Release Date: July 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- MTY Food Group Inc (MTYFF, Financial) reported positive system sales growth for its US locations in Q2 2024.
- The franchising segment's normalized adjusted EBITDA increased by 1% to $52.6 million.
- Digital sales for Q2 2024 increased by 8% compared to the same period last year.
- The snack category, including brands like Cold Stone and Wetzel's Pretzels, performed extremely well in the US.
- MTY Food Group Inc (MTYFF) repurchased and canceled 266,700 shares, indicating strong shareholder returns.
Negative Points
- Overall revenues decreased slightly from $305.2 million in Q2 2023 to $303.7 million in Q2 2024.
- System sales for the quarter decreased by 1%, with a significant decline in Canada.
- Same-store sales saw a decrease of 2.1% over the last year.
- Corporate store margins dipped to 13% from 14% in the prior year due to increased minimum wages and supply chain costs.
- Income attributable to owners decreased by 10% year over year, primarily due to lower normalized adjusted EBITDA and higher foreign exchange losses.
Q & A Highlights
Q: Can you talk about the lifting of the $50 million restriction related to the credit agreement? Does this indicate that management may get more active on buybacks, and how does this relate to possible smaller acquisitions this year?
A: The priority for us remains to do more acquisitions in the future. The $50 million restriction was historical and no longer applied, so we amended the facility to remove the cap. This frees us up for more NCIB or dividend actions. However, M&A remains our primary focus. Smaller acquisitions are still possible this year, but larger ones are unlikely unless the right opportunity arises.
Q: Could you contrast the differences in same-store sales between Canada and the US? Is this due to specific reasons or general economic factors?
A: The mix of brands in both countries is very different. Our snack category in the US performed extremely well, which we don't have as much in Canada. In Canada, some sushi brands had a sluggish quarter, possibly due to price points or other factors. The brand mix is the main differentiator.
Q: Are you seeing increased promotional activity and value offers in the brands you operate?
A: Yes, promotional activity has intensified, especially in the US. We focus on the experiential nature of our restaurants rather than competing solely on price. We do have value offers and are testing different promotional activities to see what gains traction.
Q: Can you provide an update on the ERP implementation and what to expect over the coming quarters?
A: The ERP implementation is progressing well and is on budget. The intensity of the spend and effort will increase over the next 12 months. We have tight controls and processes in place to manage the transition without disrupting the business.
Q: What is the current state of delivery penetration for MTY in the US and Canada? Is this still an opportunity for the company?
A: Delivery remains an opportunity, with digital sales at 20%. Consumers are becoming more sensitive to the cost of delivery, leading to increased use of takeout options. We aim to grow all sales channels while ensuring delivery orders are incremental.
Q: Is there any strategic shift regarding the sale of corporate stores?
A: There is no major shift planned. We will sell some corporate stores opportunistically, but there is no initiative to sell a large number of stores. We remain a franchisor at heart.
Q: Can you quantify the impact of the California wage increase on your US EBITDA margin this quarter?
A: We did increase prices to compensate for the wage increase, but not fully. It did affect our margins adversely, though not materially. We are monitoring the situation closely.
Q: What initiatives have you implemented for cost control, and where are you in the process?
A: In the US, we combined several divisions to consolidate knowledge and expertise. We are mostly done with these actions in the US. Future actions may come in Canada and other functions, but nothing major is planned at the moment.
Q: What is driving the strong performance of your snack brands like Cold Stone and Wetzel's Pretzels in an environment where consumers are cautious about spending?
A: These brands have exceptional products and marketing, which drive their success. The experiential nature and craveability of the products are key factors. We aim to set this standard for all our brands.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
