many are familiar with that. That just presented direct headwinds for our non-traditional locations at these campuses we have across the country, and nearby hubs as well. This demographic traditionally represents a high-frequency, late-night customer base, and the volume did drop significantly and impacted both transaction counts and overall sales at these sites. Navigating these shifting consumer dynamics requires us to be agile and creative. While input costs and market conditions remain challenging, we are focused on execution. That means driving traffic through value and product innovation, expanding our store network in key markets, and really leaning into operational efficiencies to build long-term customer loyalty and engagement. Starting with our value and product offerings, our core pizza category remains resilient, supported by strong value offerings across every price point.

Speaker #3: I think many are familiar with that. That just presented direct headwinds for our non-traditional locations at these campuses. We have across the country and nearby hubs as well.

Speaker #3: So this demographic traditionally represents a high-frequency late-night customer base and the volume did drop significantly and impacted both transaction counts and overall sales at these sites.

Speaker #3: So navigating these shifting conservative dynamics requires us to be agile and creative. And while input costs and market conditions remain challenging, we are focused on execution.

Speaker #3: And that means driving traffic through value and product innovation, expanding our store network in key markets, and really leaning into operational efficiencies to build long-term customer loyalty and engagement.

Speaker #3: Starting with our value and product offerings, our core pizza category remains resilient, supported by strong value offerings across every price point. In this environment, value gets customers through the door by continuous menu innovation and cultural relevance keeps them coming back.

Paul Goddard: In this environment, value gets customers through the door, continuous menu innovation and cultural relevance keeps them coming back. In Q2, we executed a comprehensive strategy focused on value leadership, key cultural moments, and high-impact product launches. As an example, first, on value, we took aggressive steps to reinforce our value leadership position and support our walk-in channel. In mid-May, we introduced our Buck an Inch special Featuring Buck Martinez, as many will know from the Toronto Blue Jays, pricing every two-topping pizza at just CAD 1 per inch, from a CAD 10 small up to a CAD 18 XXL pizza. This simple, compelling value message resonated immediately, quickly surging to our number one selling menu offer in our sales mix. The popularity of this offer has allowed us to remove a number of legacy deals, simplifying the menu and helping streamline operations at the restaurants.

Speaker #3: And the second quarter, we executed a comprehensive strategy focused on value leadership, key cultural moments, and high-impact product launches. So as example, first, on value, we took aggressive steps to reinforce our value leadership position and support our walk-in channel.

Speaker #3: In mid-May, we introduced our buck-and-inch special. Featuring Buck Martinez, as many will know from the Blue Jays, pricing every two-topping pizza at just $1 per inch for almost 10 dollars small, up to an 18-dollar XXL pizza.

Speaker #3: And this simple, compelling value message resonated immediately quickly surging to our number-one selling menu offer in our sales mix. The popularity of this offer has allowed us to remove a number of legacy deals, simplifying the menu and helping streamline operations at the restaurants.

Speaker #3: In late May, we increased the size of our pizza slices as well, nationally, by 25%, with only a nominal price adjustment to protect profitability.

Paul Goddard: In late May, we increased the size of our pizza slices as well, nationally, by 25%, with only a nominal price adjustment to protect profitability. This move delivered a noticeable boost in perceived customer value and elevated the overall slice experience. This return to our famous XXL pizza slices has been extremely well-received by customers. Alongside our slice refresh, our CAD 5 meal deal, the slice and drink combo, continued to perform well, driving sustained improvements in walk-in traffic and sales throughout Q2. Second, we leaned heavily into culture to keep our brands top of mind, capitalizing on the immense viewer engagement during the FIFA World Cup. We introduced Dip Cup Nations, featuring dip trios matching participating country flags, which was quite fun and really had good take-up.

Speaker #3: This move delivered a noticeable boost in perceived customer value and elevated the overall slice experience. This returned to our famous XXL pizza slices has been extremely well received by customers.

Speaker #3: And alongside our Slice Refresh, our $5 Meal Deal—the slice and drink combo—continued to perform well, driving sustained improvements in walk-in traffic and sales throughout Q2.

Speaker #3: Second, we leaned heavily into culture to keep our brands top of mind. Capitalizing on the immense viewer engagement during the FIFA World Cup. We introduced dip cup nations, featuring dip trios matching participating country flags, which was quite fun and really had good take-up.

Speaker #3: We also launched the Pitch Party Pizza, transforming our party pizza box into an interactive tabletop football or soccer game complete with mini nets driving an increase in party pizza sales and significant increase, I will say.

Paul Goddard: We also launched the Pitch Party Pizza, transforming our party pizza box into an interactive tabletop football or soccer game, complete with mini nets, driving an increase in party pizza sales, a significant increase, I will say. We also capitalized on match play momentum with something called Pie-dration Break instead of hydration breaks. We had codes associated with that, offering 25% off pizzas during match hydration breaks, and our media analysis of that showed that we were the number one search pizza brand in Canada during the activation of the Pie-dration Break. That was a great success. Together, these activations established Pizza Pizza as the most searched pizza brand, like I said, and we're pretty proud of that. Finally, targeted menu innovation allowed us to drive incremental snack and individual consumption occasions across both brands.

Speaker #3: We also capitalized on match play momentum with something called pie hydration breaks instead of hydration breaks, so we had codes associated with that, offering 25% off pizzas during match hydration breaks.

Speaker #3: And our media analysis of that showed that we were the number-one searched pizza brand in Canada during the activation of the pie hydration breaks.

Speaker #3: So that was a great success. Together, these activations established Pizza Pizza as the most searched pizza brand, like I said, and we're pretty proud of that.

Speaker #3: Finally, targeted menu innovation allowed us to drive incremental snack and individual consumption occasions across both brands. At Pizza 73, we expanded our core chicken category with the launch of Golden Crispy Chicken Tenders, reinforcing Pizza 73's strength in chicken and providing a premium, craveable option for family and group orders.

