Pizza Pizza Royalty Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Pizza Royalty Corp. Earnings Call for the Q1 of 2023. During the presentation, all participants will be in a listen only mode. After the speakers' remarks, there will be a question and answer As a reminder, this conference is being recorded on Tuesday, May 9, 2023. I will now turn the call over to Alex Sander Durrant, Director of Finance.

Speaker 1

Thank you. Good afternoon, everyone, and welcome to the Pizza Pizza Royalty Corp's earnings call for the Q1 ended March 31, 2023. Joining me on the call today are Pizza Pizza Limited's Chief Executive Officer, Paul Goddard and Chief Financial Officer, Christine D'Silva. 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.

Speaker 1

All forward looking statements should be considered in conjunction with the cautionary language and portfolio managers and media can contact us after the call. Before turning the call over to Paul for the business update, I wanted to spend a few moments reviewing the structure of the corp for our new investors. Pizza Pizza Royalty Corp. Indirectly owns the Pizza Pizza and Pizza 73 brands and trademarks through its subsidiary Pizza Pizza Royalty Limited Partnership. The partnership has 2 partners, Pizza Pizza Royalty Corp, the public company, which owns 76.1 percent and the other partner Pizza Pizza Limited, the private operating company, which owns the remaining 23.9%.

Speaker 1

The Royalty Corp. Is a top line restaurant Royalty Corp. That earns a monthly royalty through a lease agreement with Pizza Pizza Limited. In exchange for the use of the Pizza Pizza and Pizza 73 trademarks in its restaurant operations, Pizza Pizza 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 in the Royalty Pool and by adding new restaurants to the pool each year.

Speaker 1

The ROCE pool is adjusted at the beginning of each year by adding new restaurants opened in the previous year, less any restaurants that have been permanently closed. For the fiscal year 2023, the royalty pool was adjusted on January 1, 2023 to include 6 44 Pizza Pizza Restaurants and 99 Pizza 73 Restaurants. So with that review, I'll turn the call over to Paul Goddard to provide a business update.

Speaker 2

Thanks, Alex. Good evening, everyone. Thank you for joining us on today's call to discuss the results of our Q1 of 2023. After our strong finish to 2022, We're happy to report the continued momentum with our 8th consecutive quarter of positive sales growth. For the quarter, our same store sales, The key driver of yield growth for shareholders increased 13.6%.

Speaker 2

This translated into our Dividend increased in the last 3 years, working capital reserve of $7,200,000 and adjusted EPS growth of 16.2%. So I'm excited about the year ahead for each of our brands and I'm incredibly proud to see the hard work of our employees, our franchisees and our partners and their team members who are responsible for the results we're sharing today. As we discussed on our call, in 2023, we will continue to leverage our brand assets as we implement New promotions, knowing that the best way to improve the financial health of our owner operators and shareholders is to drive traffic and top line sales, while also Now let's get into our details on performance by brands, starting with Pizza Pizza. We kicked off the year with a 15.5% increase in same store sales in Q1. Growth this quarter was driven by increases in both guest traffic and the average customer Customer traffic rebounded from pandemic related restrictions in the Q1 last year, especially at our nontraditional Additionally, sales have benefited from the thoughtful calendar initiatives and strengthened core offerings, Our results were further aided by enhanced restaurant operations and smart pricing.

Speaker 2

Highlights during the quarter included a focus on the well received value driven fixed Pizza deal supported by a new TV campaign, new menu innovation focused on our well loved chicken wings, memorable brand activities around Valentine's Day And our ownable dipping sauce category, which laddered up to our recently established brand positioning, everyone deserves pizza. Pizza Pizza has always celebrated special occasions and dates. And this year, we augmented the already busy Valentine's Day with a new brand action Targeting Canadian singles called Singles for Singles. Select locations in multiple markets changed their name to Just one word pizza instead of the double pizza pizza to celebrate single people and we gave out free slices that evening to each unattached diner and guest half. With over 10 new subscriptions, it was our most successful social media acquisition to date.

Speaker 2

And just to give you a rough indication of that, of the free slices that were redeemed, Three quarters of those were from new app downloads, so we're really happy with that. Our customers have a deep love for our brand clearly Especially our dips. So this quarter, we developed a brand action rooted in everyone deserves pizza based on varying dip behaviors such as dipping the whole slice versus just the crust. And as a result, we developed a new tool to make pizza eating that much easier, the Pizza Pizza diproller. It's funny how much this went viral, way, it was a loss late in the quarter, and the early responses met with excitement and positive responses from tens of thousands of entries to win a limited edition diproller in the 1st couple of weeks and our 2nd largest number of impressions on organic social channels ever behind Singles for Singles.

