Restaurant franchisor MTY Group is finding that it is more difficult to sell its derivative products in grocery stores. High food inflation is pushing many consumers towards grocers’ private brands.
“Retailers are pushing a little more towards their private brands than they did before,” notes its president and CEO, Éric Lefebvre, during a conference call on Wednesday with analysts. There is a lot of advertising on private labels, on lower priced items. »
Food processing, distribution and retail activities represent approximately 14% of the Montreal-based company’s revenues for the nine months ended August 31. This share is much higher in Canada at 42%.
MTY Group also suffered a setback in the US in this sector as its revenue fell 65%, from 4.3 million to 1.5 million, over the same nine-month period.
This drop is attributable to the termination of a retail sales license agreement in the United States. In conferences with analysts and in regulatory documents, the company did not specify which contract it was.
In Canada, revenues in this sector increased by 2%, again over the nine-month period.
Despite the headwinds, Mr. Lefebvre believes that the food processing sector is promising. “It’s still a very good area for us. We are happy to have it. There is enormous potential. »
Even with a more cautious consumer, the businessman says that MTY manages to sell “certain premium items like never before”. “It’s a question of perceived value. If you offer value to the customer, even if the price is high, if the experience is there to justify that price, the consumer will accept it. »
On the subject of restaurants, Mr. Lefebvre also notes that customers are more demanding following the increase in prices on the menus of his 90 brands. “The customer no longer throws money at just any restaurant. Prices have gone up so the experience needs to improve too. Despite everything, the consumer is responding. We haven’t seen any weakness (in demand) or anything like that. »
MTY’s portfolio includes Valentine, Thaϊ Express and Sushi Shop.
The MTY Group network continues to lose more restaurants than there are openings. The company opened 87 stores across its various brands and closed 92 during the third quarter ended August 31, bringing the network to 7,119 establishments, the vast majority of which are franchised. “We are coming very close to our objective of opening more establishments than there are closures,” insists Mr. Lefebvre.
He adds that the number of 92 closures represents the lowest figure since 2016 “when our network was much smaller.”
Historically, the Montreal company has managed to grow by acquiring new channels, but its existing operations have stagnated.
The situation has been even more difficult in recent years. The operational environment (pandemic, labor shortage) has led several franchisors to hang up their apron. In February, MTY reported that the number of closures was three times higher than the number of openings. The situation has since recovered.
This improvement occurs in a difficult context, underlines the manager. “Getting financing is more difficult. The cost of money has increased significantly over the past two years and banks are taking longer to provide new loans, slowing the development of new establishments. »
Analyst Derek Lessard of TD Securities invites investors to wait before declaring victory. “Network contraction has always been an area of weakness for MTY. We prefer to wait for more consistent performance before calling this a trend. »
Despite headwinds, MTY revealed results that exceeded analysts’ expectations.
The company revealed a net profit of 38.9 million, compared to 22.4 million in the same period last year. Diluted earnings per share are $1.59.
Revenues, for their part, stood at 298 million, compared to 171.5 million during the same period last year. Excluding acquisitions, openings and closures, comparable sales were up 3%. In Canada, this rate is 3% while it is 2% in the United States.
Before the results were released, analysts had expected earnings per share of $1.11 and revenue of $298.5 million, according to financial data firm Refinitiv.
MTY shares were down $2.30, or 4.06%, at $54.34 on the Toronto Stock Exchange around midday.
