Ladies and gentlemen, thank you for standing by, and welcome to the Pizza Pizza Royalty Corp's earnings call for the second quarter of 2023. During the presentation, all participants will be in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star, then One on your telephone keypad. As a reminder, this conference is being recorded. I will now like to turn the call over to Alexander Sewrattan, Director of Finance. Please go ahead.
Thank you. Good afternoon, everyone, and welcome to the Pizza Pizza Royalty Corp's earnings call for the second quarter ended June 30th, 2023. Joining me on the call today are Pizza Pizza Limited's Chief Executive Officer, Paul Goddard, and Chief Financial Officer, Christine D' Sylva. Our discussion today will contain forward-looking statements that may involve risks relating to future events. Actual events may differ materially from the projections discussed today. All forward-looking statements should be considered in conjunction with the cautionary language in our earnings press release and the risk factors included in our Annual Information Form. Please refer to our earnings press release and MD&A in the investor relations section of our website for a reconciliation and other disclosures related to our non-IFRS financial measures mentioned on this call.
As a reminder, analysts are welcome to ask questions after the prepared remarks, and portfolio managers and media can contact us after the call. Before turning the call over to Paul for the business update, I wanted to spend a few moments reviewing the structure of the Corp for our new investors. Pizza Pizza Royalty Corp indirectly owns the Pizza Pizza and Pizza 73 brands and trademarks through its subsidiary, Pizza Pizza Royalty and Limited Partnership. The Royalty Corp is a top-line restaurant Royalty Corp that earns a monthly royalty through a lease agreement with Pizza Pizza Limited. In exchange for the use of the Pizza Pizza and Pizza 73 trademarks in its restaurant operations, Pizza Pizza pays the partnership a monthly royalty calculated as a percentage of Royalty Pool sale.
Growth in the Corp is derived from increase in the same-store sales of the restaurants in the Royalty Pool and by adding new restaurants to the pool each year. The Royalty Pool is adjusted at the beginning of each year by adding new restaurants opened in the previous year, less any restaurants that have been permanently closed. For the fiscal year 2023, the Royalty Pool was adjusted on January 1st, 2023, to include 644 Pizza Pizza restaurants and 99 Pizza 73 restaurants. With that review, I'll turn the call over to Paul Goddard to provide a business update.
Thanks, Alex. Good afternoon, everyone. Thank you for joining us today on our call to discuss our Q2 2023 results. We are delighted to report continued strong results as we reported another positive quarter with same-store sales growth of 9.4%. We are extremely proud that both brands reported positive sales this quarter, and this is actually the first quarter in which we had no impact from the pandemic when compared to the prior year. This strong same-store sales growth translated into a 10.9% increase in royalty income and drove our second dividend increase this year back in June 2023, and yielded an adjusted EPS growth of 11.8%. During the quarter, the Pizza Pizza brand reported a 9.8% in same-store sales, and the Pizza 73 brand reported a 7% increase.
Growth at both brands was driven by increases in both guest traffic and average check. Now let's get into more detail on our performance for the quarter. Pizza Pizza Limited's success stems from its long history of menu and technology innovation, along with its convenient restaurant locations and high-quality menu offerings. This quarter, we continued our focus on building brand engagement through innovative promotions and products, delivering great value and celebrating key moments. When we launched our Poutine offerings at Pizza Pizza in 2022, we experienced a nice lift in our appetizer and sides category, and when we launched our Buffalo Chicken Sandwich in 2021, it was also well received. We decided to combine them, and this quarter we added a new offering at Pizza Pizza, the Buffalo Chicken Poutine.
This new item has highlighted the Poutine category and provides customers with a compelling value offering at less than CAD 10. Additionally, with the success of Poutine at Pizza Pizza, we took our learnings and ported them over to Pizza 73, but this time with a twist. The well-known and well-loved Curly Fries at Pizza 73 were essentially reintroduced as Poutine. We're extremely happy with how this product is doing and look at this as a great example of how cross-pollination of innovation can drive incremental new sales growth. Our pipeline for product development is strong, and we look forward to introducing more items to our customers as we progress through the year and beyond.