Paul Goddard: At Pizza 73, we expanded our core chicken category with the launch of golden crispy Chicken Tenders, reinforcing Pizza 73's strength in chicken and providing a premium, craveable option for family and group orders. We also brought back our popular 4/20 Pre-Rolls with new flavors, elevated packaging, and an attractive 2 for CAD 5 value offer. This campaign doubled our Pre-Rolls sales during 4/20 week and sustained strong momentum through its month-long LTO run. To capture the growing snacking market, we launched 3 new Loaded Poutine recipes at Pizza Pizza, driving a 36% year-over-year sales lift in our poutine category. We're definitely encouraged by that. As you can see, hopefully by balancing everyday value, high energy cultural campaigns, and smart product innovations, we are continuing to give consumers compelling reasons to choose our brands every day.

Speaker #3: We also brought back our popular 420 rules, pre-rolls, with new flavors, elevated packaging, and an attractive two-for-$5 value offer. This campaign doubled our pre-roll sales during 420 week and sustained strong momentum through its month-long LTO run.

Speaker #3: To capture the growing snacking market, we launched three new loaded poutine recipes at Pizza Pizza driving a 36% year-over-year sales lift in our poutine category.

Speaker #3: So we're definitely encouraged by that. And so, as you can see, hopefully by balancing everyday value, high-energy cultural campaigns, and smart product innovations, we are continuing to give consumers compelling reasons to choose our brands every day.

Speaker #3: Turning to our restaurant network with well over 800 restaurants now, from coast to coast, we have many points of convenience for our customers to experience our brand.

Paul Goddard: Turning to our restaurant network, with well over 800 restaurants now from coast to coast, we have many points of convenience for our customers to experience our brand. During the quarter, we opened 4 traditional and 2 non-traditional Pizza Pizza locations and closed 1 traditional and 6 non-traditional Pizza Pizza restaurants and 1 non-traditional Pizza 73. It is worth noting that while our non-traditional locations saw the majority of the closures, our core high-revenue traditional restaurants expanded net positive by 3 locations across BC, Ontario, and Quebec. As mentioned on numerous previous calls, our business is driven by 2 revenue streams, that traditional restaurant network, which generates about 90% of our royalty pool sales, and our non-traditional and special event locations, which typically generate the remaining 10%.

Speaker #3: During the quarter, we opened four traditional and two non-traditional Pizza Pizza locations, and closed one traditional and six non-traditional Pizza Pizza restaurants, as well as one non-traditional Pizza 73.

Speaker #3: It is worth noting that while our non-traditional locations saw the majority of the closures, our core high-revenue traditional restaurants expanded net positive by three locations across BC, Ontario, and Quebec.

Speaker #3: And as mentioned on numerous previous calls, our business is driven by two revenue streams: the traditional restaurant network, which generates about 90% of our royalty pool sales, and our non-traditional and special event locations, which typically generate the remaining 10%.

Speaker #3: And as I alluded to earlier, our non-traditional segment continues to face some headwinds, particularly those locations within colleges and universities, where lower attendance tied to international student policies essentially left students essentially coming in from afar, has resulted in reduced operating hours and overall sales, and challenges for those colleges themselves.

Paul Goddard: As I alluded to earlier, our non-traditional segment continues to face some headwinds, particularly those locations within colleges and universities, where lower attendance tied to international student policies, less students essentially coming in from afar, has resulted in reduced operating hours and overall sales and challenges for those colleges themselves. Looking ahead, we continue to look at growth opportunities across our network, at the same time, we're taking a more disciplined approach than ever, carefully selecting locations and formats to ensure long-term profitability, particularly in the context of rising costs. We want sales growth, we want network growth, we want viable, great locations.

Speaker #3: Looking ahead, we continue to look at growth opportunities across our network. And at the same time, we're taking a more disciplined approach than ever, carefully selecting locations and formats to ensure long-term profitability particularly in the context of rising costs.

Speaker #3: We want sales growth. We want network growth, but we want viable great locations. And I will say our long-term growth tracker speaks for itself, both for same-store sales and network growth, as we've grown from I think it was roughly 500 locations back in 2005 at our IPO to well over 800, as I said, as of '25, and that's a 20-year period.

Paul Goddard: I will say our long-term growth track record speaks for itself, both for same-store sales and network growth, as we've grown from, I think it was roughly 500 locations back in 2005 at our IPO, to well over 800, as I said, as of 2025, and that's a 20-year period. If you look at things on an ROE basis, return on equity, or a CAGR growth rate, I think we look quite good over time. We've had a lot of institutional long-term holders and retail holders. As you well know, if you're familiar with our stock, our dividend's often in the 6% to 8% yield range, which represents a reliable, consistent investment for retail and institutional investors alike, we certainly look forward to getting more investors on board as well at these levels.

Speaker #3: So if you look at things on an ROE basis, return on equity, or a CAGR, growth rate, I think we look quite good over time.

Speaker #3: We've had a lot of institutional long-term holders and retail holders and, as you well know, if you're familiar with our stock, our dividends often in the 6 to 8% yield range.

Speaker #3: Which represents a reliable, consistent investment for retail and institutional investors alike. And we certainly look forward to getting more investors on board as well.

Speaker #3: At these levels. So we are really now Canada's very own national pizza QSR chain leader. And we're excited to grow beyond our borders, first in Mexico, and then onto other countries that suit our system and our brand well.

Paul Goddard: We are really now Canada's very own national pizza QSR chain leader, we're excited to grow beyond our borders, first in Mexico, then on to other countries that suit our system and our brand well. In closing, while we expect the macroeconomic environment to remain challenging in the near term, consumers are hurting, we know that. We are not standing idly by on the sidelines. We are proactively driving our business forward, leaning into our scale, sharpening our value proposition, relentlessly focusing on menu innovation. With a resilient business model, a proven track record through these economic cycles, the dedication of our franchisee partners across Canada, we are fully confident in our ability to navigate this period and strengthen our competitive position. As always, I want to do a little shout-out to our owner-operators.

Speaker #3: In closing, while we expect the macroeconomic environment to remain challenging in the near term, consumers are hurting, and we know that, we are not standing idly by on the sidelines.

