Transcript: MTY Food Group Q2 2027 Earnings Conference Call

On Friday, MTY Food Group (TSX: MTY ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

S. 7%. The company maintained a stable franchise segment margin at 54% and increased free cash flows to shareholders by over 10% in Q3. MTY plans to exit underperforming corporate stores, closing 50 out of 75 identified locations, with expected improvements in profitability next year.

50, and considering share buybacks. 8% of total sales. 9 times. MTY is exploring optimizing its brand portfolio, potentially divesting brands that could perform better under different ownership.

Future guidance indicates robust pipeline for store openings, with expectations for a strong Q4 in terms of new store openings. Full Transcript OPERATOR (Operator) Good morning and welcome to the MTY Food Group 2026 Third Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.

Instructions will be provided for you at that time for questions. If anyone has any difficulty hearing the conference, you may press star-zero for operator assistance at any time. Listeners are reminded that portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements.

For more information on MTY Food Group's risks and uncertainties related to these forward-looking statements, please refer to the Company's Annual Information Form dated February 19, 2026, which is posted on SEDAR+, the Company's press release, MD&A, and financial statements, which were issued earlier this morning and are available on its website and on SEDAR+. All figures presented on today's call are in Canadian dollars unless otherwise stated. m. Eastern Time.

I would now like to turn the call over to Mr. Eric Lefebvre, Chief Executive Officer of MTY Food Group. Please go ahead, sir. Eric Lefebvre, Chief Executive Officer Thank you, and good morning everyone.

Renee and I will begin today's call by going through our third quarter results and by addressing the conclusion of the Company's strategic review. Starting with our third quarter results, there was a combination of challenges and advancements over the summer. S. 7%.

The third quarter was not only impacted by persistent consumer caution, but also by the timing of Labor Day, which pushed the lucrative long weekend into Q4. In the current environment, we remain focused on driving compelling guest experiences, exciting menu innovation, and leveraging the power of digital sales to drive our banners. Despite growing complexity in the restaurant industry, our discipline has allowed us to maintain our core franchise segment margin stable at 54% and increased our free cash flows to shareholders by over 10% in Q3. 7% over the previous 12 months.

The food processing, distribution and retail segment was also able to maintain relatively stable margins despite facing challenges and timing issues on key product promotions. Although revenues for this segment were down this quarter, our brands continue to have significant growth potential in this category and we expect results to show steady improvement in the coming quarters. Shifting to store openings, our pipeline remains robust as demand for some of our concepts from new and existing franchisees remains strong.

Twenty-seven new stores that were slated for Q3 have been pushed into Q4 as a result of various uncontrollable delays, resulting in negative net openings in the third quarter. Therefore, we continue to expect a healthy level of net new store openings by next quarter and in subsequent periods. Moving to corporate stores, our decision to exit numerous underperforming locations is well underway and we expect the bulk of these one-time costs to be reflected over the next two quarters. The associated benefits will gradually follow starting next quarter.

We've also identified an additional seven stores for foreclosure in addition to the 68 previously announced, bringing the total to 75 stores. Our cost estimate remains the same as before despite the additional locations identified. The rationalization of corporate stores marks an important step for the Company in our pursuit of value creation, growth, and taking decisive action. In the past 12 months we've shown our commitment to creating shareholder value, and I'm excited by the many opportunities before us.

With that, I'll turn it over to Renee to discuss the financials. Renee St-Onge, Chief Financial Officer Thank you, Eric, and good morning everyone. Before we begin, just a reminder that we transitioned to a 52-week reporting basis ending on the Sunday closest to quarter end, and in this case it's August 30th. Therefore, there is one day less in actual results compared to the prior year.

2 million due to a reduction in profitability for the corporate store segment. 5 million in lease exit costs. We remain disciplined in our analysis of corporate stores, identifying those that are worth reinvesting in and others that are better suited for closure. 5 million benefit directly attributable to the closures of underperforming locations.

