Writedowns, slow Canadian rebound weigh on MTY Food Group's second quarter

MONTREAL — MTY Food Group Inc. reported its second-quarter profit fell 10 per cent compared with a year ago as its sales edged lower.

The restaurant franchisor and operator of food-court favourites such as Jugo Juice, Pinkberry and Wetzel's Pretzels reported $27.3 million in net income attributable to owners or $1.13 per diluted share for the quarter ended May 31.

The result compared with a profit of $30.4 million or $1.24 per diluted share in the same quarter last year.

Montreal-based MTY says the year-over-year decline could mainly be attributed to impairment charges on property, plant and equipment and on intangible assets.

Revenue for the quarter totalled $303.7 million, down from $305.2 million a year earlier.

"While our Canadian segment is recovering from the headwinds of January and February of 2024, and profitability in our corporate segment was softer, system sales for the second quarter remained stable year-over-year," said CEO Eric Lefebvre in a press release.

After a challenging winter, MTY saw U.S. system sales and the profitability and margin of its franchising segment advance in the second quarter, said Lefebvre.

"These areas are the core drivers of our business and we are encouraged by the results," he said.

The company says its system sales decreased by one per cent in the second quarter, attributing it to "reduced consumer spending due to the current economic situation, including inflationary pressures."

Most of that decrease came from Canada, said Lefebvre on a call with analysts, with a decline of three per cent. Fast-casual locations in particular were a large portion of the decrease in Canada, he added, "representing 70 per cent of the drop."

Meanwhile, "quick service restaurants and fast casual restaurants have remained strong in the U.S.," he said.

The mix of brands in Canada versus the U.S. is "very different," said Lefebvre, helping explain the weaker performance in Canada.

"Our snack category in the U.S. performed extremely well. And that's a category we don't have as much in Canada," he said.

Promotional activity among competition has "dramatically intensified," particularly in the U.S., said Lefebvre, in particular for pizza and burgers.

"We can't necessarily play that game with the big guys," he said, adding that the company is going to "focus on the experiential nature of what we're doing with our restaurants."

"We do have to have some value offers with each of our brands, we need to have a price point that will attract consumers into our stores. And we are trying different things," he said.

"We are testing the water with different brands, with different promotional activities to see what gets traction and what doesn't."

MTY Group franchises and operates restaurants under more than 90 different banners.

The company declared a quarterly dividend of 28 cents per share.

Shares in MTY rose more than 11 per cent Thursday to $47.45 on the Toronto Stock Exchange.

This report by The Canadian Press was first published July 11, 2024.

Companies in this story: (TSX:MTY)

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