MTY Food Group (TSE:MTY) executives said the company ended fiscal 2025 with improving operating momentum despite a challenging consumer backdrop, highlighting a return to positive net unit growth, strong free cash flow generation, and lower leverage during its fourth-quarter and year-end earnings call.
Store count turns positive for first time since 2013
Chief Executive Officer Eric Lefebvre said MTY posted a net addition of 19 locations in the fourth quarter, lifting the company into positive net unit growth for the full year for the first time since 2013. Lefebvre attributed the improvement to stronger partnerships with existing franchisees, selective investment “where we see the strongest returns,” and additional tools to “energize and monitor” the business.
Asked which brands are driving development interest, Lefebvre pointed to Cold Stone and Wetzel’s as the “champions” for openings and growth, while also citing strength in other parts of the portfolio including Taco Time in Canada and Thai Express, both of which he said have ambitious targets for 2026.
Same-store sales down 1.7% as macro pressure persists
MTY reported same-store sales declined 1.7% in the fourth quarter. Lefebvre said results were flat in Canada and down 2.8% in the U.S., with performance broadly similar across restaurant types within each region.
Management said it is focusing on long-term investment to improve both the guest and franchisee experience, with priorities that include:
- Enhancing consumer engagement and decision-making through data science
- Expanding omni-channel capabilities, which Lefebvre said have “significant white space” in Canada
- Reinforcing brands through ongoing improvements and innovation
On regional mix, Lefebvre said the U.S. has performed better in quick-service restaurants (QSR) while casual dining has been weaker, and that Canada has seen the opposite dynamic, with QSR—particularly mall-based locations—more challenged.
One-time gift card breakage lifts EBITDA and segment profit
Chief Financial Officer Renée (as introduced on the call) said normalized adjusted EBITDA was CAD 87.7 million for the fourth quarter, up 48% year-over-year, driven primarily by a one-time CAD 29.5 million increase in gift card breakage income tied to unredeemed balances from an acquisition completed several years ago.
She said the company had previously taken a conservative approach while waiting for sufficient redemption data, and that the additional decade of usage data supported updated estimates of the portion of gift cards that will not be redeemed. Going forward, she said MTY expects usage patterns to remain consistent. In the Q&A, management said the CAD 29.5 million should be excluded to establish an EBITDA baseline, and that breakage income, aside from the one-time adjustment, is expected to be more in line with prior years and not vary significantly in the future.
Net of the gift card breakage impact, management said franchise operations segment profits in Canada were flat and declined in the U.S., aligning with the respective same-store sales trends. Renée said Canada franchising revenue increased 1% due to higher recurring revenue streams from higher system sales, while the U.S. saw weaker recurring revenue tied to lower system sales.
On costs, she said franchise operating costs in Canada were in line with the prior year, while the U.S. and international were up to CAD 0.5 million, reflecting higher wages from inflation, IT licensing costs, and expenses related to the gift card program. Renée also said MTY expects franchisee EBITDA growth to outpace same-store sales growth as it adds higher-quality new stores and captures efficiencies.
Corporate stores, retail shift, and net income drivers
Renée said segment profit and normalized adjusted EBITDA for the corporate store segment was CAD 7.9 million, up 23% year-over-year, with margins improving to 7% from 5%. She said the company remains confident it can drive corporate-store improvements over time, with margins moving toward the high single digits.
In food processing, distribution, and retail, the company delivered revenue growth of 27%. Renée said the increase was driven by a shift in the retail model from a licensing agreement to becoming the vendor of record for certain products. Profit margins in the segment were stable at 11%, and she said management sees opportunities for additional top-line and margin expansion as scale builds in under-penetrated markets.
MTY posted net income attributable to owners of CAD 32.1 million, or CAD 1.40 per diluted share. Renée said the improvement versus the prior period was primarily due to a one-time impairment loss recorded last year related to Papa Murphy’s, as well as the gift card breakage recorded this year.
Free cash flow strength, lower leverage, and strategic review
Management emphasized cash generation and balance-sheet flexibility. For fiscal 2025, Lefebvre said free cash flow per share, net of lease payments, reached CAD 5.68, calling the past two years the strongest in company history. He also noted the company raised its quarterly dividend by 12% last month to CAD 0.37 per share.
In the fourth quarter, Renée said cash flow from operations was CAD 46.2 million, compared with CAD 43.7 million a year earlier. Free cash flow, net of lease repayments, was CAD 37.6 million, up 38% from CAD 27.4 million in the prior-year quarter. The company ended the quarter with net debt of approximately CAD 580 million, and management pegged debt-to-EBITDA at about 2x.
On capital spending, Lefebvre said 2025 CapEx levels should be considered the “new normal,” and that the company does not expect the elevated CapEx seen in 2023 and 2024, though some investment will continue in restaurants and plants where returns are attractive.
Lefebvre also addressed the board’s recently initiated strategic review, confirming the process is “ongoing and active,” but said the company cannot provide a timeline or assurance that any transaction will result. He added that MTY is being run “business as usual” during the review.
In discussion of Papa Murphy’s, Lefebvre described the pizza category as highly competitive with aggressive promotions that are difficult to match while preserving franchisee profitability. He said the brand had a “reasonable” fourth quarter and was sequentially better than some prior quarters, but that stabilization is hard to predict in a volatile environment. He said new technology tools are expected to begin rolling out for Papa Murphy’s in late March or early April, with other brands to follow, and noted the company has also pushed to add loyalty program members, though management said it will take time to assess the results.
About MTY Food Group (TSE:MTY)
MTY Food Group Inc is a franchisor in the quick service and casual dining food industry. Its activities consist of franchising and operating corporate-owned locations as well as the sale of retail products under a multitude of banners. The company’s operating segment is based on geographical regions namely Canada and US and International. It generates maximum revenue from Canada. The company brands include Big Smoke Burger, Cafe Depot, Country Style, Croissant Plus, Cultures, Extremepita, Fabrika, Jus Jugo Juice, Koya Japan, ManchuWok, Muffin plus, Valentine, Van Houtte, Shushiman and others.