Speaker 2

So that's been a lot of fun lately. Lots of fun chatter 1,000,000 of impressions in earned media by the end of the quarter. We're really delighted that the positive fund buzz around us on social media. So it just gives us more ideas for the future as well. Our brand activations and campaigns have not only been well received by our customers, they have also garnered us attention from news outlets, We won several industry awards and gained several more nominations this quarter.

Speaker 2

So congrats to the company team as well for their great work there. Turning now to Pizza 73. This quarter we focused on innovation in food, restaurants and technology and a 3% same store sales growth for the quarter. This growth has come from an increase in average customer check and traffic. The company successfully passed along retail price increases largely related to commodity and labor increases and the reopening of our non traditional venues really drove the overall increase in traffic for the Pizza 73 brand.

Speaker 2

Digital ordering has fundamentally changed the business over the years and will continue to be a major driver of growth the next several years and beyond. To help accelerate growth in this channel, Pizza 73 launched a brand new suite of digital ordering platforms in Q1. The new website and apps greatly improved the customer experience with easier navigation, new product categorizations and a smoother and faster interface. And customers can create their own pizza from scratch now, believe it or not, we couldn't do previously 50 to 73. So a lot more flexibility for the customer as well.

Speaker 2

And all of these improvements have translated into an average customer check Increased transfer check on our digital platform. And early signs are that it is also having a positive impact on traffic and our overall percent of digital Versus non digital transaction. So we're really encouraged there even though it's early days, it's a good sign. And in addition to the new website, this quarter Pizza 73 introduced a new product category, Which many of you will be familiar with, we launched here a while ago. So we've tagged it with an interesting slightly different approach out there saying Fancy pizza without the schmancy price.

Speaker 2

So we're trying to maintain that value image, but quality, quality product. But the product is very similar to the gourmet condensate pizza And takes more of a true and gourmet feel with a thin crust for people. And this new category for Pizza 70 3 is really designed to That's through higher quality thin crust express image people to our existing customers and also appeal to new customers looking for lighter pizza options. 3 new recipes were developed and 5 top selling recipes were configured for our gourmet thin category. In 2023, our marketing activity will continue with a focus on our Our business, be it menu, tech, restaurant or any other aspect of our business.

Speaker 2

We're always looking to automate internally as well and really leverage technology and AI is a Part of that as well, more and more, of course. Number 3, driving organic orders, very important for us. And number 4, maintaining and growing profitability of our franchisees So turning now to our network. We ended the Q1 with a total of 7 49 locations, of which 6 49 were Pizza Pizzas and 100 were Pizza 73. We opened 2 traditional and 7 non traditional Pizza Pizzas and closed 2 traditional and 1 non traditional location.

Speaker 2

Additionally, during the quarter, the company opened 1 traditional Pizza 73 and we renovated 10 Pizza Three locations, which we're also very excited about making great progress there. Construction and supply chain issues have largely subsided early in 2023, but we are still experiencing some delays in obtaining permits and getting final inspections in some jurisdictions. And despite these temporary delays, our management team remains confident that we We remain focused on growing our business across Canada, and it's safe to say we are known and respected as a major homegrown national brand coast to coast and the leading pizza chain in the country. And one exciting piece to note, subsequent to our quarter end, Our team traveled to Mexico for the opening of our first two international restaurants, the PZA Pizzeria brand, as it's known in Mexico, PCA pizzeria has been well received in Mexico and we're looking forward to updating you further as we continue to open more restaurants down there. And by the way, we will be opening our 3rd restaurant down there just south of Lahara in Lake Chapala region within the next month or so.

Speaker 2

So that's really exciting and we'll have more to share in future quarters on that. Looking ahead, in 2023, you will see us pushing hard on menu innovation, marketing initiatives, restaurant growth, technology and other digital first investments, and we will work closely with our owner operators to ensure they're delivering excellent and consistent products in a clean, safe and attractive restaurant environment with a nice ambiance. I'd like to close by congratulating our entire team. One of the critical keys to our success is absolutely our people, our teamwork, our trust, our work ethic. I think they all Combined together in our creativity, I think we've all worked really hard together.

