Good afternoon, ladies and gentlemen, and welcome to the A&W Food services of Canada second quarter 2025 financial results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, 24th of July, 2025. I would now like to turn the conference over to Susan Senecal. Please go ahead.
Thanks very much, and good afternoon, everyone. Thank you for taking time to attend our call today. I'm Susan Senecal, I'm President and CEO of A&W Food Services of Canada . Kelly Blankstein, our Chief Financial Officer, is unable to attend our call today, so I'm joined by Lisa Marzocco, A&W's Director of Finance. Today, we're presenting A&W's results for the second quarter of fiscal 2025, which was a 12-week period that ended on June 15, 2025. As a reminder, remarks on this call may include our expectations, future plans, and intentions that may constitute forward-looking information. Such forward-looking information is based on estimates and assumptions made by management regarding, among other things, the general economic and geopolitical conditions, as well as the competitive environment. Actual results may differ materially from the conclusions, forecasts, or projections expressed by the forward-looking information.
We refer you to our Q2 2025 MD&A and our 2024 annual Information form, which include a summary of the material assumptions, as well as risks and factors that could affect A&W's future performance and our ability to deliver on the forward-looking information. We also refer you to food services Q2 2025 MD&A for definitions and reconciliations of any non-IFRS financial measures mentioned on today's call. Our Q2 earnings release, financial statements, MD&A, as well as our 2024 annual Information form are available on SEDAR +, as well as our investor website at www.awinvestors.ca. We're pleased to report that A&W had a stronger second quarter, building on the positive momentum from Q1. A&W achieved system sales growth of 3.4% and same-store sales growth of 1.6% in Q2. We also successfully opened four new A&W restaurants during the quarter, bringing our year-to-date openings to 11.
This continued growth demonstrates the strength of our brand and the effectiveness of our strategic initiatives, even amid ongoing economic uncertainties. Our focus on providing exceptional value continues to resonate with guests. The CAD 4.99 Teen Burger promotion, which ran during Q2, was a significant success and contributed to our positive guest counts. We continue to see demand for our value offerings, and this will remain a key part of our marketing strategy moving forward. We remain strategically focused on growing restaurant counts across Canada, with a particular emphasis on Ontario and Quebec, and through our partnership with Sencor. Six of our 11 year-to-date openings are in the important markets of Ontario and Quebec, and four of those are in partnership with Sencor.
As of June 15th, 2025, we had an additional 13 restaurants under construction, which further highlights our commitment to expanding our footprint across Canada. Regarding Pret a Manger, we continue to make progress on our development plan. In Q2 2025, we signed a lease for a second location in downtown Toronto. The new location is expected to open in late 2025. We also continue to actively pursue additional sites for new Pret locations in Vancouver, Toronto, and Montreal, and we anticipate future Pret expansion to primarily occur under a franchise model. We also continue to see the sales of drip coffee and espresso-based drinks sold in A&W restaurants grow, following the rollout of Pret Coffee to all A&W restaurants in September 2024. We launched A&W Rewards, our new loyalty program, in Q2 2025.
This initiative, available exclusively through our A&W mobile app, allows guests to earn points on every order, which can then be redeemed for free menu items. Early results have been encouraging and are showing an increase in app downloads and usage. We believe this program will be a driver of future system sales growth by encouraging more frequent visits and higher average checks from our loyal guests. Furthermore, we are making excellent progress on the system-wide implementation of our new five-star operating system. As of today, approximately 800 A&W restaurants have completed the five-star training and onboarding program, and the remaining restaurants are expected to complete this training and onboarding program by the end of this year. The early results are positive, demonstrating a more consistent system that enhances food quality, guest service, and adherence to standards, leading to a notable improvement in speed of service and guest feedback.
We also continue to progress on our strategic target of achieving a 30% increase in franchisee profitability over a five-year period. We are a year and a half through that five-year period and are on track to achieving our target. We originally anticipated franchisee profit improvement would stem from both sales growth and expense efficiency, so we're particularly satisfied with this outcome, considering the more challenging sales environment. With that, I will now turn things over to Lisa, who will take us through A&W's financial highlights for Q2.
