Inclement weather and "sluggish" consumer spending delivered a double whammy to MTY Food Group Inc. in its first quarter, pushing the fast-food chain owner's profits down from a year ago.
The Montreal-based restaurant owner, whose collection of brands includes Thai Express, Manchu Wok, Mucho Burrito and Cold Stone Creamery, reported a profit of $17.3 million or 71 cents per diluted share for the quarter ended Feb. 29.
The result was down from a profit of $18.4 million or 75 cents per diluted share a year earlier.
"First-quarter results were adversely affected by extreme weather, primarily in January and the first two weeks of February," MTY chief executive Eric Lefebvre told analysts on a Friday call.
"Extreme cold temperatures throughout most of North America caused significant downward pressure on our system sales, especially to the frozen treats portion of our quick-serve restaurants, while poorly timed snowstorms affected sales in the northeast portion of our portfolio."
He noticed the bad weather meant people in many of MTY's key markets were "more or less sheltering in place" and not interested in seeking out some of the company's more sun-suitable offerings.
"Ice cream and smoothies are not the most popular when it's super cold or when there's a snowstorm," he said.
Adding to the bad weather was a "challenging economic environment," with interest rates and inflation remain high and are thus, curbing consumer spending.
The trends left MTY's revenue for the quarter at $278.6 million, down from $286.0 million in the same quarter last year, while same-store sales fell three per cent year-over-year.
The first quarter of the year has long been considered a "challenging period," especially for store openings and closures, Lefebvre said.
During MTY's first quarter, it opened 75 locations, one shy of last year's first-quarter total, and closed 79 others, down from 115 a year ago.
By the end of the quarter, MTY had 7,112 locations — the bulk franchised or part of operator agreements — across 90 banners.
Some 58 per cent were in the U.S., with 35 per cent in Canada and seven per cent in other international markets.
In MTY's home market, Canada, competition across the fast-food sector has been heating up. U.S. brands Shake Shack, Jimmy John's and Jersey Mike's are all embarking on big expansions across the country.
Tim Hortons and Harvey's, which are both celebrating milestone anniversaries this year, have also been spending considerably on marketing, new products and promotions to mark these occasions.
However, Lefebvre isn't seeing the competition being "super aggressive" on pricing or discounts.
"But it might be coming, so we need to be prepared," he warned.
Asked by an analyst whether any brands were on his radar for an acquisition, he said, "I wouldn't expect anything of significance this year."
"Obviously, there could always be something coming up that we can't miss and we really want to go for it, but at the moment, we're not contemplating anything of significance," he said.
"There might be some smaller deals here and there that happen, but nothing that would significantly increase our debt level."
At the end of February, MTY had $50.6 million in cash on hand and long-term debt of $736.2 million, mainly in the form of bank facilities and promissory notes on acquisitions.
It reimbursed $34.6 million of its long-term debt, paid $6.8 million in dividends to shareholders and repurchased and cancelled 70,800 shares for a total consideration of $3.6 million in the first quarter.
MTY's share price closed down $4.98, or 9.93 per cent, to $45.16 on Friday.
This report by The Canadian Press was first published April 12, 2024.
Companies in this story: (TSX:MTY)
Tara Deschamps, The Canadian Press
