Pizza Pizza Royalty Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 7, 2024

Key Takeaways

  • Q2 same-store sales fell 3.9%, driven by a 5.1% decline at Pizza Pizza Restaurants despite Pizza 73’s 3.7% growth, as higher interest rates pressure consumer spending.
  • The company is emphasizing value through menu innovations like the $19.99 XXL Pizza and fixed-price deals, aiming to restore traffic and customer check growth.
  • Customers are increasingly shifting from delivery to in-store pickup, with over 60% of orders now placed via digital channels, underscoring Pizza Pizza’s omni-channel capabilities.
  • Restaurant network expansion continued with 6 new traditional and 8 non-traditional openings in Q2 (26 openings year-to-date) plus two new locations in Mexico, bolstering growth potential.
  • Despite a 2% drop in royalty pool sales, the company raised its quarterly dividend to $0.2325 per share (from $0.22) and maintains a healthy $6.8 million working capital reserve.
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Earnings Conference Call
Pizza Pizza Royalty Q2 2024
00:00 / 00:00

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Pizza Pizza Royalty Corp.'s earnings call for the second quarter of 2024. During the presentation, all participants will be in 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, please press star then the number one on your telephone keypad. As a reminder, this conference is being recorded on August 7, 2024. I would now like to turn the call over to Christine D'Sylva, CFO.

Christine D'Sylva
CFO at Pizza Pizza Limited

Thank you.

Christine D'Sylva
CFO at Pizza Pizza Limited

Good afternoon, everyone, and welcome to Pizza Pizza Royalty Corp.'s earnings call for the second quarter ended June 30, 2024. Joining me on the call today is Pizza Pizza Limited's Chief Executive Officer, Paul Goddard. 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. All forward-looking statements should be considered in conjunction with the cautionary language in our earnings press release and the risk factors included in our annual information form. Please refer to our earnings press release and the MD&A in the investor relations section of our website for a reconciliation and other disclosures related to non-IFRS financial 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.

Christine D'Sylva
CFO at Pizza Pizza Limited

I would now like to turn the call over to Paul Goddard to provide a business update.

Paul Goddard
CEO at Pizza Pizza Limited

Thanks, Christine. Good afternoon, everyone. Thank you for joining Pizza Pizza Royalty Corp.'s second quarter investor conference call. Today, I will discuss our second quarter results and will share a brief outlook for what's ahead in the second half of 2024. Christine will then summarize our key financial highlights before the Q&A at the end. Following 12 consecutive quarters of robust positive same-store sales growth, we experienced headwinds as consumers faced challenges with higher interest rates trickling through the economy, which has impacted household purchasing power. In the second quarter of 2024, our brands reported a combined 3.9% same-store sales decline, as Pizza Pizza restaurants reported a 5.1% decline after two very strong years of double-digit and near-double-digit growth, while Pizza 73 restaurants reported a positive 3.7% growth. Both brands saw an increase in the average customer check offset by a decline in traffic.

Paul Goddard
CEO at Pizza Pizza Limited

As we have discussed on past calls, our sales are driven by key areas of our strategy, including our well-positioned and diverse value offerings throughout our menu, our convenience and presence where customers can experience and interact with our brands through a variety of platforms, and the strength and resiliency of our brands supported by effective marketing initiatives. So, as consumer discretionary spending has decreased in the last few months, the competition in the QSR industry has increased. And while many brands speak to customers about price, we are focused on speaking to value. Throughout our entire menu and our multiple ordering channels, we promote and highlight products and specials at all price points to attract every customer. We know our customers are looking for value as well as quality, especially in a challenged economic landscape. So, we have to find the right balance of perceived value for money.

