MTY Food Group Inc Q2 2019 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Just on the positive same-store sales growth, the inflection in the U.S., wondering how much of that was due to the initiatives that management

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. So given that weather helped on a more normal kind of pattern, could you maybe characterize what you're seeing as a result of these initiatives that you're focusing on to drive better organic growth so far? Or is it too early days? So the food innovations, the different management structure, the different focus from management, are you seeing any benefit or is it too early?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. Understood. Food inflation in Canada, at least, has been favorable for some period of time. Wondering how much pricing is in the basket in Canada or even in the U.S. And is that driving the comp there as well? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 12, 2019 / 12:30PM, MTY.TO - Q2 2019 MTY Food Group Inc Earnings Call

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. And how does that work? Is that the franchisees' decision to take pricing or does MTY authorize it?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. And it may have been in the documents, I didn't see it, but how do you define normalized free cash flow?

Question: George Doumet - Scotiabank Global Banking and Markets, Research Division - Analyst : I just wanted to focus a little bit on QuTbec, a nice turnaround there. And just wondering was that more macro driven. How did IRG do there? And maybe kind of anything you can share on that strength?

Question: George Doumet - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Earlier, you had mentioned some initiatives that we're working on the U.S. to improve operations. Can you maybe share with us what a few of those may be?

Question: George Doumet - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay, great. Just one last one, if I may. Maybe just focusing on the store closure rate, it seems a bit elevated. Maybe talk to the expectation there. I noticed that there were more Papa Murphy's, I guess, closures between the time the deal was announced and the time the deal closed. So I'm just wondering, is there a deliberate push to kind of accelerate the store closure at that rate there. And anything you can share maybe on Papa Murphy's? Appreciate it.

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : Just to go back to Papa Murphy's briefly, you mentioned in your prepared remarks about seasonality. Just to clarify when you say this, second and third quarters are softer periods. I'm assuming you mean on MTY's fiscal basis, not a calendar basis. Just to clarify that point. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 12, 2019 / 12:30PM, MTY.TO - Q2 2019 MTY Food Group Inc Earnings Call

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : Okay, Great. And in terms of how that business is -- I mean it's very early days obviously, but you mentioned some initiatives already on the call. Are some of these initiatives specifically in the Papa Murphy's, especially when it comes to driving positive same-store sales growth?

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : Okay. Great. And just going back to the previous comment you made about adding science to decision-making. In terms of that data analysis that you're looking to invest in, is that -- would that be around finding the locations of real estate, let's say, when it comes to finding locations for franchisees? Any kind of elaboration you can provide there would be helpful.

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : And can you say at this point if you expect this will help drive sales or improve on your cost side or a combination of both?

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : Okay. Great. And I wanted just to touch upon Canada same-store sales growth. You called out British Colombia specifically. I know you earlier talked about QuTbec and the Maritime but a result of the over 6% that you highlighted is really outside of what we're seeing in other provinces in general in the industry. So I understand that menu pricing was alluded to being a part of this. But is there anything else that you can call out specifically in that province having contributed to such a large number?

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : And overall, are you able to quantify how much that menu price increases contributed to the consolidated point-of-sales either in Canada or overall?

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : Okay. And just maybe one more from me in terms of M&A. I know in the past you discussed how it can be quite competitive. Can you give us any update on how the pipeline looks either in Canada or in the U.S. and what you're hoping to achieve this year in terms of additional additions?

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : And can you comment on the competitive market in the U.S.? I mean in the past, you said it's very competitive. Would you say it's just as competitive as before or any change in that region? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 12, 2019 / 12:30PM, MTY.TO - Q2 2019 MTY Food Group Inc Earnings Call

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Thanks for taking my follow-up. The retail business you noted growing quick in Canada but lower margin. Just wondering is it more capital and asset intensive as well.

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. And then just switching gears here. I am wondering if management measures customer satisfaction scores at its brands and franchisee satisfaction scores. And how are those trending?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : And that's understandable. Could you give us some color on how it's trending? Or you don't have that information?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. And wondering what you meant when you're --, maybe you can give it to me in terms of enterprise value, when you were talking about midsized deals. What does that mean?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. And when, Eric, you and your senior management team look at metrics for the year, wondering what are the few key metrics that you look at to say MTY had a good year or not.

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Do you look at return on invested capital for the senior management team?

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : Thanks for taking my follow-up. Just briefly, you mentioned about the margin in Canada and the U.S. And when it comes to revenue in Canada, so franchise operations revenue, if you look at that as a percentage roughly on Canada system sales, it seems to have trended lower. Is there something to be said for this coming from royalties from brands that are lower royalty fee rate? Or is there something else happening in there?

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : Okay. So what we've seen for the first half of this year, would you say that this is a fair run rate to think about going forward just on this particular item in terms of (inaudible)? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 12, 2019 / 12:30PM, MTY.TO - Q2 2019 MTY Food Group Inc Earnings Call

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : Okay. Great. And only one other brief one just on Cold Stone. Are you able to give us a little more color? I know it's hard to mention all the initiatives by brand, but since it's an important brand in the U.S., any color on specific initiatives to drive results would be helpful.