Thank you, Susan, and good afternoon, everyone. I will start off by giving a high-level overview of our results for the second quarter of fiscal 2025, and then give a brief update on our results year-to-date through Q2. A&W achieved top and bottom line growth in Q2 2025. Total revenue increased by CAD 4.5 million, or 7%, to CAD 68.8 million, driven primarily by a CAD 4.4 million increase in franchising revenue. This increase in franchising revenue is largely attributed to the opening of more turnkey A&W restaurants during the quarter and a 3.4% increase in system sales to CAD 452.3 million. System sales is the key driver of our revenue from service fees, contributions to the National Advertising Fund, and revenue generated from the distribution of food and supplies.
Our same-store sales growth for Q2 2025 was 1.6%, a significant improvement from 0.3% in Q2 2024, and was due to an increase in both average check size and guest counts. The increase in average check size is partly attributed to industry-wide inflation affecting goods, services, and labor, while the increase in guest counts was largely driven by the success of our marketing campaigns, including the Teen Burger promotion mentioned by Susan earlier on this call. We also saw continued positive sales volume at our corporate Pret restaurants. Operating costs for Q2 2025 increased by CAD 3.5 million, or 11%, to CAD 36 million. This increase is largely attributable to the increased marketing-related costs incurred by the National Advertising Fund, with expenses exceeding contributions to the National Advertising Fund by CAD 2.4 million in Q2, due to timing differences that will reverse in subsequent periods.
The remaining increase in operating costs correlates to the rise in franchise revenues, specifically the increase in cost of sales related to the turnkey restaurants opened in the quarter. General and administrative expenses decreased by CAD 500,000 of 4% to CAD 11.1 million in Q2 2025. This decrease is primarily due to the A&W National Convention being held in Q2 2024, which is a biennial event and therefore not scheduled for 2025. Our income before taxes for Q2 2025 increased by CAD 6.6 million or 63% to CAD 17.2 million. The growth is largely due to the cessation of the royalty expense following the strategic culmination in October 2024. It's important to note that our Q2 2024 results included a royalty expense of CAD 13 million, which is no longer applicable.
Net finance expense increased by CAD 3.3 million in Q2 2025, primarily due to the increased average debt balance from financing the transaction in October 2024. We also recognize an unrealized loss of CAD 800,000 on our interest rate swap, which was entered into in Q2 2025 to manage interest rate risk associated with our credit facility. This is a non-cash expense. Adjusted EBITDA increased by CAD 4 million, or 18%, to CAD 25.5 million for Q2 2025. Our adjusted EBITDA margin also improved to 37.1% in Q2 2025, up from 33.4% in Q2 2024. The improvement in adjusted EBITDA is primarily attributable to the increase in revenue and the decrease in general and administrative expenses. Now, I will briefly touch on how we're performing on our key reporting metrics year-to-date.
For the 24-week year-to-date period ended June 15th, 2025, system sales increased by 2.7% to CAD 849.2 million, and total revenue increased by 6% to CAD 129.9 million. Income before taxes grew by 48% to CAD 29.6 million, and adjusted EBITDA increased by 10% to CAD 44.9 million. We've opened 11 new A&W restaurants year-to-date, and we've also declared cash dividends totaling CAD 0.96 per share during the year-to-date period. We remain committed to maintaining the current level of quarterly dividends for the foreseeable future. During our Q1 call, we updated our 2025 outlook for adjusted EBITDA, system sales growth, same-store sales growth, and total units, and there's been no change to the outlook since. I'll now hand it back over to Susan for closing remarks.
Thanks, Lisa. In summary, we're pleased with our comparatively stronger performance in Q2 and our progress year-to-date. Our ability to achieve top and bottom line growth despite ongoing economic headwinds is a testament to the resilience of the A&W brand, the strength of our franchise system, and the dedication of our franchisees and team members. Our strategic initiatives, including the successful launch of the A&W Rewards and ongoing implementation of our five-star operating system, are enhancing the guest experience and driving operational efficiencies across our network. We're confident that these initiatives, combined with our continued focus on menu innovation and new restaurant growth, particularly in strategic markets and through our partnership with Sencor, will continue to fuel our sustained growth. I will also take the opportunity to mention A&W's annual Burgers to Beat MS Day that is coming up on August 21st.