Speaker 2

We also have a lot of fun together to create a very innovative, ambitious Collaborative culture right across the country and now internationally with our wonderful partners in Mexico at both brands and now we have a 3rd brand, PZA. As we announced last quarter, I'm also very proud of our team for being recognized recently by Waterstone as one of Canada's most admired corporate cultures And this quarter by the Canadian Franchise Association as a leader in and the winner of their Diversity and Inclusion Award. So with that, I'd like to now turn the call over to Christine for a brief financial update.

Speaker 3

Thanks, Paul. Before I go over the financial I'd like to remind everyone about the January 1st royalty pool adjustment. As Alex mentioned, on January 1st each year, the royalty pools adjusted team net restaurants as a result of 45 new restaurants opening less 29 restaurants permanently closing. For 2023, there will be 743 restaurants in the Royalty Pool made up of 644 Pizza Pizza locations and 99 Pizza 73 restaurants. This is being compared to 2022 when there were 727 restaurants.

Speaker 3

So now I'll just briefly cover some key financial results for the quarter. And as Paul mentioned, it's a quarter that continued to build on the momentum of 2022. Same store sales growth, the key driver of yield for shareholders, increased 13.6% for the quarter. Pizza Pizza Restaurants reported 15.5% same store sales for the quarter, while Pizza 73 Restaurants were 3% positive. Both brands saw an increase in customer transactions as well as average ticket.

Speaker 3

The combination of restaurants being added to the royalty pool And the same store sales resulted in an increase in royalty pool system sales and a corresponding increase in royalty income. Royalty Pool System sales for the quarter increased 16.1 percent to $142,700,000 from $122,900,000 in the same quarter this year. By brand, sales from the 6 44 Pizza Pizza Restaurants increased 18% to $123,700,000 for the quarter And sales from the 99 Pizza 70 3 restaurants increased 5% to $19,100,000 for the quarter. The partnership's royalty income earned as a percentage of royalty pool sales increased 15.3 percent to $9,100,000 for the quarter. Turning to the partnership expenses.

Speaker 3

Administrative expenses for the quarter were $143,000 and these include costs as well as director, legal and auditor fees. And this quarter included the annual shareholder meeting costs. In addition to administrative expenses, the partnership pays interest expense on its $47,000,000 credit facility. The interest paid in the quarter was $316,000 The partnership is currently making interest only payments on the non revolving facility. Our interest rate is locked through April 2025 using a swap agreement that has fixed the interest rate at The BA rate of 1.81 percent plus our credit spread.

Speaker 3

The credit spread changes based on the level of debt to EBITDA. And in April of 2022, as the Partnership earnings increased, our debt to EBITDA ratio improved and our credit spreads on the facility decreased 25 basis points for a combined rate of 2.685 compared to the same period of last year when we were paying 2.935. So after paying after the partnership receives royalty income and pays administrative and interest expenses, the resulting net cash is available for distribution to its 2 partners based on their ownership percentage. And as Alex mentioned, Pizza Pizza's interest increased to 23.9% on January 1 as a result of vending in new restaurants. Pizza Pizza Royalty Corp.

Speaker 3

Shares 76 0.1% of the partnership's distribution, paid taxes on its share of the partnership earnings and the residual cash is available for dividends to our shareholders. Speaking about shareholder dividends, during the quarter, the company increased its dividend for the 6th time in the last 3 years. With this most recent dividend increase, our current dividend exceeds the pre COVID rate and The company declared shareholder dividends of 5 point $1,000,000 in the current quarter or $0.215 per share compared to $4,700,000 or $0.19 per share in 2022. The resulting payout ratio was 104% for the quarter. System sales in the Q1 of the year are generally the softest and We have always had a payout ratio greater than 100%.

Speaker 3

Our target is 100% payout ratio on an annualized basis. The company's working capital decreased by $200,000 during the quarter, but ended the quarter strong at $7,300,000 And with an increase in this working capital balance, the company believes that there is sufficient cash flow to service all obligations as they fall due. And we will continue to monitor sales and royalty income to determine when additional dividends may be warranted. That concludes our financial overview. I'd like to turn the call back to the operator to poll for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. We have our first question from Derek Lessard, C. D. Cowen.

Operator

Please go ahead.

Speaker 4

Yes, thanks and good afternoon everybody. Congrats on some really nice results.

Speaker 2

Thanks, Derek.

Speaker 3

Thanks, Derek.