Speaker #3: We are proactively driving our business forward, leaning into our scale, sharpening our value proposition, and relentlessly focusing on menu innovation. With a resilient business model, a proven track record through these economic cycles, and the dedication of our franchisee partners across Canada, we are fully confident in our ability to navigate this period and strengthen our competitive position.

Speaker #3: And as always, I wanted to do a little shout-out to our owner-operators. They are really the absolute key frontline people, and they're the extension of our bigger team.

Paul Goddard: They are really the absolute key frontline people, they're an extension of our bigger team.

Speaker #3: And also our employees internally. We work very seamlessly together and it's all about the passion and the hard work, day in and day out.

Paul Goddard: We work very seamlessly together, and it's all about the passion and the hard work day in and day out, and I think that's something that makes us real special and we're very proud of. Thank you again for joining us today, and I'll now ask Christine to provide our detailed financial update.

Speaker #3: And I think that's something that makes us real special and we're very proud of. So thank you again for joining us today, and I'll now ask Christine to provide our detailed financial update.

Speaker #2: Thanks, Paul. And as a reminder, Pizza Pizza Royalty Corp is a top-line restaurant royalty corp that earns a monthly royalty through a license agreement with Pizza Pizza Limited.

Christine D'Sylva: Thanks, Paul. As a reminder, Pizza Pizza Royalty Corp is a top-line restaurant royalty corp that earns a monthly royalty through a license agreement with Pizza Pizza Limited. In exchange for the use of the trademarks, Pizza Pizza Limited pays the partnership a monthly royalty calculated as a percentage of royalty pool sales. Growth in the corp is derived from increasing the same-store sales of the restaurants that are in the pool, and by adding new restaurants to the pool each year. As announced earlier this year, on 1 January 2026, the royalty pool increased by 20 restaurants as a result of adding 39 new restaurants, less 19 which permanently closed. For fiscal 2026, there were 814 restaurants in the royalty pool, comprised of 712 Pizza Pizzas and 102 Pizza 73s. This is compared to 2025, when there were 794 restaurants in the pool.

Speaker #2: In exchange for the use of the trademarks, Pizza Pizza Limited pays the partnership a monthly royalty calculated as a percentage of royalty pool sales.

Speaker #2: Growth in the corp is derived from increasing the same-store sales of the restaurants that are in the pool and by adding new restaurants to the pool each year.

Speaker #2: As announced earlier this year, on Jan 1st of 2026, the royalty pool increased by 20 restaurants as a result of adding 39 new restaurants, less 19 which permanently closed.

Speaker #2: So for fiscal 2026, there were 814 restaurants in the royalty pool. Comprised of 712 Pizza Pizzas and 102 Pizza 73s. This is compared to 2025 when there were 794 restaurants in the pool.

Speaker #2: So with that, I'll briefly cover the financial results for the quarter. And as Paul mentioned, same-store sales growth is the key driver of yield for the shareholders.

Christine D'Sylva: With that, I'll briefly cover the financial results for the quarter. As Paul mentioned, same-store sales growth is the key driver of yield for the shareholders. During the quarter, that decreased by 5%. Both brands saw a decline in traffic, which resulted in Pizza Pizza restaurants reporting a decrease of 4.9% and Pizza 73 restaurants reporting a decline of 5.3%. The positive impact of the 20 restaurants added to the pool was offset by the same-store sales declines and resulted in an overall decrease to the royalty pool system sales and the corresponding royalty income. The partnership's royalty income earned as a percentage of royalty pool sales decreased 3.6% to CAD 10 million for the quarter. As a reminder, the Pizza Pizza and Pizza 73 restaurants are subject to seasonal variations in their business.

Speaker #2: And during the quarter that decreased by 5%. Both brands saw a decline in traffic, which resulted in Pizza Pizza restaurants reporting a decrease of 4.9%, and Pizza 73 restaurants reporting a decline of 5.3%.

Speaker #2: The positive impact of the 20 restaurants added to the pool was offset by the same-store sales declines and resulted in an overall decrease to the royalty pool system sales and the corresponding royalty income.

Speaker #2: The partnership's royalty income earned as a percentage of royalty pool sales decreased 3.6% to $10 million for the quarter. As a reminder, the Pizza Pizza and Pizza 73 restaurants are subject to seasonal variations in their business.

Speaker #2: System sales for the first quarter of the year are generally the lowest, while system sales for the last quarter of the year are generally the highest.

Christine D'Sylva: System sales for Q1 of the year are generally the lowest, while system sales for Q4 of the year are generally the highest. Turning to partnership expenses, administrative expenses, including listing costs as well as director, legal, and auditor fees, decreased in comparison to the prior year. This quarter, they totaled 181,000, compared to 283,000 in the prior year's comparable quarter. The decrease in the quarter reflects lower professional and director fees. In addition to administrative expenses, the partnership is making interest-only payments on its CAD 47 million credit facility. Interest paid in the quarter was CAD 439,000. As a reminder, in March 2025, the company renewed the credit facility for three years, with maturity now set for April 2028. The balance of the facility remained unchanged. However, the credit spread increased slightly from 0.875% to 1%.

Speaker #2: Turning to partnership expenses, as well as director, legal, and auditor fees, these decreased in comparison to the prior year. This quarter, they totaled $181,000 compared to $283,000 in the prior year's comparable quarter.

Speaker #2: The decrease in the quarter reflects lower professional and director fees. In addition to administrative expenses, the partnership is making interest-only payments on its $47 million credit facility.

Speaker #2: Interest paid in the quarter was $439,000. As a reminder, in March of 2025, the company renewed the credit facility for three years, with maturity now set for April of 2028.

Speaker #2: The balance of the facility remained unchanged. However, the credit spread increased slightly from $0.875 to 1%. Additionally, in 2025, the partnership entered into a new three-year forward swap.

