MTY Food Group TSE: MTY reported lower second-quarter earnings as softer consumer traffic, inflation in key food categories and weaker corporate-store performance weighed on results, while management outlined plans to close 68 underperforming corporate-owned restaurants following a detailed portfolio review.
Chief Executive Officer Eric Lefebvre said the quarter was “a challenging period,” citing continued consumer confidence issues, particularly in the company’s corporate location segment. Same-store sales improved sequentially from the prior quarter but remained negative, with traffic pressure identified as the main factor behind the decline.
Same-store sales fell 2.2% in the U.S. and 1.8% in Canada, a narrower gap than in prior periods. Lefebvre said sales trends in Canada improved in June, with a majority of concepts posting positive same-store sales during the month. In the U.S., he said trends remained similar to the second quarter, though excluding Papa Murphy’s, the U.S. business was “relatively flat.”
MTY to Close 68 Underperforming Corporate Stores
The most significant action announced on the call was MTY’s decision to close 68 underperforming corporate-owned stores. Lefebvre said the decision followed a store-by-store review of the corporate portfolio, evaluating each location’s performance outlook and economic profile.
“Where we saw a path to improvement, we chose to continue investing efforts into making our existing assets as productive as they can be,” Lefebvre said. “Where the fundamentals no longer supported that path, we made the decision to close the store.”
The stores slated for closure collectively lost more than CAD 10 million over the past 12 months on a four-wall EBITDA basis, according to management. Lefebvre said their performance was generally deteriorating. MTY expects closure and lease termination costs of CAD 10 million to CAD 12 million, which will affect free cash flow in the short term.
Some closures were expected to begin as soon as the week after the call, with the process expected to take six to nine months. Lefebvre said the bulk of the closures should occur in the third quarter, with more difficult situations taking longer to resolve. He added that between 45 and 50 of the planned closures are Papa Murphy’s locations, though those stores do not account for the majority of the losses or closure costs.
Management said the closures will reduce the company’s store count in the near term but should improve the quality of the corporate-store portfolio and allow teams to focus on healthier, more profitable locations. Chief Financial Officer Renée St-Onge said the action should help the company consistently deliver corporate segment margins in the high single-digit range.
Adjusted EBITDA Falls, Net Income Declines
St-Onge said normalized adjusted EBITDA was CAD 60.2 million in the second quarter, down CAD 9.8 million from the same period last year. The decline was mainly attributed to reduced profitability in corporate operations in the U.S. and international segments, as well as lower contributions from franchising operations across both segments.
Franchise segment profit was CAD 50.6 million, down 5% year over year. Franchise revenue declined to CAD 98.6 million from CAD 102.8 million, reflecting lower turnkey projects in Canada, lower gift card program-related revenue in the U.S. and a CAD 1.4 million negative foreign exchange impact. Normalized franchise segment EBITDA was CAD 50.9 million, compared with CAD 54 million a year earlier, with margins holding relatively steady at 52% versus 53%.
Corporate segment revenue fell 15% to CAD 111.7 million, while operating expenses declined 12% to CAD 106 million. Corporate segment profit and adjusted EBITDA were each CAD 5.7 million, down from CAD 11.3 million in the prior-year period. St-Onge said the revenue and expense declines were closely tied to a reduced number of corporate-owned stores, including sales of some profitable locations in late 2025 and early 2026.
MTY’s food processing, distribution and retail segment generated CAD 39.3 million in revenue and CAD 3.6 million in operating profit and normalized EBITDA. Segment margins were 9%, down from 12% a year earlier. St-Onge said the retail segment has been affected by inflationary pressure, particularly protein costs, which led the company to scale down promotional activity on some key products.
Net income attributable to owners was CAD 15.4 million, or CAD 0.67 per diluted share, compared with CAD 57.3 million, or CAD 2.49 per diluted share, in the prior-year quarter. St-Onge said results were affected by lower segment EBITDA, impairments on right-of-use assets tied to corporate locations planned for closure and a negative foreign exchange variance of CAD 42.7 million.
Cash Flow Improves Despite Operating Pressure
Despite the earnings decline, management emphasized MTY’s cash generation. Cash flow from operations rose to CAD 43 million from CAD 34.4 million a year earlier, driven mainly by lower interest paid and positive working capital fluctuations. Free cash flow net of lease repayments increased to CAD 32.2 million from CAD 17.8 million.
MTY ended the quarter with net debt of approximately CAD 531 million, an improvement of CAD 49 million from the prior year. St-Onge said the company’s debt-to-EBITDA ratio was about 1.9 times, giving MTY flexibility to pursue shareholder returns.
Development Pipeline Expected to Accelerate
MTY posted positive net store growth of six locations in the quarter. Lefebvre said the company expects openings to accelerate in the second half of the year, supported by a robust pipeline, locations under construction and demand from experienced franchise operators.
He identified Cold Stone Creamery and Wetzel’s Pretzels as the strongest brands for unit growth, calling them “two incredible brands” with strong tailwinds and engaged franchisees. He also cited expected openings across brands including Thai Express, Taco Time and Bâton Rouge.
Excluding the 68 planned corporate-store closures, Lefebvre said MTY expects to be net store positive for the year. Including those closures, he said the company will “probably be net store negative this year.”
Food Inflation Remains a Concern
Asked about inflationary pressures on franchisees, Lefebvre said labor has largely stabilized and is no longer a significant pressure point, while rent remains an issue mainly at lease renewal. Food inflation, however, remains high on management’s list of concerns, particularly for proteins such as chicken and beef.
Lefebvre said MTY has taken pricing in some restaurants where needed, but the company must be careful given competition and consumer sensitivity to restaurant prices. He said MTY is working with franchisees and suppliers on menu items, promotions and sourcing to help offset cost pressures.
Digital sales were CAD 284.2 million in the quarter, representing 21% of total sales, in line with the prior year. Excluding foreign exchange, digital sales were down 2%, consistent with the decline in same-store sales. St-Onge said MTY continues to view digital sales as a long-term growth driver and is investing in in-house technology and third-party aggregator partnerships.
Lefebvre declined to comment on MTY’s ongoing strategic review process, saying the company would provide updates or announcements as appropriate or required by law, and that there was no specific timeline or assurance that any transaction would result.
About MTY Food Group TSE: MTY
MTY Group franchises and operates quick-service, fast casual and casual dining restaurants over 80 different banners in Canada, the US and Internationally. Based in Montreal, MTY is a family whose heart beats to the rhythm of its brands, the very soul of its multi-branded strategy. For over 45 years, it has been increasing its presence by delivering new concepts of restaurants, making acquisitions, and forging strategic alliances, which have allowed it to reach new heights year after year. By combining new trends with operational know-how, the brands forming the MTY Group now touch the lives of millions of people every year.
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