Speaker 2

I just I guess I'm

Speaker 4

going to start in reverse order and I wanted to talk about the Mexican initiative. I know Paul you said it's in the early days, but Congratulations on opening your first store there. I just wanted to know, maybe if you can give us an idea of what you guys are thinking strategically long term for the brand there and maybe internationally?

Speaker 2

Okay. Good question. We are excited about it. Like you say, it is early days. We really like these partners at Hintos 4 years ago.

Speaker 2

They're a very well established group down at Guadalajara. They're actually working with another an American QSR brand, non pizza That's down there as well. We like that. We did our due diligence on them. We think there's a tremendous market opportunity down there.

Speaker 2

Just in rough numbers, foodservice sector There, especially in the piece that we're in, it seems to be growing about double the rate of what it would be here. Depending on which research house you look at, you hear numbers like 8% or 9% roughly Growth there versus say 4% here. There's a bit of play in there, but basically it's at least double in the per capita pizza consumption is high. It's a growing market. We've got 3 times the population essentially down there.

Speaker 2

Obviously, it's a complicated environment down there for obvious reasons. We didn't go into it lightly, but we like the partner. They have great experience. They know the city well. We've spent a lot of time Over COVID, it slowed us down a little bit.

Speaker 2

We hope to launch sooner than we did, but we're not that much delayed actually. They we had extensive training with them Up here, down there. And it's just we feel like we really know how to hit the market there. I think there is existing competition. There's independent players down there.

Speaker 2

There's also some familiar names you would know down there, some global brands. So we're not the first people on the block, but We just think we have a very compelling value proposition as we do here, really highlighting also our Canadian roots, you can get exactly the same pepperoni slice down Same ingredients, same quality, really nice environment, just like our beautiful renovated stores here. So people seem to really already be Really resonating with it. We've, I think, been very pleased with the attention that we've generated from here and also to credit to the Mexican folks down there. They've done an amazing job with their partners and their marketing partners to drive attention.

Speaker 2

So we're starting slowly and carefully. We're training them to be a good master franchisee essentially and then sub franchise from there. They've got to meet certain criteria to do that, but we know the store economics are very good there. Margins are very good. Labor is obviously a lot cheaper down there.

Speaker 2

It seems like construction are actually not that cheap. So there are some challenges down there. But overall, the economic picture is much better on a unit level. So We're encouraged by that because we know that not only can they make money while they have them corporately when they sub franchise and the sub franchisees should do very well. Even though we're saying, okay, 3 stores right now, 2 to 3 and then we'll probably have something like 8 to 10 end of the year, and probably 10 a year or so is our rough growth Forecasting Guadalajara, that market probably has potential to be 30 or 40 or so in Guadalajara, if not more.

Speaker 2

And then we also hope with these folks to Expand the partnership with them to other jurisdictions. So we're already kind of doing some thinking about that and Certain criteria have to be met, but we think there's huge potential in Mexico. We won't go everywhere in Mexico. We're going to there are certain places we may not want to go, But there's a heck of a lot of opportunity there. And we really like this brand because it's very clear graphically that it's our same brand.

Speaker 2

It's sort of squished into the PZA, which obviously is our stock ticker, still got the Canadian flag and letter A. The only difference is that we've revised it a little bit. We've got things like a Passador pizza there, Popular there. It's already, I think, our 3rd selling item, fast behind piperone another one. So it's really encouraging.

Speaker 2

And we just like our positioning. We think for value, we can be a really key value player with better quality, better technology and all the other aspects that our brands can bring in Canada. We're bringing it down there. And so just our also our expertise behind the front counter is also an advantage. We're just you have more automation, I think more efficiencies than some of our competitors.

Speaker 2

So that makes us pretty optimistic. It's still early days. I don't want to over get too excited, but it's kind of encouraging. So we think Mexico could be a very big market. And then obviously, On a broader basis, we're thinking, yes, if we can improve ourselves here, and we don't have to wait years, by the way.

Speaker 2

We're also we're getting We're knocking on our door even more since we announced this. So we are already vetting some entities that have expressed interest from other countries That's there's different structures that could be, but we sort of like the very similar sort of master franchise type structure that a lot of brands have done when they've gone global. And so again, we wouldn't necessarily say we're going to be in every country or anything, but if the country makes sense and we can do well there with a good local partner like these folks in Mexico, Then we think there's definitely multi country potential and we're pretty ambitious about that. So we also learned I think how to manage it better because it's quite a bit of work for Right. And our team here, we want to make sure that we have 750 or so restaurants in Canada.