Christine D'Sylva: Additionally, in 2025, the partnership entered into a new three-year forward swap. The three-year swap locked in interest at 2.51%, which was an increase from the maturing swaps of 1.81%. The all-in rate on the credit facility for the next three years will be 3.51%, compared to the maturing rate of 2.685%. After the partnership received its royalty and interest income and paid its administrative and interest expense, any resulting cash was then available to distribute to the partners based on their ownership. After the 2026 vend-in, Pizza Pizza Limited's ownership increased to 27.2%. Pizza Pizza Royalty Corp shared in the remaining 72.8% of the partnership distributions. It paid its corporate taxes, and any residual cash was available for dividends to the company shareholders.

Speaker #2: The three-year swap locked in interest at 2.51%, which was an increase from the maturing swaps of 1.81. Now, the all-in rate on the credit facility for the next three years will be 3.51% compared to the maturing rate of 2.685.

Speaker #2: After the partnership received its royalty and interest income and paid its administrative and interest expenses, any resulting cash was then available to distribute to the partners based on their ownership.

Speaker #2: And after the 2026 vend-in, Pizza Pizza Limited's ownership increased to 27.2%. Pizza Pizza Royalty Corp shared in the remaining $72.8% of the partnership distributions.

Speaker #2: It paid its corporate taxes and any residual cash was available for dividends to the company shareholders. As previously announced, and Paul mentioned earlier on the call, the company reduced its monthly dividend from 7.75 cents per share to 6.75 cents beginning with that May dividend.

Christine D'Sylva: As previously announced, Paul mentioned earlier on the call, the company reduced its monthly dividend from CAD 0.0775 per share to CAD 0.0675, beginning with that May dividend. This was done in response to the ongoing market conditions and their impact on top-line system sales. For the quarter, the company declared dividends of CAD 5.2 million, or CAD 0.2125 per share, compared to CAD 5.7 million or CAD 0.2325 per share. The payout ratio decreased to 102% from 108% in the prior year's comparable period. The company used CAD 100,000 of its working capital to end the quarter with CAD 2.2 million. The CAD 2.2 million working capital reserve is available to stabilize dividends and fund other expenditures in the event of short to medium-term sales variability.

Speaker #2: And this was done in response to the ongoing market conditions and their impact on top-line system sales. So for the quarter, the company declared dividends of 5.2 million or 21.25 cents per share compared to 5.7 million or 23.25 cents per share.

Speaker #2: The payout ratio decreased to 102%, from 108% in the prior year's comparable period. The company used $100,000 of its working capital to end the quarter with $2.2 million.

Speaker #2: The 2.2 million working capital reserve is available to stabilize dividends and fund other expenditures in the event of short to medium-term sales variability. The company has historically targeted a payout ratio at or near 100% on an annualized basis, and with the recent dividend decisions, the company continues to target this on a go-forward basis.

Christine D'Sylva: The company has historically targeted a payout ratio at or near 100% on an annualized basis. With the recent dividend decisions, the company continues to target this on a go-forward basis. That concludes my financial overview. I'd like to turn the call back to the operator to poll for questions.

Speaker #2: That concludes my financial overview. I'd like to turn the call back to the operator to open the floor for questions.

Speaker #3: 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 touch-tone phone.

Operator: 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 touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Cheryl Zhang with TD Cowen. Please go ahead, Cheryl.

Speaker #3: You will hear a prompt at your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two.

Speaker #3: If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Cheryl Zhang with TD Cohen. Please go ahead, Cheryl.

Speaker #4: Hi, good afternoon. Paul and Christine, great to hear from you. Hope you're both doing well.

Cheryl Zhang: Hi, good afternoon, Paul and Christine. Great to hear from you. Hope you're both doing well.

Speaker #2: Hi, Cheryl.

Christine D'Sylva: Hi, Cheryl.

Speaker #1: Thanks, Cheryl. You too.

Cheryl Zhang: Thanks for taking our question. I wanted to first double-click on consumer behavior. I'm wondering if there's any change in consumer behavior that I can point to, in Q2 versus Q1. If you can comment on what are consumers cutting back on in their purchases?

Speaker #4: Thanks for taking our question. I wanted to first double-click on the consumer behavior. I'm wondering if there's any change in consumer behavior that we can point to in Q2 versus Q1.

Speaker #4: And if you can comment on what our consumer is cutting back on in their purchases.

Speaker #1: Yeah, that's a good question, Cheryl. I mean, I think just generally speaking, backdrop is still quite negative out there. I mean, obviously, we had even less traffic this quarter, which we're not happy about.

Paul Goddard: Yeah, it's a good question, Cheryl. I think just generally speaking, backdrop is still quite negative out there. Obviously, we had even less traffic this quarter, which we're not happy about. It does seem like some customers are reducing their frequency, so that obviously impacts overall traffic occasions. We do sense that people are just generally, in this environment, more likely to shop around. Even though we have a loyal customer base, some people are only loyal to their last great deal they received, and they'll pop around and get a similarly priced burger or even another pizza slice, et cetera. That's a factor. Just with generally customers struggling, then overlaying all this, I made a comment in my prepared remarks was just the fact that the NHL playoffs.

Speaker #1: It does seem like some customers are reducing their frequency. So obviously, it impacts overall traffic occasions. And we do sense that people are just generally in this environment more likely to shop around.

Speaker #1: Even though we have a loyal customer base, some people are only loyal to their last great deal they received, and they'll hop around and get a similarly priced burger or even another pizza slice etc.

Speaker #1: So that's a factor. Just with customers generally struggling, and then overlaying all this, I made the comment—my preferred remarks was just the fact that the, pardon me, the NHL playoffs last year, we had that long, long run with the Oilers and other teams, the Leafs, and this year, we just didn't see that.

Paul Goddard: Last year, we had that long run with the Oilers and other teams, the Leafs. We just this year, we just didn't see that. We were lapping also Four Nations last year as well. That was really good for us last year, and we just don't have that this year. Because we are somewhat leveraged to the success or lack of success of the big sports events, that's a factor, at least to that kind of fan base that really likes to eat more pizza when these events are on. I think just generally speaking, we are seeing a little bit less frequency and just people being a little more choosy, pivoting more to pick up, saving on delivery fee. Also on third-party platforms, I think they're getting expensive, not just for us, but I think all restaurants out there.

Speaker #1: And we were lapping, also, Four Nations last year as well. And so that was really good for us last year. And we just don't have that this year.