Paul Goddard
CEO at Pizza Pizza Limited

At the Pizza 73 brand, we successfully launched an XXL pizza, extra large, at a CAD 19.99 price point, speaking directly to the value customers are looking for, and a creative new offering has been well received by customers. It's a very large 18-inch pizza. As we move into the second half of 2024, we will continue to focus on and promote value to our customers as we look to gain traffic and share of consumer QSR spend. We are fortunate to have an expansive restaurant and digital footprint nationally from coast to coast across Canada to ensure that we are able to reach customers in all metropolitan areas across Canada and rural areas as well. As noted on previous calls, we have seen a shift in customer behavior, with customers moving increasingly to pickup orders.

Paul Goddard
CEO at Pizza Pizza Limited

With well over 750 locations across Canada, we are ideally positioned to capture all audiences, especially those looking to save on delivery, tip, and surcharges that many companies charge. Our in-store pickup channel has grown steadily over the last three plus years and continues to look strong. Also, we know convenience is key for our busy customers, and our industry-leading omni-channel approach lets people get their favorite hot and fresh pizza and wings in the most convenient, fast, and easy way possible. In addition to our in-store orders, we have the best-in-class technology for customers to order on, whether it's through their smartphone app, iPad app, Apple Watch app, or by ordering through our websites. We continue to invest in critical technology infrastructure to ensure we are successfully receiving even more orders through our websites, apps, and also via our customer contact center.

Paul Goddard
CEO at Pizza Pizza Limited

As mentioned in the past, over 60% of our orders are being placed on our digital platforms, and Pizza Pizza customers ordering on the app or web can also visually track their orders on a map as it is delivered to them. Ensuring we are accessible to all potential customers has been a key priority of our business and has proven to be a key differentiator for us. In terms of the strength of the brands, something we're very proud of, Pizza Pizza's marketing activities have been recognized as industry best in class, winning numerous industry awards for our brand work and Everyone Deserves Pizza platform. We've talked about owning key days, and this quarter was no different. We had a viral launch of our 420 promotional pre-rolls and hot boxes to a specific customer demographic.

Paul Goddard
CEO at Pizza Pizza Limited

This promotion was hugely successful, earning us a massive $2 million sales day, and the pre-roll promotion allowed us to highlight a new product at a great price point and margin for our stores. Our flavor of that was really quite a cheeky, specific campaign, really targeted, and it really was validating to us to see how well that could work for that particular demographic. This was a really fruitful brand-building initiative, and it's an example of how we continually succeed at keeping our brands top of mind with customers, which is always so critical, of course, in our highly competitive QSR market. We also highlight our brands through our best-in-class sponsorship programs. You can see our brands at fields and arenas across the country, from Little League teams all the way to the National Hockey League and the NBA.

Paul Goddard
CEO at Pizza Pizza Limited

These sponsorship programs have been key to driving brand recognition, especially as we expand into new markets. In this quarter, we're happy to announce we have partnered with BC Place, home to the BC Lions and Vancouver Whitecaps. We look forward to introducing sports enthusiasts and concertgoers to our delicious food as we continue to ramp up our already strong presence in British Columbia. I would be remiss if I didn't mention the additional benefit of our sponsorships that comes when your favorite team makes the playoffs via the in-stadium concessions. This quarter, our non-traditional sales were bolstered by the incredible playoff run by the Edmonton Oilers, where our Pizza 73 brand is a key sponsor.

Paul Goddard
CEO at Pizza Pizza Limited

So, as we look at the overall strength of our foundation, we've got brand strength, resonant marketing messages, a continually enhanced menu, innovations in technology, reliable consistency and quality, and convenience for our customers. This will continue to be growth, key to our growth as we go forward. Turning to restaurant network growth, after a bit slower start to the year, we ramped up our store openings with six new traditional and eight non-traditional Pizza Pizza locations opening in the second quarter, while we closed one traditional and eight non-traditional locations. So, for the six months, we have opened 26 locations, eight traditional and 18 non-traditional locations, while we have closed six traditional and 13 non-traditional locations. While we continue to focus on openings across Canada, we are pleased to say that half of our traditional store openings have been in our biggest and longest-standing market, province of Ontario.