At the end of Q3, we had already closed 50 of the 75 locations identified for closure. 4 million for the quarter. S. and international segment with increases in recurring revenue streams and higher sales related to our gift card program.

Normalized adjusted EBITDA for the segment improved by 1% while margins held steady at 54% as we offset wage inflation by improved cost efficiency in our controllable expenses. 6 million, primarily due to delays in promotional activities. MTY has launched several new, exciting products in the segment and we expect a recovery in sales momentum by next year. 7 million, broadly in line with the decline in revenues as operating expenses remain closely aligned with sales levels.

Despite the decrease, normalized adjusted EBITDA margins improved to 11% compared to 10% in the prior year. 5%. 3% last year. We continue to see significant potential in Canada to expand our market share in digital sales.

26 per share, primarily due to foreign exchange and lower income tax expenses. 3%, primarily due to lower taxes paid and improved working capital movement compared to prior year, as well as higher proceeds on disposal of corporate stores. 1 million and have repaid over $20 million so far in Q4. 9 times.

And with that, I'll turn the call over to Eric to discuss the conclusion of our strategic review. Eric Lefebvre, Chief Executive Officer As mentioned in our press release dated November 17, 2025, the Company undertook a thorough and comprehensive review of strategic options to determine the best path forward to maximize shareholder and stakeholder value. Throughout the process, the Company engaged with a range of interested parties and considered a broad set of alternatives. The process generated strong interest among potential investors and reaffirmed the strength, resilience, and strategic value of MTY's platform.

Following this comprehensive review, the Special Committee of Independent Directors and the Board of Directors have unanimously concluded that the most compelling path forward to drive shareholder value is to accelerate the evolution of MTY's current strategic plan with a sharpened focus. I'm sorry to interrupt. Can we please confirm that people can hear the call? I've just received a note that they can only hear the music.

Operator, OPERATOR (Operator) We are live. Eric Lefebvre, Chief Executive Officer Okay. 50, restoring the normal course issuer bid, and evaluating the potential for a substantial issuer bid. MTY will also work to optimize its portfolio of brands and intends to revert to its asset-light franchising model in which there is a minimal number of corporate locations.

All functions will be evaluated in light of the current and future plans with the intention to streamline and generate operational efficiencies. These proposed actions reflect the Board and management's confidence in MTY's underlying business and its disciplined approach to capital allocation. While mergers and acquisitions are part of MTY's DNA, the Board of Directors believes the best opportunity available today is MTY itself. Few acquisition targets offer the value and quality that MTY does.

So, for the moment, the Company will focus on returning capital directly to shareholders. By buying back MTY's own shares for cancellation and paying an increased dividend, MTY is at an inflection point, well-positioned to harvest the benefits of the investment made over the last two years in our new ERP, which was delivered on time and on budget, as well as in our data infrastructure and systems architecture. We've also taken decisive action to strengthen our corporate restaurant portfolio and have begun franchising strong-performing restaurants, continuing our evolution towards the pure-play, asset-light franchisor that has long been the foundation of our success.

Our balance sheet is healthy, our cash generation remains strong, and we're entering this next phase with the discipline and focus needed to create lasting value. With that, we'll now open the lines for questions. Operator. OPERATOR (Operator) Ladies and gentlemen, we will now begin the question-and-answer session.

If you would like to ask a question, please press star, then the number one on your telephone keypad. And if you would like to withdraw a question, please press star, then the number two. Again, that will be star, then the number one on your telephone keypad. Our first question comes from Vishal Sridhar from National Bank.

Please go ahead. Vishal Sridhar, Analyst at National Bank Hi. Thanks for taking my questions. Just on the standalone plan and the strategic initiatives announced, can you give us some more concrete data points on how we should evaluate management and how much value that should create, say over the next 12 to 18 months?