Speaker #1: So, because we are somewhat leveraged to the success or lack of success of the big sports events, that's a factor—at least through that kind of fan base that really likes to eat more pizza when these events are on.

Speaker #1: But I think, just generally speaking, we are seeing a little bit less frequency and just people being a little more choosy. Pivoting more to pickup, saving on delivery fees, and also on third-party platforms.

Speaker #1: I think they're getting expensive, not just for us, but I think all restaurants out there. So people, some people only use a certain third-party app, but we're trying to make it more and more attractive to have them use our organic apps, which are really much more effective come with our time guarantee and whatnot.

Paul Goddard: Some people only use a certain third-party app, but we're trying to make it more and more attractive to have them use our organic apps, which are really much more effective, come with our time guarantee and whatnot. We also see, just from some of our data analysis, some people are just not having as many add-ons. They might have gone for a drink before, two drinks, they might downgrade to one, maybe not get a dessert, maybe not get a dipping sauce. To counter things like that, we have been really actively promoting things like dipping sauces as add-ons because maybe a little more proactively than perhaps we used to in the past, because people are hurting. I think it's hard to just get a definitive behavior change to just specifically between Q1 and Q2, but certainly things are not better, I would say overall.

Speaker #1: And we also see just from some of our data analysis, people are some people are just not having as many add-ons. They might have gone for a drink before, two drinks, they might downgrade to one, maybe not get a dessert, maybe not get a dipping sauce.

Speaker #1: So we have to counter things like that. We have been really actively promoting things like dipping sauces as add-ons because being a little more proactively than perhaps we used to in the past because people are hurting.

Speaker #1: So I think it's hard to just get a definitive behavior change just specifically using Q1 and Q2, but certainly things are not better. I would say overall.

Speaker #2: And, Cheryl, I think, if they don't remember, for Pizza 73, they used to be like 90% delivery, 10% walk-in and pickup. And over the years, and even especially in the last few years, they've shifted to almost 40% walk-in and pickup as a combination of their sales.

Christine D'Sylva: Cheryl, I think, I don't know if you remember, for Pizza 73, they used to be like 90% delivery, 10% walk-in and pickup. Over the years, and even especially in the last few years, they've shifted to almost 40% walk-in and pickup as combination of their sales. To what Paul's saying, people are still coming, but they're shifting and trading down slightly, but within our own ecosystem. That is also a trend that we are seeing more of.

Speaker #2: So to what Paul's saying, people are still coming, but they're shifting and trading down slightly, but within our own ecosystem. So that's also a trend that we are seeing more of.

Speaker #1: Yeah. So as much as we can, we're obviously very known for value, and we can segment our customer base in some places where value is not as key, but obviously for our main core value is critical.

Paul Goddard: Yeah. As much as we can, we're obviously very known for value. We can segment our customer base in some places where value is not as key, obviously for our main core, value is critical. Pricing and convenience, we know that's one of our advantages. We have a lot of levers to pull there. Our omnichannel approach does help provide customers lots of ways to get to us. We'll take them however they want to get us, pick up, walk-in, delivery, even third-party app. We'll take them all. We do notice, I mean, more than ever, pricing is super competitive, and we've got to have that convenience factor.

Speaker #1: So pricing and convenience, we know that's one of our advantages. We have a lot of leaders to pull there and our omnichannel approach does help provide customers lots of ways to get to us.

Speaker #1: And so, we'll take them wherever they want to get us—pickup, walk-in, delivery, even third-party app—but we'll take them all. But we do notice, I mean, more than ever, pricing is super competitive, and we've got to have that convenience factor.

Cheryl Zhang: That's all very helpful. Thank you both for the color. Speaking of competition, it sounds like competitive activity has increased in Q2 versus Q1. Is that a fair comment? Do you feel that you need to increase promo versus what you have now?

Speaker #4: That's all very helpful. Thank you both for the color. And speaking of competition, it sounds like competitive activity has increased in Q2 versus Q1.

Speaker #4: Is that a fair comment? And do you feel that you need to increase promo versus what you have now?

Speaker #1: I think our sort of mix of promos to non is fairly consistent. Although we're certainly not happy with our traffic this quarter, we have noticed, I would say, a little more of the sort of what we call sort of in some cases, sort of irrational deep discounting by some significant players where they'll often at the end of a certain period or cycle, or quarter, they'll have extreme discounting for a period.

Paul Goddard: I think our sort of mix of promos to none is fairly consistent. Although we're certainly not happy with our traffic this quarter. We have noticed, I would say, a little more of the sort of what we call, in some cases, sort of irrational deep discounting by some significant players, where they'll often, at the end of a certain period or cycle or quarter, they'll have extreme discounting for a period. That does drive traffic, but we don't think that's a super sustainable economic model. We've tried not to chase that. We'd rather provide sort of consistent value on those real traffic-moving items. Absolutely we do discounts and opportunistic things, and we've been successful with things like SMS broadcasts to certain customers that are sort of dormant customers and things with very attractive discounts, but that's not to all our customers, it's only to targeted people.

Speaker #1: And that does drive traffic, but we don't think that's a super sustainable economic model. So we've tried not to chase that. We'd rather provide consistent value on those real traffic-moving items.

Speaker #1: And we're not—I'll say that we do offer discounts and opportunistic promotions, and we've been successful with things like SMS broadcasts to certain customers, such as dormant customers, with very attractive discounts. But that's not to all our customers.

Paul Goddard: We're trying to be smart about it rather than just discount all of our products out of just extreme desperation for traffic, because we want to be sustainable. We want to make sure our operators can also make money at the end of the day. We're driving top line all the time. That's critical for investors and net network growth, but we got to make sure that the bottom line works for franchisees. It's always a tightrope, but I think generally we've been trying to find that pretty well.

Speaker #1: be smart about it rather than just discount all of our products out of just extreme desperation for traffic because we want to be sustainable.

Speaker #1: We want to make sure our operators can also make money at the end of the day. So we're driving top line all the time.