As discussed on our last call, Pizza Pizza has always celebrated special occasions, and this quarter was no different. We ran our annual 4/20 promotion and created a new Buzz Off Pizza to keep mosquitoes away for the May long weekend and Canada Day. Additionally, our teams are out in the community during the pride events across Canada, and for every special moment, we are there celebrating with our customers in their communities. We are focused on building our brand engagement, and our promotions for the first six months have proven successful as we experienced a continued increase in traffic. Like all businesses, our stores are faced with continued inflationary cost increases across the supply chain and some tight labor markets. Our goal is to take modest, selective price increases across our menu when needed to help with input cost increases while not adversely impacting customer traffic.
We know customers are looking for value, so we have to find the right balance of perceived value for money. It is a fine balance, but one that we have been able to achieve. As we move into the second half of the year, we will continue to leverage our brand assets with innovative marketing campaigns focused on driving traffic to our restaurants, while also increasing brand awareness. Additionally, we will continue to support enhancements of our digital capabilities to stay focused on our core competitive advantages of convenience, innovation, high-quality menu offerings, and network expansion. Turning to that restaurant network expansion, we ended the second quarter with a total of 752 locations, of which 652 were Pizza Pizzas and 100 were Pizza 73s. We opened five traditional and two nontraditional Pizza Pizzas, and closed three traditional locations and one nontraditional location.
Additionally, during the quarter, the company opened one nontraditional Pizza 73 and closed one traditional Pizza 73. Our Pizza Pizza restaurant openings this quarter were across many provinces, including British Columbia, Ontario, Quebec, and Manitoba. While we continue our expansion plans, we have not taken our sights off our renovation programs. Over 85% of our traditional Pizza Pizza stores have our new look, and 25% of the Pizza 73 traditional stores have also been renovated this year. Those renovations, by the way, are a little quicker and easier, just given the smaller footprint of Pizza 73 and our reception area there, a little quicker. Our new refreshed look overall creates a warm, modern, and inviting space for our customers to come pick up or sit and enjoy our hot and fresh offerings. We refocused on growing our business right across Canada.
We are well known as Canada's very own homegrown leading national pizza brand, something we are very proud of. One exciting piece to note, during the quarter, our Mexican partners opened the first three PZA Pizzerias. The PZA Pizzeria brand has been well received in Mexico, and while it is not material at this early stage, we are excited by our early success there and for the potential it provides for us to further scale our business down there in Mexico, with three times the population of Canada and a fast-growing, pizza-loving market. Of course, we also see potential for other international markets as well.
Looking ahead, in 2023, you will see us continue pushing hard on menu innovation, marketing initiatives, restaurant growth, technology, and other digital-first investments. We will work closely with our owner-operators to ensure they are delivering excellent and consistent products and service in a clean, safe, and attractive restaurant ambiance. I'd like to close by congratulating our entire team, our operators and our employees. We're all one team. We've worked all very hard together to create a very innovative, ambitious, and collaborative culture right across the country and now internationally at both brands. With that, I'd like to turn the call over to Christine for a brief financial update.
Thanks, Paul. Since Paul covered many of the drivers for this quarter, I'd like to briefly discuss how those promotions and activities drove our financial results. As mentioned earlier, same-store sales growth, a key driver or yield for shareholders, increased 9.4% for the quarter. Pizza Pizza restaurants supported 9.8% same-store sales growth, and Pizza 73 restaurants supported 7% support. Both brands saw an increase in customer traffic as well as the average ticket. The combination of 16 net new restaurants being added to the Royalty Pool and the same-store sales growth resulted in an increase in Royalty Pool System Sales and the corresponding increase in royalty income. Royalty Pool System Sales for the quarter increased 11.2% to CAD 158.5 million, from CAD 142.5 million in the same quarter last year.
By brand, sales from the 644 Pizza Pizza restaurants in the Royalty Pool increased 12% to CAD 137.7 million for the quarter, and sales from the 99 Pizza 73 restaurants increased 6.4% to CAD 20.8 million for the quarter. The partnership's royalty income, earned as a percentage of Royalty Pool sales, increased 10.9% to CAD 10.1 million for the quarter. The partnership also earned interest income on its cash and short-term investments. Now turning to partnership expenses. Administrative expenses for the quarter were CAD 148,000 and include listing costs as well as director, legal, and auditor fees. In addition to administrative expenses, the partnership paid interest expense on its CAD 47 million credit facility. Interest paid in the quarter was CAD 320,000.