Paul Goddard
CEO at Pizza Pizza Limited

Meanwhile, our successful expansions to the major markets of BC and Quebec continues. Beyond Canada, we continue working with our Mexican partners on the next set of restaurant openings and are happy to report that two locations opened in the second quarter, bringing our current total to four locations. We continue to see good momentum there in Mexico, and we expect several more restaurant openings there this year. Now, on to our outlook and some closing remarks as we look forward to the remainder of 2024. We are well positioned to continue driving our business, executing on our plans of innovation, marketing initiatives, digital investments, and providing high-quality, great value, and delicious hot and fresh food to our customers, however and wherever they want us.

Paul Goddard
CEO at Pizza Pizza Limited

We know the economic landscape is challenged, but we will ensure that our customers continue to see us offering the best food at the best price. Remember, our vision is always, always the best food, and especially for you. Lastly, thank you to our team members and restaurant owner-operators for your relentless commitment and dedication to our customers and our brands and for being such passionate team members in our success. Thank you for listening today, and I'll now ask Christine, our CFO, to provide a brief financial update.

Christine D'Sylva
CFO at Pizza Pizza Limited

Thanks, Paul. Before going into the results for the quarter, I wanted to remind everyone of our structure. Pizza Pizza 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. On January 1st of 2024, the royalty pool increased by 31 restaurants as a result of adding 45 new restaurants, less 14 which were permanently closed in 2023. So, for 2024, there will be 774 restaurants in the royalty pool compared to 2023 when there were 743.

Christine D'Sylva
CFO at Pizza Pizza Limited

So, now let's briefly cover some financial highlights. As Paul mentioned, same-store sales, a key driver of yield growth for shareholders, decreased 3.9% for the quarter. Pizza Pizza restaurants reported same-store sales decline of 5.1%, while Pizza 73 restaurants were 3.7% positive. Both brands saw an increase in the average ticket offset by a decline in traffic. The combination of new restaurants added to the royalty pool on January 1st and the same-store sales decline resulted in a decrease in royalty pool system sales and the corresponding royalty income for the quarter. Royalty pool system sales for the quarter decreased 2% to CAD 155.4 million from CAD 158.5 million in the same quarter last year. By brand, sales from the 672 Pizza Pizza restaurants in the royalty pool decreased 2.8% to CAD 133.8 million for the quarter, and sales from the 102 Pizza 73 restaurants increased 3.3% to CAD 21.5 million for the quarter.

Christine D'Sylva
CFO at Pizza Pizza Limited

The partnership's royalty income earned as a percentage of royalty pool sales decreased 1.6% to CAD 10 million this quarter. The partnership also earns interest income on its cash and short-term investments. For the quarter, the partnership earned CAD 103,000 of interest income. Turning to partnership expenses, administrative expenses for the quarter were CAD 194,000, and these included listing and shareholder meeting costs, as well as director, legal, and auditor fees. In addition to administrative expenses, the partnership is making interest-only payments on its CAD 47 million credit facility. Interest paid in the quarter was CAD 319,000. To note, during the quarter, in response to the cessation of the CDOR benchmark interest rate, the credit facility was amended. The amendment transitioned the CAD 47 million term loan from bankers' acceptances to CORRA loans. The remaining terms and conditions are consistent with those of the previous facility.

Christine D'Sylva
CFO at Pizza Pizza Limited

The fixed interest rate on the swaps remained unchanged with this amendment, and the company will continue to pay 1.81% plus the credit spread through April 2025. The company's normal practice is to renegotiate the terms of its credit facility approximately one year in advance of its maturity. As such, it intends to renegotiate the facility that matures in April 2025 later this year. The company expects the new facility will be similar in size, however, at a higher interest rate as compared to the existing facility. So now, after the partnership has received its royalty and interest income and pays administrative and interest expense, the resulting net cash is available for distribution to its two partners based on their ownership percentage. Effective January 1st, 2024, after new restaurants were added to the royalty pool and the 2023 vending was trued up, Pizza Pizza Limited's ownership increased to 25.2%.