For every Teen Burger purchased that day, CAD 2 will be donated to the MS society to support Canadians living with MS. We appreciate the dedication of our employees, franchisees, and partners, and we thank our shareholders for their continued support. With that, I'll turn the call over to the operator for any questions. Thank you.
Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speakerphone, make sure to lift your handset before pressing any keys. Your first question comes from the line of Mark Petrie from CIDC. Please go ahead.
Thanks, and good afternoon. I wanted to ask maybe first just about the consumer, how the consumer demand profile has evolved. When you sort of look at their behavior and parse that out, do you get the sense that value is more or less of a focus for them than it was, you know, say, six months ago? I apologize if I have a bad connection. I'm getting some feedback.
Thanks, Mark. Yeah, I can comment on that. I would say that it's basically still very, very strong, whether it's slightly higher or, you know, about the same as it was six months ago. A continued driver that we see in terms of consumers choosing, and grocery stores are reporting more sale items, more coupon usage, those types of things. I think it's not just the restaurant industry. It's certainly not just A&W. It's right across the whole spectrum of people's desire to spend and their caution with regard to the disposable income that remains in light of the uncertainties that they're hearing about and seeing for jobs and all kinds of issues that affect the consumer on a day-to-day basis.
Okay, thanks. I wanted to ask, I mean, you highlighted the Teen Burger, the success of the Teen Burger promotions in your press release. You commented on it a couple of times here on the call. Just help me, if you could, hoping you could frame that in terms of materiality to the order. Is that specific promo something that you would look to deploy again, or how do you sort of think about that specific promotion?
I think promotion is an important part of our marketing campaigns and our calendar, and bringing some novelty and some interest is really the goal of that. We were very pleased. In terms of context around the whole quarter, it was a two-week long promotion, so it seemed to provide a little bit of momentum and energy beyond the two weeks, if that's maybe the nature of your question. It was certainly positive and one of the key drivers of positive same-store sales growth during that quarter. Each time we run any kind of activity, we always think about, you know, should we run it again? Is that the appropriate thing to do? That's certainly under consideration for us as we sit here today.
Pardon my lack of sort of history with this, but when was the last time you ran that promotion? Is that an annual thing, or when have you run it?
We've never had that exact promotion. This was the first time that we ran it other than in tests. We do the market testing to see how different prices might resonate or the right type of promotion to give our guests. Other than the tests that we ran in a limited number of restaurants several months ago, we've not run CAD 4.99. We've had other Teen Burger promotions in the past and other promotions with a price point on burgers, but not this particular one. That's why we're particularly happy to have something new in our repertoire that has resonated and created a lot of positive energy for visits.
Okay. Helpful. Thank you for that. I also wanted to ask about beverage attachment because that wasn't something that you specifically touched on. I know it's an important, you know, longer-term driver for you, and obviously you've invested to set that up. I'm curious how that's progressing and how you think about that in the context of, you know, this sort of value-oriented team or environment that we're in.
Sure. I mean, anytime you run sort of a price promotion on a particular item, it can sort of distort what other kinds of things people buy. Sometimes they buy more because they've got more dollars to spend. Other times they might spend less because they want two burgers for a low price. I would say that we're generally pleased with the direction of our beverage sales. In particular, we highlighted coffee, which for most of Q2 was probably more relevant than other types of cold beverages. We're seeing growth there, and that's making our attachment rates continue to progress in the way that we were hoping for.
Okay, that's helpful. I did want to ask, maybe just sort of following up on that, I think it was effectively a weather comment. You know, Q1 was hurt by unfavorable weather in February. I presume Q2 was somewhat impacted by the wet and cold May that we've had across almost all of Canada. Could you just talk about the impact of weather in Q2 specifically and maybe versus what you had in Q1?
I think the difference with Q1 was there was intense weather in certain regions, and we were able to easily see it. I think I mentioned on maybe our last call or in other materials that you could visibly see double-digit, high double-digit changes on a day-to-day or week-to-week basis when there was 50 centimeters of snow or those types of things. What you refer to with the damper weather, cooler weather, I'm sure it has an impact. It's just a bit more widespread, so it's a bit hard to isolate. If you just had sunny weather everywhere and then just one place where there was damp weather, it's easier to see what the impact is. I agree with you that that, along with things like fires and so on, created some downward pressure on results, but not the specific degree that we saw in Q1.