Speaker #1: That's critical for investors, and for network growth, but we've got to make sure that the bottom line works for franchisees. So it's always a tightrope, but I think generally we've been trying to find that balance pretty well.

Speaker #4: Yeah, absolutely. And then, do you feel like you’re gaining or losing share versus your pizza category peers in this environment?

Cheryl Zhang: Yeah, absolutely. Do you feel like you're gaining or losing share versus your pizza category peers in this environment?

Speaker #1: I think we do have some recent data basically saying that both in Ontario and nationally, we have gained some share. And so that's positive.

Paul Goddard: I think we do have some recent data basically saying that both in Ontario and nationally, we have gained some share. That's positive. I think despite the fact that traffic's down, I think that reflects that the whole pizza segment is a tough place to be, even within the tough sector of QSR. I think I still am a big believer in the long-term ubiquity of pizza, and people still love it, but there are a lot of other choices. We do take some comfort in the fact that we did gain some share there. Even when it's in our favor, I will say sometimes the market share data, it's sort of directionally helpful, but in absolute terms, sometimes the data can be a little bit questionable. That's all I will say.

Speaker #1: I think, despite the fact that traffic is down, it reflects that the whole pizza segment is a tough place to be, even within the tough sector of QSR.

Speaker #1: And I think I still am a big believer in long-term ubiquity of pizza and people still love it, but there are a lot of other choices.

Speaker #1: And so it does we do take some comfort in the fact that we did gain some share there. Even though, look, even when it's in our favor, I will say sometimes market share data it's sort of a directionally helpful, but in absolute terms, sometimes the data can be a little bit questionable.

Speaker #1: That's all I will say. But we have said that we in our biggest market of Ontario, it's gone up. And nationally, so that's good.

Paul Goddard: We have said that in our biggest market of Ontario, it's gone up, and nationally, that's good. Sometimes it's down a little bit, too, but I think this has been quite encouraging. I do think some of the things we've been putting out there have been resonating, even though traffic is still not where we want it to be.

Speaker #1: And sometimes it's down a little bit too, but I think this has been quite encouraging. So I do think some of the things we've been putting out there have been resonating, even though traffic is still not where we want it to be.

Speaker #4: Okay. That's helpful. Thank you. And I know it's probably still early, but any initial reason how things are trending so far in Q3?

Cheryl Zhang: Okay. That's helpful. Thank you. I know it's probably still early, but any initial reads on how things are trending so far in Q3?

Speaker #1: I don't think we really have much to say there yet. I mean, I would just say that our marketing team continues to have a lot of great innovation and success there.

Paul Goddard: I don't think we really have much to say there yet. I would just say that our marketing team continues to have a lot of great innovation success there. I think there's some interesting things coming out. We have just launched our Ancient Grains as well, just recently. It's still early, but we're very encouraged by that protein-forward product that really speaks to an individual pizza with some really creative recipes that are fun, like a cup and char pepperoni with jalapenos and honey, Mike's Hot Honey and things like that. These are, I think, something that we hope will do really well. That's just one example, but it's a little early to say that. I think things like that and also the slice, the extra large slices that we put out there, we are, I think, encouraged.

Speaker #1: I think there's so much new things coming out. And we have just launched our ancient grains as well. We just recently, so that's it's still early, but we're very encouraged by that protein-forward product that really speaks to sort of an individual pizza with some really creative recipes that are fun, like a cup-and-char pepperoni with jalapeños and honey and microsoft honey and things like that.

Speaker #1: So these are, I think, something that we hope will do really well. That's just one example. But it's a little early to say that. But I think things like that, and also the slice—the extra large slices that we put out there—we are, I think, encouraged, at least. Early signs of that seem to be hitting people where they have less slice.

Paul Goddard: At least early signs of that seems to be hitting people where they have less slice. It's competitive against a CAD 5 offering that someone else might offer, that's a pretty good deal. A slice and a big drink, a big slice and a drink. Some of those are just a couple examples of, I think, where we hope for Q3 to go. Things like the Calgary Stampede, that was actually quite successful for us. We had a saddle slice out there. There's these three deep-fried slices, we had a similar thing here in Toronto that really resonated. I think we came in second place for the most innovative food offering, it drove a lot of social media and a lot of transactions there. That's not the biggest sales driver in the company, obviously, but these little victories sometimes do add up.

Speaker #1: It's competitive against a $5 offering that someone else might offer, and that's a pretty good deal—a slice and a big drink, a big slice and a drink.

Speaker #1: So some of those are a couple of examples of, I think, where we hope for Q3 to go. And also, we will, I mean, things like the Calgary Stampede, that was actually quite successful for us.

Speaker #1: We had a saddle slice out there. There's three deep-fried slices, and we had similar thing here. In Toronto, that really resonated. I think we came in second place for the most innovative food offering, and it drove a lot of social media and a lot of transactions there.

Speaker #1: So, that's not the biggest sales driver in the company, obviously, but these little victories sometimes do add up. We think we really spoke to people there, and we were sort of culturally relevant at the right time. That's something we're pretty proud of the team for doing—being quick and agile.

Paul Goddard: We think we really spoke to people there, we were sort of culturally relevant at the right time, that's something we're pretty proud of the team doing, being pretty quick and agile. What we try and do is amplify those and get those things to be more significant so it's material.

Speaker #1: And what we're trying to do is amplify those and get those things to be more significant. So it's material.

Speaker #4: That's great, thank you. And in terms of your sales channel, how much of your sales is from third-party versus your own digital channels and in-store?

Cheryl Zhang: That's great. Thank you. In terms of your sales by channel, how much of your sales is from third party versus your own digital channels and in-store?

Speaker #1: Yeah, we've just, for competitive reasons, we would rather not disclose that. It's a portion that we think is an important channel, but we are way more driven by our organic channels.

Paul Goddard: Yeah. Just for competitive reasons, we would rather not disclose that. It's a portion, we think it is an important channel, but we are way more driven by our organic channels. Those are something that we're really putting more dollars into, I think you'll start to see that more over time in the next six months as well. I think just the fruits of our labors there. Those are important channels, though. The third party, we know that there's some people that only order on those channels, we have to talk to those customers as well. It's still valuable, but it's a very expensive channel for us and everyone else, we'd rather pivot them.