Speaker 2

We've got 3 in Mexico right now. So we don't want to make sure we get too distracted, but we also have some very independent partners now there that are less and less reliant on us. They really are doing a great job. They're very professional, Got a great team down there. So that model seems to work.

Speaker 2

So if we go to other jurisdictions, I think we can maybe even be lighter touch now that we have some more experience under our belt, learning how to be a good sort of Canadian based master franchisor.

Speaker 4

That's a great update, Paul, and thanks for that. I guess I'm also curious You mentioned that there are some of the same, let's call them, like competitors down there. Curious on the market shares Of the not specific, but just generally speaking, is there anybody that has like a super big market share compared to everybody else?

Speaker 2

I think it's fairly split. I mean, I don't want to get too specific on who we've been looking at more things, but Just for competitive reasons, but I mean a lot of the names that you would be familiar with are very active down there. And some seem to be doing a very good job down there that I suspect have Quite significant market share versus some others that maybe haven't performed as well as you might think. And I'm not sure if that's just because of their partners, their structure, Where they are right now in their evolution, some of them have been there for many years, some have been there maybe just only 5, 10 years, I'd say. And they have some local strong independents as well, Some smaller chains and there's actually several that are quite well run from what we can see, but we had pretty in demand and excitement when we opened our Sure.

Speaker 2

I mean a lot of social chatter and real traffic. And we also are very unique down there in that we offer slices. There's some independent Pizza shops there that also sell pizza by the slice, but none of the usual suspects, if I can call them that, do slices and we do that. And so I think That's one of our fortes, right? We don't have to sell whole pies, that's for sure, but we also know how to sell slices and we see that as a tremendous on ramp.

Speaker 2

We wouldn't have said it with our own eyes. I mean, I was sitting there a day after our grand opening, coffee next to one of our locations, and I saw 2 ladies They drove up by the little service van, they walked in, they must have been hungry, they got a slice, they came out, they ate their slice, they went back in and about 5 minutes later, they came out with about 6 pizza boxes, a 3 liter bottle of Coke and a whole bunch of chicken wings. And so I think it's a good on ramp for a growing ticket and growing repeat visits as well. And the slice is not a big commitment. I think others just don't know how to operationally do it or afraid it's going to really hurt their average ticket if you don't do it right.

Speaker 2

So we've been doing this for decades. So I think it is really one of the many unique things we have. I mean, we have our technology platform and our marketing power and our agility and all that kind of stuff and our innovation Iteration, I think, is more rapid than some others as well. So I think we can be pretty agile, and I think things like a slice to augment our pizza offerings and our Chicken as well down there. We're displaying a lot of chicken already.

Speaker 2

So I think that's pretty unique. And we've planned to outflank some of our Albeit our competitors we respect, but we think we can outdo them.

Speaker 4

Okay. Again, super helpful. And then does any of this run through your commissaries?

Speaker 2

Not for commentary. The way it's structured, really, no. It's more of a sort of a royalty stream we'll get back. So It's not replicating our model here to kind of the private opcode model. So right now, the franchisees really Yes, we were not some of their existing relationships, etcetera.

Speaker 2

But we have definitely leveraged our relationships, our products, the flower we use, The tomatoes we use, I mean, we've it's identical wherever possible unless there's a slight difference because of just logistics and supply chain. So they have very good contacts as well that we like and we've met. And so we feel pretty confident. But we're not really participating in that Commissary model down there. And that's a change in future, I guess.

Speaker 2

But right now, we've kept it pretty simplistic that we essentially just collect the royalty stream back. The operating company gets some and then the PPRC, there's a stream back to so it's just sort of additional RealtyStream income if we can get some scale there.

Speaker 4

Okay. That's fair. Congratulations again. Maybe just switching gears, come back to Canada And the strength in the same store sales there. More specifically, I know you touched on it in your opening remarks, but Can you just maybe add some color to that pricing versus volume dynamics?

Speaker 4

And I guess more specifically, the pricing, is that Coming through more through because of the new menu innovation or bundling or just straight price increases, How should we be looking at that?