Christine D'Sylva
CFO at Pizza Pizza Limited

Pizza Pizza Royalty Corp shares in the remaining 74.8% of the partnership distributions. It pays taxes on its share of the partnership earnings, and the residual cash is available for dividends to the company's shareholders. Turning to shareholder dividends and working capital, the company declared shareholder dividends of CAD 5.7 million for the current quarter, or CAD 23.25 per share, compared to CAD 5.4 million, or CAD 0.22 per share in 2023. The payout ratio of 109% resulted in the company's working capital reserve decreasing by CAD 400,000 this quarter. The company ended the quarter with a healthy reserve of CAD 6.8 million, excluding the rectification of the credit facility. The reserve is available to stabilize dividends and to fund other expenditures in the event of short to medium-term variability in system sales and, in turn, royalty income.

Christine D'Sylva
CFO at Pizza Pizza Limited

The company has historically targeted a payout ratio at or near 100% on an annualized basis and will continue to do so. 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. To ask a question, you may press the star key, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press the star key, then two. One moment, please, for your first question. The first question comes from Derek Lessard with TD Cowen. Please go ahead.

Derek Lessard
Derek Lessard
Director of Equity Research at TD Cowen

Good evening, Paul, Christine. Great to hear from you.

Paul Goddard
CEO at Pizza Pizza Limited

Hi, Derek.

Christine D'Sylva
CFO at Pizza Pizza Limited

Hi, Derek.

Derek Lessard
Derek Lessard
Director of Equity Research at TD Cowen

I guess I just wanted to drill down in terms of the sort of that consumer weakness that you're seeing. Are you able to maybe add some color there to what you're seeing in terms of the habits? You know, if consumers are trading down, buying less. I know, Paul, you mentioned less delivery versus walk-in. So just maybe some color there would be helpful.

Paul Goddard
CEO at Pizza Pizza Limited

Right. No, I understand, Derek. It's a very good question. And we are, basically. I mean, and you'd see that as a macro situation backdrop right now, I think, even just with, you know, macro indicators and other QSRs reporting, other retailers reporting. But we are seeing that. I mean, people are definitely being more deliberate and a little more discerning in their overall spend. Our core piece of products continue to grow. Our mix, I would say, stayed pretty strong. But in terms of how they obtain their orders, that seems to have changed. Pickup has been growing for us steadily. That continues. And we do see, you know, delivery as a channel being challenged. And that's something that we've actually put a lot of effort, and we continue to put a lot of effort into regaining, especially organic delivery.

Paul Goddard
CEO at Pizza Pizza Limited

You know, we've done a lot to do that, but it's definitely difficult. I think people are getting a little fatigued, and especially with third-party aggregators as well. I can see that, you know, some of those folks, some are doing strong, but some are seeing a little bit of plateauing, if you like, there, just given the level of check size, especially on those platforms where you're often paying a higher price and you have a platform fee or something. So it's not only the merchant being charged, but, yeah, and customer as well. But even for us, with much more efficient, cost-effective delivery, some people are saying, you know what, I got a pre-order. I like the convenience of that, but I'm going to go pick it up. I'm going to save on that charge. So we are seeing that.

Paul Goddard
CEO at Pizza Pizza Limited

I think, you know, I guess, you know, we just continue to notice things like average check, varying, obviously, by channel and by brand. So, you know, our walk-in business is still strong. I would say not as strong relatively in terms of growth. It was sort of fairly flat for some other areas. That means what in our parlance would be unpremeditated walk-in orders, where you just come and get a slice or two and a drink or something and a salad. That's obviously lower check, but that's been fairly stable. But late night has also been a little lower average ticket, we've noticed, sort of lunch, late night, day parts, and lower average ticket than our delivery orders as well. So when people stop doing delivery or stop doing delivery as much, we do feel that quite readily.

Derek Lessard
Derek Lessard
Director of Equity Research at TD Cowen

Do you think, I guess, do you have a feeling of whether it's trending worse or is it stabilizing? Like, how do you feel about the trend so far?

