MTY Food Group is accelerating plans to reduce its corporate-operated restaurants, review its extensive portfolio of brands and return to a predominantly franchise-based business model following a strategic review that considered alternatives for the company.
The Montreal-based restaurant operator, which has nearly 7,000 locations worldwide, has decided to remain independent and concentrate on improving its existing operations. The changes come as its Canadian business shows signs of stabilization, with same-store sales declining just 0.2% in the third quarter ended August 30, compared with a 2.7% decline in the United States.
Management also reported stronger performance among Canadian mall-based restaurants, breakfast concepts and sushi brands. While customer traffic remains challenging, average transaction values are increasing across many of the company’s restaurant concepts.
MTY CEO Eric Lefebvre said Canadian consumers have remained comparatively resilient despite continued pressure on restaurant spending. During the company’s October 9 earnings conference call, he described improving conditions in Canada, although overall performance remains below management’s expectations.
“Canada in general is doing well. Consumers are very resilient,” Lefebvre told analysts, adding that the company’s restaurant portfolio remains relevant to current consumer demand.
The improvement has been particularly noticeable in shopping centres, where MTY operates numerous quick-service restaurant concepts. Lefebvre said Canadian mall-based restaurants performed well during the quarter following several periods of more difficult trading conditions.
“Our mall concepts had a really good quarter in Q3 in Canada,” he said. “In general, our breakfast places are doing well, our sushi concepts are doing exceptionally well.”
Canadian organic system sales increased 0.7% during the quarter, even as comparable sales at existing restaurants remained slightly negative. The results point to improving conditions within MTY’s Canadian operations, although the company continues to face challenges attracting customers more frequently.
Lefebvre said average transaction values have been rising across many of the company’s brands, helping support sales despite weaker restaurant traffic. Increasing customer visits and purchase frequency remains a priority as restaurant operators compete for consumers who are increasingly selective about discretionary spending.
The stronger performance among mall-based concepts is also relevant to shopping-centre operators, where foodservice tenants contribute to the overall tenant mix and customer experience. MTY did not disclose separate sales figures for its mall restaurants, but management identified the category as an important contributor to its improved Canadian performance.
MTY Targets Return to Franchise-Focused Operations
MTY is working to reduce the number of restaurants it operates directly, allowing management to concentrate on franchising, brand development and supporting restaurant operators.
At the end of the third quarter, MTY operated 6,966 restaurants worldwide, including 6,782 franchised or operator-managed locations and 184 corporate-owned restaurants. Approximately 35% of its network was located in Canada, with 57% in the United States and the remaining 8% in international markets.
Lefebvre told analysts that MTY ultimately wants corporate-operated restaurants to represent approximately 1% of its network, compared with about 2.6% at the end of the quarter. The shift would reduce the company’s exposure to direct restaurant operating costs while simplifying its management structure.
The company has identified 75 underperforming corporate restaurants for closure, an increase from the 68 locations previously announced. Fifty had already closed by the end of the third quarter, with the remaining closures expected to take place primarily over the following two quarters.
Many of the affected restaurants had previously been taken over from franchisees experiencing financial or operational difficulties. MTY attempted to improve their performance but ultimately determined that certain locations were unlikely to generate acceptable returns.
Lefebvre said the restaurants closed or identified for closure generated approximately $2.5 million in operating losses during the third quarter, excluding exit costs. CFO Renée St-Onge said the company expects an estimated $2.5 million improvement in corporate-store profitability next year directly attributable to the closure program.
MTY is also transferring profitable corporate-operated restaurants to franchisees as part of its longer-term strategy. The company has already refranchised its first two Sauce locations, a concept that had previously been entirely corporate-operated.
Lefebvre emphasized that MTY intends to proceed carefully with these transactions, seeking qualified franchisees and appropriate valuations for restaurants that continue to generate positive earnings.
Restaurant Brand Portfolio Under Review
MTY is examining its collection of restaurant brands to determine which concepts offer the strongest opportunities for future growth and which might be better suited to different ownership.