Speaker #1: And those are something that we're really putting more dollars into, and I think you'll start to see that more over time, in the next six months as well.

Speaker #1: I think just the fruits of our labors there. Those are important channels, though. The third-party, we know that there's some people that only order on those channels, and so we have to talk to those customers as well.

Speaker #1: And it's still valuable, but it's a very expensive channel for us and everyone else. And we'd rather pivot them. So we do things on our packaging, and as much as we can, to the extent we have customer data or the ability to try and leverage them through the packaging—through QR codes and things like that—that say, "Hey, next time order organically, we'll give you a free Coke," or two free side items, or something like that.

Paul Goddard: We do things on our packaging and, as much as we can, to the extent we have customer data or the ability to try and leverage them through the packaging, through QR codes and things like that say, "Hey, next time order organically, we'll give you a free Coke or two free side items," or something like that. We're trying to sort of steal back from those third-party channels as much as we are also using them. I would say it's a small portion. It's significant, but it's certainly nothing like a majority of our sales or anything like that. Our organic channels are much more significant. Our walk-in, our delivery. We've got a great fleet of drivers, and we've got a great pickup and walk-in capability that we prefer to really have people use.

Speaker #1: So we're trying to sort of steal back from those third-party channels as much as we are also using them. But I would say it's a small portion.

Speaker #1: It's significant, but it's certainly nothing like a majority of our sales or anything like that. Our organic channels are much more significant—our walk-in, our delivery. We've got a great fleet of drivers, and we've got a great pickup and walk-in capability that we prefer to really have people use.

Speaker #4: That's helpful, thank you. And maybe, switching gears to cost and inflation, I wonder if you can comment on the cost environment—any notable inflation that you're seeing in either food supply or energy?

Cheryl Zhang: That's helpful. Thank you. Maybe switching gears to cost and inflation, wonder if you can comment on the cost environment. Any notable inflation that you're seeing in either food supply or energy?

Paul Goddard: You might want to ask Christine for that. I don't think on energy or Philip, perhaps, just on supply chain, inflation-wise, there's some areas perhaps. I don't think there's any major increases there.

Speaker #1: I don't want to ask Christine for that, but I don't think on energy. Or Philip. It's just on supply chain. Inflation-wise, I mean, there's some areas, perhaps, but I don't think there's any major increases there.

Speaker #2: And we've had some increases in onions and some produce that we were able to mitigate. And also some proteins as well that we're working closely with our suppliers on.

Philip Goudreau: We've had some increases in onions and some produce that we were able to mitigate, also some proteins as well that we're working closely with our suppliers on. Those are industry issues we see at the grocery store as well, and we're certainly not immune to it in the business side either.

Speaker #2: But those are industry issues we see at the grocery store as well, and we're certainly not immune to it in the business side of it.

Speaker #3: And we try to use—we use our buying power because we are the distributor for all of our Ontario and Quebec stores. So, we have some strong buying power in terms of these items.

Christine D'Sylva: We use our buying power because we are the distributor for all of our Ontario and Quebec stores. We have some strong buying power in terms of these items. We have a lot of power to negotiate with our vendors, and we have a lot of great vendors who we have been in partnership with for many, many years. We are always working with them to kind of get us through these highs and the lows as we build out and look at the food cost. We really need to balance the profitability of the stores and what our end customers can afford to cover right now.

Speaker #3: So, we have a lot of power to negotiate with our vendors, and we've got a lot of great vendors who we've been in partnership with for many, many years.

Speaker #3: So we're always working with them to kind of get us through these highs and the lows. As we build out and look at the food cost—because we do, we really need to balance the profitability of the stores.

Speaker #3: And what our end customers can afford to cover, right now.

Speaker #1: Gotcha. And just the only thing I'd add to that, those good comments, Cheryl, is that what you’re putting on energy is, we do have some long-term marketing deals, using our economies of scale with our restaurants.

Paul Goddard: Yeah, sure. Just the only thing I would add to that, those good comments, Cheryl, is that your point on energy is we do have some long-term marketing deals using our economies of scale with our restaurants. We sort of essentially control their commodity rate for things like natural gas across most of our restaurants there, rather than having them sign up with retail door knockers, for instance, that used to come and sign you up on exorbitant energy rates. We do think that we are helping mitigate costs for franchisees for things like natural gas and to some extent electricity. Certainly, with the macro backdrop with oil price pressures, with sustained geopolitical issues and things in the Middle East, if crude were to stay up and go up more and more, then we could expect to see some commodity price increases over the longer term.

Speaker #1: So, we essentially control their commodity rate for things like natural gas across most of our restaurants there, rather than having them sign up with retail door knockers, for instance, that used to come and sign you up on exorbitant energy rates.

Speaker #1: So we do think that we're helping mitigate costs for franchisees for things like natural gas and, to some extent, electricity. But certainly, with the macro backdrop, with oil price pressures—this day and geopolitical issues, and things in the Middle East—if crude were to stay up and go up more and more, then we could expect to see some commodity price increases over the longer term.

Speaker #1: But I think we're generally pretty well insulated from that right now. That hasn't been quite as much of an issue as it used to be.

Paul Goddard: I think we are generally pretty well-insulated from that right now. That has not been quite as much of an issue as it used to be. I remember many years ago, 15, 20 years ago, with franchisees, things like the cost of natural gas were a major input cost. We still really manage it as best we can, to the extent we can, and I think we have actually been pretty successful there. We always sort of keep a close eye on it and do what we can to help the franchisees.

Speaker #1: I remember many years ago, 15 or 20 years ago, with franchisees, things like the cost of natural gas were a major, major input cost. So we still really manage it as best we can.

Speaker #1: To the extent we can. And I think we've actually been pretty successful there, but we certainly keep a close eye on it and do what we can to help the franchisees.

Speaker #4: Okay, that's all very helpful context. Thank you. And maybe last one from me. Can you comment on the health of your franchisees, any impact on their profitability or returns, and if you're seeing any changes in the level of interest in new stores?