I was trying to answer the question. I'd say that it seemed to be less prominent in Q2 than it was in Q1.
Okay. Fair enough. I just have a couple more questions if I can just keep going. Loyalty, you talked about the launch. I'm curious just kind of what you're looking at with regards to sort of KPIs that would help you gauge the success of that program and how you want to manage it going forward.
If you look at account creation, we look at attachment rate there in terms of how many people are actually using the program and so on. In the early innings, both of those factors were positive. We were seeing more accounts created and more people starting to use it. What we've not had enough time to really start to look at are some of the other important KPIs when you look at a loyalty program. It's early to be able to pronounce ourselves on some of the others, but we will be evaluating things like what types of purchases, frequency, those types of things as the program evolves, and active usership and so on. I'd say it's too early for us to really put very much stock in those as we're still at the growth stage, the early growth stage of the program.
Yeah, I mean, is it fair to say that that's going to be about a year to sort of get a better sense of the adoption, and then you can probably look to leverage it more materially?
I'd like to see some trends earlier than a year, but it's nice to be able to cycle year-over-year results and see how they compare. I'd say for sure, after a year, we'll know more, but hopefully, we'll start to see things begin to establish some trends in the next six to eight months.
Okay. My last topic is just Pret. Great to hear that you signed second lead. Just curious, sort of, you know, what you're looking for before that growth becomes more material. You've had the first location for some time. I think there was a hope in the market that you might hear something earlier this year. Just curious, sort of, any updated thoughts about what you're looking for before we hear about more material growth.
Sure. We're not pausing on any results or waiting for anything. We staffed up in April to May. We recruited a full-time person that's dedicated to Pret real estate opportunities. We've started that activity. I think what's a reasonable amount of time to start to solidify. We're happy to have our first deal signed. The actual people side of Pret, we added a number of resources dedicated to that growth. It was probably only April or May by the time we filled those positions. We're still quite early, but there's nothing, there's no indicators that we're waiting for at the moment to say go or not go. We've already pressed the go button, and now we're just working on getting the actual results and deals signed.
Okay. That second location, that's also a corporate location, or is that going to be franchised?
It is extremely close to the 90 Adelaide location, and we think that there's probably some synergies about kitchen and so on. It's another little piece of learning for us, but our growth plans include primarily and maybe only franchise growth. That one just happened to land very close by where 90 Adelaide is located.
Understood. Okay. Looking forward to seeing it. Thanks for all this and all the best.
Perfect. Don't forget, it's my Teen Burger on August 21st.
You bet.
Bye.
If you'd like to ask a question, please press star followed by the number one on your touch-tone phone. The next question is from the line of Logan Reich from RBC Capital. Please go ahead.
Hey, good afternoon. Thanks for taking the questions and all the color. I was just curious on the quarter. How did comps trend maybe month to month or maybe before and then after the Teen Burger promotion? Just trying to get an understanding of the gap of comps through the quarter and then maybe anything on quarter to date would be helpful.
Sure. I think it might help for us to talk about that, to think about the entire campaign that was present in Q2. It started with a real communications focus on the Teen Burger itself, quality, grass-fed beef, great ingredients, and so on. That was without any price point. We started to see trends solidify during that period of time. There was, of course, a big spike during the CAD 4.99 Teen Burger offer. If you picture sort of six or seven weeks of primarily Teen Burger communication, we started to see it rise as that started. I don't remember the exact week or month that it started in, but go back to four or five weeks before the two weeks of CAD 4.99, and then, of course, CAD 4.99. Subsequently, we also experienced growth as people remembered their last Teen Burger and rushed out to buy another one.
Got it. No, that's helpful. I mean, it sounds like you guys are seeing a sustained sort of demand following the Teen Burger. I mean, are you just attributing that to maybe the A&W Rewards program, or is that just, you know, awareness and recency where people are coming back because they've made a transaction recently?
