Full Transcript: Pizza Pizza Royalty Q2 2026 Earnings Call

Pizza Pizza Royalty (TSX: PZA ) held its second-quarter earnings conference call on Wednesday. Below is the complete transcript from the call. This content is powered APIs. 3%.

9% due to ongoing macroeconomic challenges, preserving financial stability and working capital. Promotional strategies included the 'Buck an Inch' pizza offer and expanding menu with innovations like Golden Crispy chicken tenders and loaded poutine recipes. The company opened six new locations and closed eight, focusing on strategic growth in high-revenue traditional locations. Management highlighted challenges such as tough prior year comparisons, reduced international student numbers, and increased competition in the QSR sector.

Future outlook remains cautious due to economic pressures, but the company remains committed to innovation and strategic expansion domestically and internationally. Full Transcript OPERATOR Ladies and gentlemen, thank you for standing by and welcome to Pizza Pizza Royalty's earnings call for the second quarter 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 star then the number one on your telephone keypad. As a reminder, the conference is being recorded on August 5, 2026. I will now turn the call over to Christine D'Sylva, CFO. Christine D'Sylva, Chief Financial Officer Thank you.

Good afternoon everyone and welcome to Pizza Pizza Royalty'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 and Chief Operating Officer Philip Boudreau. 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. 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.

Paul Goddard, Chief Executive Officer 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. 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. 0%. 3%. Before addressing our operational highlights, I want to comment on the dividend adjustment we announced in May.

9%. 75 cents and 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'm sure remembers. We faced a difficult comp against Q2 of 2025 as a result and last year's second quarter benefited significantly from that deep extended NHL playoff runs, multiple runs by multiple teams which generated exceptional home viewing—sorry, 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—so 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. So navigating these shifting consumer dynamics requires us to be agile and creative.

And while input costs and market conditions remain challenging, we are focused on execution 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. 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, but continuous menu innovation and cultural relevance keeps them coming back.

In 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. In mid May we introduced our Buck an Inch special featuring Buck Martinez, as many will know from the Blue Jays, pricing every two-topping pizza at just $1 per inch from a 10 inch $10 small up to an $18 XXL pizza 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. 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 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.

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. 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 pydration breaks instead of hydration breaks. So 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 hydration break. 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.

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. We also brought back our popular 420 Pre rolls with new flavors, elevated packaging and an attractive 2 for $5 value offer. This campaign doubled our pre roll sales during 420 week and sustained strong momentum through its month long LTO run.

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. 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. 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 four traditional and two non-traditional Pizza Pizza locations and closed one traditional and six non-traditional Pizza Pizza restaurants and one 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 three locations across BC, Ontario and Quebec. And as mentioned on numerous previous calls, our business is driven by two 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%. 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, you know, fewer 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 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. We want sales growth, we want network growth, but we want viable great locations. And 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.

So if you look at things on an ROE basis, return on equity or CAGR growth rate, I think we look quite good over time. 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 dividend is often in the 6 to 8% yield range, 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 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 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 and 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 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. And as always, I want 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 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 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. Christine D'Sylva, Chief Financial Officer Thanks, Paul. And as a reminder, Pizza Pizza Royalty 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 January 1st of 2026 the royalty pool increased by 20 restaurants as a result of adding 39 new restaurants, less 19 which permanently closed. 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.

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 and during the quarter that decreased by 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. 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. 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. 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 $47 million credit facility. 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 2028, the balance of the facility remained unchanged.

875% to 1%. Additionally, in 2025 the partnership entered into a new three-year forward swap. 81%. 685%.

2%. 8% of the partnership distributions. It paid its corporate taxes and any residual cash was available for dividends to the company's shareholders. 75 cents beginning with the May dividend and this was done in response to the ongoing market conditions and their impact on top line system sales.

25 cents per share. 2 million. 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 the 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.

That concludes my 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.

Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press 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. Cheryl Zhang, Analyst at TD Cowen Hi, good afternoon, Paul and Christine.

Great to hear from you. Hope you're both doing well. Paul Goddard, Chief Executive Officer Hi, Cheryl.