Paul Goddard
CEO at Pizza Pizza Limited

I think it's a little early to tell. I mean, I think just generally there's, you know, people just seem to be in the market really emphasizing value. You see it everywhere. And I think customers seem to be responding to that pretty well. I think just generally people, although inflation has come off a little bit, obviously, and interest rates seem to be poised to go down a little more, I still think there's a bit of a lag there. My view would be in just looking at some research that people still feel economically squeezed, many, many people in our core market. So I think, you know, if anything, I would say it's probably stabilizing. You know, maybe there's a little bit, you know, more deterioration potentially, I suppose. But I don't think it's sort of a massive decline, but it's just sort of subtle.

Paul Goddard
CEO at Pizza Pizza Limited

But I think, fortunately for us, I mean, I think we're able to, you know, adjust different levers a little bit to emphasize, say, things like walk-in a little more or pick up a little more. Delivery is hard to move the needle on. We've had a hard time moving delivery. But I think we've, you know, we've got some good plans, I think, for the remainder of the year that hopefully with some product innovation and some really compelling, not only price points, but I think just the innovation of the products and the flavor profile of some things coming up that, you know, that will help. But I mean, the overall backdrop is challenging right now. I think people are feeling the squeeze and they're still feeling almost a hangover effect, even if interest rates are coming down and inflation isn't as bad.

Paul Goddard
CEO at Pizza Pizza Limited

I think that's kind of clear across the market, not just for us.

Derek Lessard
Derek Lessard
Director of Equity Research at TD Cowen

So you did try to take some price, it looks like, I guess, average check. Was that like, so how do you balance that out with sort of the backdrop that we're talking about here?

Paul Goddard
CEO at Pizza Pizza Limited

Yeah, that's a very good point. And that's sort of the art of it, right? What we really want is primarily revenue growth through traffic growth, right? We want more orders, really, at the end of the day. We don't really want to be relying on price increases, that's for sure, especially in this environment. But I think we've been pretty nimble in adjusting. So, you know, a couple of examples would be even at Pizza 73, as I mentioned on my prepared comments with the XXL, the CAD 19.99, that immediately got a response. That sort of, you know, sub-CAD 20 price point for a really large 18-inch pizza. It's the biggest one in the market, round pizza. People really like that. And they also like our four small pizza deal at CAD 19.99 out there. We have a snack box out there as well that's real snack size. It's resonated well.

Paul Goddard
CEO at Pizza Pizza Limited

And, you know, at Pizza Pizza, the fixed-rate pizza, we've done very well. We actually increased the price this year for 2024, but it was fixed price last year and it's fixed price for all this year. But we took an extra CAD 1 there at CAD 17.99. And yet that is still mixed very, very well. It's in sort of our top three or four mixing specials. And that's been, you know, very powerful. And so I think, you know, that's done well. And I think some of our creative occasion-making efforts, if you like to call it that, like the 420 promotion, even though it's a limited audience, really got media attention. And I think it actually stole some thunder even that week that it was released from some other large QSRs doing big launches that week. And to be honest with you, we didn't expect that quite that much.

Paul Goddard
CEO at Pizza Pizza Limited

It was really exciting. Then on Valentine's Day is another one where we had a third-wheel deal where, you know, celebrating a couple with a third wheel. And, you know, that third person gets an extra pizza sort of thing or free pizza. So we've kind of created some new occasions. It was a little bit novel and just gets some media attention and some focus. And people might not necessarily, you know, buy that special that we're offering, but it really gets our name out there and it gets into their mind and they basically still want to transact, maybe because they're still their favorite pepperoni pizza that they end up buying. So I think some of those occasion-making aspects have really helped.