There's a piece of awareness and recency. Alyssa was reminding me that one of her favorite burgers, the steakhouse Teen Burger, was also on air right after the CAD 4.99 too. That was also a product that sold really well and something that invited Teen Burger lovers to come back for something else that they wanted to try.
Got it. Super helpful. I guess just like, you know, you guys sort of alluded to more value coming in the balance of the year. How do you feel about your current value prohibitors relative to the competition? Is it going to do more things that sort of look like the two-week Teen Burger promotion, or are you guys going to pare that or maybe adjust that through the year?
I think we're talking about maybe two things. From a value perspective, I think we have a very, very strong position on value. What people pay for the quality that they receive, we always score very well and are highly competitive in that area. Price is just more important to people today. We need to balance out the quality and, you know, convenience messages that we have, whether that's on the app or on air, with some prices that really get people excited and say, "Hey, you know, I wasn't planning on this, but I think today's a good day to go out and enjoy a Teen Burger." I think it'll be a balance of both. When it comes to value itself, we are, I think, leaders in the market. Maybe not in the way that you've said it, which is maybe people think value menus and so on.
We look at value from a perspective of for the price you pay, the value you receive, and that's always been very strong for us.
Gotcha. That's helpful. I guess just like the competitive environment backdrop, do you see your competition getting a little bit more aggressive on value or on pricing here? How do you feel about, you know, where the competition is moving? Anything that's worth calling out they've noticed recently?
Yeah, I'd say that the entire market is responding to consumers' needs for low price, attention paid to disposable income. We are seeing a lot more of that, not just in restaurants, as I mentioned earlier, but also in other retail industries. I think that's just a general theme for anybody in retail or having things on their menus or in their stores today. It's got to be great value for the consumer because they're a bit less discretionary in their spending and a bit more thoughtful.
Gotcha. Super helpful. Just on the rewards program, I recognize it's very early. You guys sort of gave some color, but I guess just like any metrics you guys are able to share or even just qualitatively how that's performing relative to expectations. I don't know. Anything specific to call out in the rewards program thus far?
I think we were happy with the initial response. We got some early, quite significant numbers, both at the restaurant where you can use your app to just collect points, even if you're not part of the loyalty program or if you haven't ordered an event. I like that sense that people understand what a loyalty program is all about, and they're starting to use it in the way that they use it with other loyalty programs. I think the consumers are quite well educated, and now it's just a question of getting the message out to more people so that they're able to join up. We were very happy with the initial bump. It happened very quickly, and we can see that there's a great familiarity with the kind of program and that we're meeting that need ourselves as well with what we've got.
Gotcha. That's great. On the five-star operating system, can you just give a little bit more detail on what exactly the change is? Any sort of KPIs you guys are tracking in those restaurants with the new operating system and how those are performing relative to those who haven't implemented it yet?
Sure. Maybe a little bit less about restaurants that haven't implemented it yet because there are fewer of those. In terms of where restaurants themselves were before they joined the program, there's clear improvement. Most of the activities, and this is sort of the first phase of what we hope will be more than one phase in terms of the five-star operating system, were really focused on the guest experience. In particular, we wanted to do a really good job of serving guests who ordered on the mobile app, as well as for pickup, for delivery, for example. Clearly labeled, people know where to stand, the way that we produce the food, the timing, all those kinds of things to really enhance that and perfect that, if you will, from a restaurant experience perspective.
Really, efficiency, how we process orders, the length of time it takes at the drive-through, both of those things have definitely shown an uptick when restaurants are changed. It's happened quite quickly, so we're pleased about that.
Got it. Super helpful. I love that. Oh, sorry, go ahead.
The key metric for us is speed of service. That's the one that we can measure most accurately, and it's the one that can experience the quickest changes.
Gotcha. I appreciate the color. I'll pass on. Okay.
Thank you.
There are no further questions at this time. I'd like to turn the call over to Susan Senecal for closing comments. Ma'am, please go ahead.
Perfect. Thanks to everyone for attending our call today. We do look forward to updating you on our results after the third quarter. In the meantime, if anyone has a question that wasn't answered on our call today, please feel free to send a follow-up email to investorrelations@aw.ca.