Speaker 2

I mean, Chris may have a bit more to comment on, but I mean, I think we are seeing We obviously want order volume growth. That's our biggest thing. We want to get our sales growth through traffic and order count more than anything. But obviously, with what's going on with inflation, especially the last We really had to pass on more price increases than perhaps we have historically, but we've been pretty careful to, I think, find the balance quite well. I mean, we've been really closely monitoring traffic.

Speaker 2

Traffic has held up really nicely and we've not gotten greedy on price increases. We want to make sure we're Trying to find the balance here. So I'd say generally it's a mix roughly just roughly exactly, but You've probably seen a little more of this old growth come from more price, I guess, but it's there's a good balance of traffic there, order count Driving that as well. At 73, I would say we've still got work to do there, but it's going the right way. We really like these signs now We've been working on it really hard and it's a bit frustrating.

Speaker 2

But we think we've really the plans we put in place, the technology, the And hence marketing, everything is seeming to really start to really get some traction. So I think I said in my comments A lot of the traffic was more driven by non traditional coming back. And so we do need to drive the still for sure, But it's going the right way now. And so we've got some check and we've got some traffic. And Pizza Pizza, I mean, we're really happy.

Speaker 2

I mean, look, we've got some great, great double digit growth these last And it's been great. And obviously, that will get harder and harder, given the increasingly difficult comps that we're lapping double digit comps. But we're pushing hard. As far as the machine seems to be really, really firing on all cylinders and 73 is really coming to life now too. So Overall, it is that balance, I would say, Derek.

Speaker 2

It's balance of both. Still like to see a little more on organic orders. We're pushing digital delivery. See more delivery, that's we've seen tremendous growth in pickup, walk in, which is a real sign of the times, I think, not just for us, but the industry. People are Getting out more, whether they're just tired of being at home because of COVID isolation and they're making up for lost time.

Speaker 2

And also economically, I think some people just like the convenience of Just picking up whether it's a Pizza seventy three or Pizza probably seen some of the U. S. Big global brands also comment that delivery is tough. 3rd party is still Going, those folks we use them as well, but we prefer our organic delivery system. We have this tremendous organic delivery fleet And we prefer that.

Speaker 2

So even though we use those folks a little bit too, to bring us some people that only use those apps, we try and convert them as much as possible. If they order 2 of these And we put QR codes on our packaging, other little nudges to try and get them to download our app and order through us next time. So all of that together, We definitely have some work to do, but there's areas we know that we're not that strong in. So we want growth in all these areas. It's just that we have all these channels, as you know.

Speaker 2

And so It's hard to get every channel firing and growing. It's all simultaneously. But we feel like we're hitting it pretty well right now. We know there's places that we're Still happy enough. We're precocious.

Speaker 2

So there's areas we're going to put more effort into. But overall, it's that's kind of the picture.

Speaker 4

No, it's showing in those results for sure. And I guess on another note, I've personally seen some pretty aggressive Promo activity in QSRs recently. And I guess and I'm assuming that's a reflection of the higher interest rates and the economic uncertainty. Have you guys seen any change in the competitive activity and or consumer behavior and reaction to that?

Speaker 2

It kind of depends on what market. We've seen a little bit of that. We certainly see some aggressive behavior by some competitors that we all know lately As well. And also, you see what is happening in FSR as well, I think it appears to be struggling quite a bit too. I just saw, they also note one of the chicken wing chains that's Shutting a lot of its stores and things.

Speaker 2

So I mean, there's definitely some pain out there. I think people that have high franchisees that has a big loan and interest rate exposures I'm hurting them more than used to. These things are pretty painful. So I think we're overall in a relatively good place. Maybe Christine has something to add?

Speaker 2

Yes.

Speaker 3

And I In the macro environment being placed in the QSR segment, we're known for our convenience and our value offering. So we have an array to meet every Customers demand whether they want to walk in to save the delivery fee, we can meet your needs that way. So I think given the backdrop And the uncertainty, I think we're well positioned. Recession resistant is a word that was always thrown around given the trade down. We feel that We're there.

Speaker 3

We'll be able to meet the value, especially with what we've done in the past. We've had this pizza, $16.99 and it was well received. It's actually from one of our top sellers. We introduced it last year as those interest rates were starting to creep up and it was perfectly And we've just seen traction grow on it. So people are proceeding in as value, seeing that we're offering things to customers.

Speaker 3

We're not taking advantage of customers As a lot of others are doing when the inflation was slowing up, people were just taking excessive price increases. We've managed to keep that balance for our customers.