Paul Goddard
CEO at Pizza Pizza Limited

And we've also had some success with third-party, with ghost kitchens, with Chicken Chicken on third-party apps where we really haven't had to invest really much at all. And yet we have a solid offering on those programs, those channels. When people are looking for chicken pizza, they find Chicken Chicken. And we're pretty clear that it's us behind the scenes, but we can deliver through that channel so it becomes a new revenue stream. So there's sort of, I would say it's a combination of offerings and, yes, some a little more value-conscious price points that in some cases are lower than what we've had for a little while.

Derek Lessard
Derek Lessard
Director of Equity Research at TD Cowen

Okay, that's helpful, Paul. And thanks for that. And I guess, you know, I don't mean to beat a dead horse, but obviously with these challenges comes an increasingly competitive environment. You know, we're seeing whatever it may be, like fve dollar the menu deals. So I was curious on one is the competitive environment, has it, yes, it's definitely increased, but has it become irrational? And two, are you seeing maybe any customers, you know, shop the grocery channel more often? I don't know, like frozen pizza or stuff like that.

Paul Goddard
CEO at Pizza Pizza Limited

Yeah, in terms of substitutes and things, I mean, there is just increasingly more and more competition, I would say, across the board. You know, it is hard to sometimes attribute where we are losing. We look like our market share data shows that we're pretty stable. I know last year we seemed to take quite a bit of share from people. It does look like we may have lost a tiny bit of market share relative to last year. But we had big gains last year at the expense of many of our competitors, we felt. And it seems like we may have given a little bit of that back. And so I think there is a bit of that. And we know, I think we know which levers you need to pull to try and pivot even more to value to drive traffic.

Paul Goddard
CEO at Pizza Pizza Limited

But, you know, you get some very good competitors out there and they're pretty nimble as well. But I think, like to think that we're more nimble and with our omnichannel approach, I mean, essentially, I was just counting up with the Pizza Pizza, I think it's something like 10 or 11 channels. Essentially, we have, if you include our different third-party channels and digital channels, call center, walk-in, special events, non-traditional, et cetera, et cetera. We just, we're so available, right? And we're so convenient. But we have to have a compelling offering. And grocery is another competitor. I mean, I think depending on what piece of the grocery market, some people get very, very, very value-conscious people can get a very, very good deal on frozen pizzas at the low end of the market. But the quality, I would say, is not comparable.

Paul Goddard
CEO at Pizza Pizza Limited

But there probably are some customers that do drop off and say, you know what, I'm okay with two pizzas for $5.99 or something like that, if it's a really low-end pizza. But those gourmet pizzas that you also see shrink-wrapped, it's for more upscale grocery stores. You know, I've got sort of mixed data on that one. Nothing really robust, but I mean, it seems like that's also an area where people are realizing, you know, those are pretty expensive, even though the quality is actually a little bit better than some other grocery items, frozen grocery items. But the price point's pretty high versus getting a fresh pizza delivered or for pickup.

Paul Goddard
CEO at Pizza Pizza Limited

So I think generally, I would say I'm probably a little more worried about more of the, you know, the best of the best competitors or other substitutes for pizza itself in QSR and the third-party channels, just because there's so much choice on those, more so than losses, I think, to the grocery channel would be my sense overall.

Derek Lessard
Derek Lessard
Director of Equity Research at TD Cowen

All right, that's fair. And I guess maybe, Paul, just talk on, I think you did highlight some of the innovation in your last comments, but you did launch, I guess, the Hawaiian Stromboli in Q2. Just curious about, you know, any, like how, one, how that's, how demand has been trending for that, and, you know, if any, any kind of new and exciting innovations in the pipeline.

Paul Goddard
CEO at Pizza Pizza Limited

Yeah, we do have some coming up. I think we always do. I don't want to, you know, let the cat out of the bag too much, but there are some coming very soon, literally in the next few weeks even. There's an exciting one and then beyond. The Strombolis have done well. We did promote the Hawaiian one as sort of the attention-grabbing one on the window clings and on digital channels and things. But we actually have several different Strombolis. And I would say they've all done well. They're really easy to make operationally. The margin for operators, quite frankly, is excellent. And they're super tasty. Kind of, you can eat it with one hand. It's snack size. And people have really, really, I think, been excited about it.