The company’s portfolio has expanded substantially through acquisitions over several decades, encompassing quick-service, fast-casual and casual-dining concepts across multiple foodservice categories. Management now intends to assess each brand’s performance, growth prospects and strategic relevance as it works to simplify the business.
“The goal here is not to sell the crown jewels, for sure,” Lefebvre told analysts during the earnings call. “There’s no strong desire to divest of good brands.”
He explained that potential divestitures would not necessarily be restricted to underperforming concepts. A brand could be considered for sale if MTY does not see a compelling opportunity to develop it further, while a weaker-performing brand could be retained if management believes its results can be improved.
MTY already reduces its brand count through the natural closure or conversion of smaller concepts, with approximately four to six brands disappearing through that process annually. The current review could lead to additional changes, although no specific brands have been identified for sale.
Lefebvre indicated that some portfolio decisions could emerge in 2027 but declined to establish a firm timetable. Any transactions would also need to account for existing franchise agreements and MTY’s obligations to restaurant operators.
Franchise Expansion Continues Despite Closures
MTY continues to pursue expansion through new franchised locations while reducing its corporate restaurant portfolio. The company opened 72 restaurants and closed 146 during the third quarter, resulting in a net reduction of 74 locations. The closures included 50 restaurants from the corporate-store rationalization program.
New restaurant development was also affected by delays, with 27 planned openings moving from the third quarter into the fourth quarter because of permitting requirements, inspections and other construction-related challenges.
Lefebvre said the fourth quarter could be MTY’s strongest ever for restaurant openings. The company has also identified much of its anticipated development pipeline for 2027, although actual openings will depend on project completion and regulatory approvals.
More than half of the locations in the company’s development pipeline are being pursued by existing franchisees. Management views that continued investment as evidence of confidence in the economics of its restaurant concepts, despite pressure on sales and operating costs.
The expansion plans reflect MTY’s approach to managing its restaurant network. Underperforming corporate locations are being removed, profitable restaurants are being transferred to franchisees where appropriate, and new development is focused on concepts with sufficient franchise demand.
Financial Performance Reflects Operating Pressures
MTY reported third-quarter revenue of $277.7 million, down 7.1% from the same period a year earlier. Normalized adjusted EBITDA declined 17.8% to $60.8 million, reflecting weaker profitability in corporate-operated restaurants and other operating challenges.
System-wide restaurant sales, which include sales generated by franchised locations, were approximately $1.46 billion and remained essentially unchanged from the previous year. MTY’s reported revenue does not include the full sales generated by its franchise network.
The franchising segment remained comparatively stable, with revenue increasing 1.6% to $102.4 million. Normalized adjusted EBITDA margins in that segment held at approximately 54%, reflecting the relative stability of MTY’s franchise-based operations.
Digital sales across the restaurant network reached $279.2 million during the quarter, representing 19.8% of system sales, compared with 19.3% a year earlier. Management identified additional opportunities to expand digital sales in Canada as part of its efforts to improve restaurant performance.
Following the strategic review, MTY announced an increase in its quarterly dividend from $0.37 to $0.50 per share and plans to resume share repurchases. The company is also evaluating a potential substantial issuer bid, although no transaction size or timetable has been announced.
While acquisitions have historically played an important role in MTY’s growth, management indicated that improving its existing business and returning capital to shareholders are currently higher priorities.
Focus Turns to Restoring Growth
MTY expects the benefits of its corporate restaurant closures to become more apparent in 2027, while additional refranchising and potential brand divestitures could further reduce operating complexity. Management will also be looking for stronger performance from its existing restaurant network as the company works to reverse recent declines in profitability.
Lefebvre acknowledged that MTY has struggled to maintain the growth achieved during 2022 and 2023, with weaker results over the past two years. He identified a return to consolidated EBITDA and free cash flow growth as the central measure of success for the company’s strategy.
The company enters this next phase with improving Canadian sales trends and a substantial restaurant development pipeline, although customer traffic remains a concern across several brands. The pace of new openings, franchisee profitability and performance of its remaining corporate restaurants will be important indicators of progress as MTY implements its plans.