Speaker 4

That's fair. And I guess maybe along the same note, how has the environment changed in terms of I guess, franchisee profitability or even your franchisee pipeline, given The higher interest rates and maybe the higher cost to acquire or finance a franchise?

Speaker 2

Yes. Very good question. I mean, look, it's not easy out there for sure. I mean, we're still seeing pressure on input costs and things. I mean, I'm not we're not sort of trying to say, okay, it's all Glorious out there and everything is bad, but I mean we just sales wise, we see a lot of fundamental demand across all channels really.

Speaker 2

So I think profitability of franchise, we do look at cash flow per store Thanks like that internally. Overall, people are doing well. Obviously, when sales are good top line and we control It's possible that gives them a good bottom line. That's fundamental for us. So I think it's been really good.

Speaker 2

I think that it's shown some improvement overall for sure. I mean I know in Alberta, we've got our stores are there. What's wonderful about those JV partners in Alberta, they don't have a lot of debt on those stores. So they don't have really any debt servicing charges, most of them don't. So they've been able to weather the storm in Alberta.

Speaker 2

Now that seems to be coming back, they should be doing better. But I mean, there's been some lean months for some of those folks, for instance, out there. But I think They're very resilient. They've been through these folks too, most of them. And so I think franchisee profitability is moving the right way and the pipeline has been really healthy, I mean, all over the place.

Speaker 2

I mean, we always have more interest in Toronto than we have locations available. But we have success putting people in some pretty remote Places are smaller cities as well. So I think whether it's Quebec or Vancouver, Lower Mainland, etcetera, or Elsewhere, even Alberta, we've had a little bit of growth. It's there's definitely interest. So I think that's quite good.

Speaker 2

And I do think We still have issues with drivers and things, but I think it has abated a bit in terms of availability for labor. I mean, we're definitely still Struggling on occasion to find enough drivers for sure. I think the whole industry is and third party aggregators are as well obviously. But I think it seems to be abating. I saw I think it was RBC was I think, was it 6% unemployment coming later this year is what their forecast is.

Speaker 2

So who knows how it shakes out. But I do think To Chris' point earlier, I mean, we're just trying to make sure that we are always having a value message. There's something for everyone, right? And that's Everyone deserves pizza. It means we have something for everyone.

Speaker 2

This is sort of the other flip side of that, no matter who you are. And we'll sell a gourmet pizza for a pretty high price tag, and it's going to be super high quality and it's actually a smaller standard crust pizza, but it's really nicely delivered, really gourmet. But if you just want a pepperoni slice, you can get that from us with a Coke And it's a very, very affordable meal. So we're really trying to cover the bases, I think, pretty well. And a lot of other competitors, I think, are trying and the really good ones are also being successful I think we've shown that we're performing pretty well compared to the peer group and we'll keep pushing.

Speaker 3

And additionally, in terms of talking about We can scale up and scale down our restaurants as we're building into different cities. So we see this inflationary period, say for ovens, we may not put in 4 ovens, we may put in 2. We can also go into new markets, smaller markets with our non traditional partners in gas stations that have delivery. So we're able to adapt as we look at our expansion to keep that pipeline to franchisees and the store growth Going at a rate that we want to see.

Speaker 4

Okay. And like one final one for me and Obviously, I don't want to add any salt to the wounds, but could you maybe talk about the impact the playoff runs might have on your businesses?

Speaker 2

The playoffs. Well, I mean, we definitely have seen it's always a positive effect when you get that extra those extra gains, right? No question. This is a similar segment factor people. So I mean the longer it goes on, the happier it will be for sure.

Speaker 2

And aside from business, it's just nice For the city, so we're definitely cheering for the weathers and the leasing. Well, hopefully, they can both hang in there. But it definitely does have an impact. I mean, we see it, and especially if it happens to be a weekend night or something like that. Yes, it's great.

Speaker 2

And the more the better, and we'll see how it goes.

Speaker 3

Yes. And as we have our locations in the stadiums, it's been great when the teams are on full packed stadiums with people buying pizzas. That was something to look forward to.

Speaker 4

Yes. Yes, awesome. Good luck. That's it for me guys. Thanks for taking my questions.

Operator

There are no further questions. I'll now turn the call over for any remarks.

Speaker 1

Thank you all for your time. If you have any other questions, you can reach out to us after the call and our contact information can be found on our earnings press release. Thank you.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and

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Earnings Conference Call
Pizza Pizza Royalty Q1 2023
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