Paul Goddard
CEO at Pizza Pizza Limited

It's really not, you know, it's not like we invented Strombolis, but a lot of competitors in our space, larger chains, don't tend to do it because I think they consider it operationally complex. We've, I think, found a successful way to have great tasting product at a good price point, good margin for franchisees. So it's done well. So have other things like poutine and other sides that we've had, jalapeño poppers, and some of the ones we've introduced a long time ago. We still see really good take-up on those sides. And I think sometimes it's really just showing people that we're novel and creative and we have something for them. And they may or may not try it, but that might actually win their visit to our store, for instance.

Paul Goddard
CEO at Pizza Pizza Limited

They may try it, they may not, or they may only try it once. We tend to keep in their minds and they keep thinking about Pizza Pizza and Pizza 73.

Derek Lessard
Derek Lessard
Director of Equity Research at TD Cowen

Awesome. And maybe one final one for me. Again, in the context of this higher interest rate environment, I was curious on, you know, sort of your ability to attract quality franchisees given, I guess, given the higher interest rates and what it would cost to own a franchise?

Paul Goddard
CEO at Pizza Pizza Limited

So you're saying the delay? I was just getting quite interested in the beginning of your question there.

Derek Lessard
Derek Lessard
Director of Equity Research at TD Cowen

No, I think the increasing interest.

Derek Lessard
Derek Lessard
Director of Equity Research at TD Cowen

The higher interest rate environment.

Derek Lessard
Derek Lessard
Director of Equity Research at TD Cowen

And yes.

Paul Goddard
CEO at Pizza Pizza Limited

Yeah, I mean, right. We've still seen a very strong pipeline of franchisees. I would say, you know, we don't always get the franchisees where we want them, but I think we've had a, you know, really good success overall matching up, you know, where we need real estate, where we need franchisees or want franchisees. I mean, I know in Quebec, I think we've got a couple of sites that are ready and we are waiting for those franchisee deals to get finalized. So there's sometimes a timing issue. But I think generally we're quite good at lining them up. And I do think, you know, so far, despite higher loan costs for those folks, I mean, I think generally it's been pretty attractive. I mean, people see us as a really attractive, you know, business to own and be an entrepreneur.

Paul Goddard
CEO at Pizza Pizza Limited

So what we've tried to do, we can't obviously control interest rates, but I think what we've really tried to do is keep the cost of the stores down. In some cases, we've, you know, either given franchise fee breaks or discounts or ways to sort of help their cash flow in that first beginning period to the first six months or year to make it a little more economically attractive and soften the blow of those higher interest rates for the loan that they're taking. So I think it's sort of a combination of that. But, you know, we've been pretty successful at slowly but carefully decreasing the cost of our store construction because we did see inflation there.

Paul Goddard
CEO at Pizza Pizza Limited

We really tried to sort of take some decisive action to do that, which makes it, you know, obviously more affordable so they don't have as much of their asset leverage for the franchisee.

Derek Lessard
Derek Lessard
Director of Equity Research at TD Cowen

Oh, okay. That's awesome. Thanks for taking my questions, guys. And good luck.

Paul Goddard
CEO at Pizza Pizza Limited

Okay, thanks a lot, Derek.

Derek Lessard
Derek Lessard
Director of Equity Research at TD Cowen

Appreciate it.

Operator

Again, if you have a question, please press the star key, then one. There are no further questions at this time. I would now like to turn the conference back over to Christine for any closing remarks.

Christine D'Sylva
CFO at Pizza Pizza Limited

Thank you, everyone, for joining our call today. If you have any further questions after the call, please feel free to contact us. Our information is on the press release and on our website. Have a great evening.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Analysts
    • Christine D'Sylva
      CFO at Pizza Pizza Limited
    • Derek Lessard
      Director of Equity Research at TD Cowen
    • Paul Goddard
      CEO at Pizza Pizza Limited
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