Cheryl Zhang: Okay. That is all very helpful context. Thank you. Maybe last one from me. Can you comment on the health of your franchisees? Any impact on their profitability, returns, and if you are seeing any changes in level of interest in new stores?

Speaker #1: I think overall, I mean, pipeline-wise, I think we're feeling pretty good. I mean, that's something that's been very good. I mean, if anything, we have to we screen people, and we get a lot more interest than people we can take.

Paul Goddard: Overall, pipeline wise, we're feeling pretty good. That's something that's been very good. If anything, we screen people and we get a lot more interest than people we can take, and we don't always get franchisee pipeline where we want them, because everyone might want to be in downtown Toronto or something. I think we're pretty happy with that. Development-wise, we're trying to grow roughly 2% a year. We're going to have two dozen traditional stores type of thing. In terms of the average unit volume, the bottom line, it's certainly tough. I think overall, we've been pretty happy with some of our key metrics. Our food cost, we try and really be within a certain range that we know our own KPIs for rents as a % of sales, labor as best we can approximate with the franchisee's labor.

Paul Goddard: Overall, pipeline wise, we're feeling pretty good. That's something that's been very good. If anything, we screen people and we get a lot more interest than people we can take, and we don't always get franchisee pipeline where we want them, because everyone might want to be in downtown Toronto or something. I think we're pretty happy with that. Development-wise, we're trying to grow roughly 2% a year. We're going to have two dozen traditional stores type of thing. In terms of the average unit volume, the bottom line, it's certainly tough. I think overall, we've been pretty happy with some of our key metrics. Our food cost, we try and really be within a certain range that we know our own KPIs for rents as a percent of sales, labor as best we can approximate with the franchisee's labor.

Speaker #1: And we don't always get the franchisee pipeline where we want them, because everyone might want to be in downtown Toronto or something. But I think we're pretty happy with that.

Speaker #1: And development-wise, I know we're trying to grow roughly 2% a year, or two dozen sort of traditional stores, that type of thing. In terms of the average unit volume, the bottom line, I mean, it's certainly tough.

Speaker #1: But I think overall, we've been pretty happy with some of our key metrics. Our food cost, our we try and really be within a certain range that we know our own KPIs for rest is kind of sales, labor is best we can approximate with the franchisee's labor.

Speaker #1: And we just really expect good operational field management as well and coaching the franchisees to say, "Manage your labor carefully. Do a great job with service and execution so that you do get a good bottom line." So we certainly rents, we always try and hold the line on as best we can, but there is a level of inflation.

Paul Goddard: We just really expect good operational field management as well and coaching the franchisees to say, Manage your labor carefully. Do a great job with service and execution, and so that you do get a good bottom line. Certainly rents, we always try and hold the line on as best we can, but there is a level of inflation. Labor's generally always going up with the average hourly wage and things like that. These are all headwinds, and we can't always get price on the revenue side. We've really tried to help franchisees, but things like subsidies and things, I think we've done a really good job of managing that and sort of having franchisees not owe us more than they used to, even in these tough times.

Speaker #1: Labor is generally always going up with the average hourly wage and things like that. So these are all headwinds. And we can't always get price on the revenue side.

Speaker #1: So we've really tried to help franchisees, but things like subsidies and things, I think we've done a really good job of managing that. And sort of having franchisees not owe us more than they used to.

Speaker #1: Even in these tough times, I would say there's always some people at the bottom of the portfolio who maybe need a little more help. But we really think the core, average franchisee should be self-sufficient and get a good return.

Paul Goddard: I would say, there's always some people at the bottom of the portfolio that maybe need a little more help, but we really think the core average franchisee should be self-sufficient and get a good return. Again, that's a critical driver for us, for our franchisees, for the sustainability of the brand and for Pizza Pizza Limited selling items to people. I just would stress again, as you know, Cheryl, for the Pizza Pizza Royalty Corp, it's really the top line that's critical. We are exposed to that operational risk and so are other franchisees. We've had a great track record with PPRC because it's just top-line revenue sales, that 6% that's driving that for the investor and giving them that sort of 6% to 7% yield typically, and that net network growth. We'll keep driving hard on that side.

Speaker #1: And again, that's just a critical driver for us, for our franchisees, for the sustainability of the brand, and for Pizza Pizza Limited selling items to people. But I would just stress again, as you know, Cheryl, for the Pizza Pizza Royalty Corp., it's really the top line.

Speaker #1: That's critical. So, we are exposed to that operational risk, and so are other franchisees. But we've had a great track record with PPRC, because it's just the top-line revenue sales, that 6% that's driving that for the investor and giving them that sort of 6% to 7% yield typically.

Speaker #1: And that net network growth. So we'll keep driving hard on that side. That's our duty to do that. And a lot of that's, of course, driven by traffic and sales.

Paul Goddard: That's our duty to do that. A lot of that's, of course, driven by traffic and sales. On the side of the franchisee and the private operating company, we do want to make sure it's profitable.

Speaker #1: But on the side of the franchisee and the private operating company, we do want to make sure it's profitable.

Speaker #4: That's great. Thank you, Paul. That's all from me. Thanks so much, everyone.

Cheryl Zhang: That's great. Thank you, Paul. That's all from me. Thanks so much, everyone.

Speaker #3: Thanks, Cheryl.

Christine D'Sylva: Thanks, Cheryl.

Speaker #1: Okay. Thanks, Cheryl. Nice speaking with you.

Paul Goddard: Okay, thanks, Cheryl. Nice speaking with you.

Operator: There are no further questions. I will now turn the call over to Christine D'Sylva for closing remarks.

Speaker #5: And no further questions. I will now turn the call over to Christine D'Sylva for closing remarks.

Speaker #3: Thanks, everyone, for joining us on the call today. If you have any questions, please contact us. Our information is on the earnings release. Have a great evening.

Christine D'Sylva: Thanks, everyone, for joining us on the call today. If you have any questions, please contact us. Our information is on the earnings release. Have a great evening.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Q2 2026 Pizza Pizza Royalty Corp Earnings Call

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