What specifically made the standalone plan more compelling to the Board? And what milestones or financial metrics should we evaluate over the next 12 to 18 months to judge whether the plan is successful and on track? Eric Lefebvre, Chief Executive Officer Yeah, there's going to be numerous different initiatives going on, as you can imagine. But one of the things we want to accomplish is reduce the corporate store portfolio and go back to being a pure play franchisor like we used to be, with maybe 1% of our stores being corporate.

So that's certainly one thing that we're trying to accomplish here and that's going to simplify our operations greatly. And hopefully with that we'll be able to continue to have very strong margins for franchising, have lower weight of corporate stores and do better on our retail operations and manufacturing. And then there's a number of different things that will be happening. I can't necessarily give you a list of all the initiatives we're going to have, but there's certainly added emphasis on evaluating each one of our brands and trying to realize the potential of our brands.

And if we see that some brands would be better in someone else's hands, then maybe we'll need to take action on that as well. So there's a number of different things. I can't necessarily point you to an exact figure, but one thing for sure is that we want to go back to growth in general, which is something that we've been lacking. We had a really good period following Covid.

You know, the years 22, 23 were very strong and we've been declining last year and this year. So, you know, restoring a healthy consolidated growth in EBITDA and free cash flows in general and with all the metrics that are required to get there is the main objective here. So I think, you know, if you want to use one main metric is we need, we need to return to growth. Well, you know, the goal here is not to, is not to sell the crown jewels.

For sure, everything is for sale if the price is right. I would say that. But you know, there's no strong desire to divest of good brands. The brands that every brand will need to be evaluated for its potential and for the plan we have to make it grow.

And the brands we might decide to that are no longer relevant might not necessarily be the underperforming brands, but it might be brands for which we don't, we don't have plans or we can't come up with value creation for certain brands. But yeah, I would expect that more underperforming brands will be, will be discussed than the top brands that are performing well. Yeah, it's still the right number. I mean, the closures we had during the quarter were all happened towards the end of the quarter.

So we, and it's Q3 is a weak quarter for most of the stores that we want to close. So we did sustain the losses and the exit costs for some of these stores. So there was added pressure from these locations. The benefit will start trickling in next quarter and probably more into 27.

5 million plus the exit cost. So the figures that were provided are still valid figures. OPERATOR (Operator) Your next question comes from Jan Zambara from Scotiabank. Please go ahead.

Jan Zambara, Analyst at Scotiabank Thank you. Good morning. As part of the comments related to the conclusion of the strategic review, you said you'd potentially explore an SIB. And I wonder what factors do you or the board consider at this point when looking to do one?

Eric Lefebvre, Chief Executive Officer Yeah, we're motivated to do an SIB. We just need to go through all the regulatory steps to get there. But we're certainly motivated to do an SIB. So more likely than not.

Jan Zambara, Analyst at Scotiabank Understood. Okay. And then following up on the asset light or franchising mix topic, it sounds like you do plan to refranchise additional stores. I wonder how quickly should we expect that to happen?

Does that require franchise agreements concluding or if franchisees wish to do that, can you perhaps do that in 2027? Eric Lefebvre, Chief Executive Officer Yeah, we've already started and it does take time because it's not a fire sale process. We're not going to give the stores away. This is good, valid EBITDA that we're selling.

So it's not like we want to give it away. We'll find good franchisees to put the stores in good hands where they can perform and make sure that our network is healthy. So again, we want to reduce that number of corporate stores, but we'll do it systematically with the right valuation for the stores. It does require to have an asset purchase agreement when the franchisees take over the stores and it does require franchise agreements to be drafted.

S. So it is a process that takes some time. But again we've started already so the wheels are turning and we just franchised our first two Sauce Lock locations, for example. That network was fully corporate.

So we're really starting to do more franchising and we should expect the pace to accelerate. Jan Zambara, Analyst at Scotiabank Thank you for that. And I'll add one last one. Also related to the strategic review, the optimization plans for your brand portfolio.

You commented a bit on this. I wonder if you could elaborate.