The partnership is currently making interest-only payments on the non-revolving facility. The interest rate is locked through April 2025, using a swap agreement that has fixed the interest rate at a Bankers' Acceptance rate of 1.81%, plus the credit spread. The credit spread changes based on the level of debt to EBITDA, and the all-in rate is currently at 2.685%. After the partnership receives royalty and interest income and pays administrative and interest expenses, the resulting net cash is available for distribution to its two partners, Pizza Pizza Limited, the private operating company, and Pizza Pizza Royalty Corp, based on their ownership percentage. Pizza Pizza Royalty Corp's share in 76.1% of the partnership distribution. It pays taxes on its share of the partnership earnings, and the residual cash is available for dividends to the company's shareholders.
Turning to shareholder dividends. During the quarter, the company increased its monthly dividend for the second time this year. With the most recent 3.5% increase, the current monthly dividend exceeds the pre-COVID rate and sits at CAD 0.075 per share per month. The company declared shareholder dividends of CAD 5.4 million in the current quarter, or CAD 0.22 per share, compared to CAD 4.9 million, or CAD 0.1975 per share in 2022. The resulting payout ratio was 95% for the quarter, and the company targets a payout ratio at or near 100% on an annualized basis. The company's working capital reserve increased CAD 300,000 during the quarter and was CAD 7.6 million at June 30th, 2023.
With the most recent dividend increase, the company believes that there is sufficient cash flow to service obligations as they fall due. We will continue to monitor sales closely and royalty income to determine when additional dividend increases may be warranted. That concludes our financial overview. I'd like to turn the call back to the operator for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press Star One. If you want to withdraw your question, please press Star Two. Your question will be pulled in the order they are received. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please, for your first question. Your first question comes from Derek Lessard from TD Cowen. Please go ahead.
Good afternoon, everybody. Good to hear your voices.
Afternoon, likewise.
I just, you know, I, I wanted to hit on the same-store sales strength. I mean, that two-year stack is, is really impressive, and congratulations on that. Maybe just talk about what you're seeing in terms of the consumer. It doesn't seem like there's been any deceleration in, in spend here and in the face of, I guess, you know, mortgage payments that may have doubled for some. Any color on, on the consumer would be, be helpful, whether it's trade down, any dynamics, ordering preferences, et cetera.
Yeah, I think, you know, thanks, by the way, we appreciate the, the, compliment, and I think we are pretty proud of what we've done here, and it's nice even to, to get past the, the, lastly of the pandemic and have a, a, you know, quarter which is pre-pandemic and see the strength continue. We do see the strength continuing. I mean, I think we certainly, with a lot of other people, share some concerns about the economy, and there's lots of different viewpoints out there on consumer confidence. I mean, that, you know, with rates... I mean, hopefully, inflation has peaked, I guess. I mean, you saw the central bank increase the rate by a 0.25 point, et cetera, recently. You know, there's certainly some, some concerns, but some potential headwinds there.
We're being really careful to make sure we provide that value, I would say, number one, and yet we have, you know, we've been pretty judicious about price increases here and there because our input costs, you know, they went up massively, and I would say that escalation has been tempered. We've seen some relief there, but there's still certainly some inflation in input costs with store construction, for instance, as well, not just food input costs, that, you know, are definitely not necessarily going fully our way. We think consumer confidence, you know, is it seems to be holding up, but we don't take it for granted. We think we're gonna stay focused on value.
We are also, you know, really pushing ahead on the restaurant expansion and innovation. Like, we feel like with things like the Buffalo Chicken Poutine, Create Your Own Pizza, or Pizza 73, the Gourmet Thins out there, I mean, we really feel we need to innovate and keep doing it. We think consumer confidence will, will hang in there at least enough for us, as long as we provide enough value and people see the quality that, that we provide and the convenience, I guess, above all.
Additionally, Derek, we have multiple channels for our customers to get our pizza. Where a customer may have chosen delivery in the past, we're at every corner, so they can walk to the store if they can't afford the delivery fee and pick up their order. That ability to pivot within our own system for our customers has really helped us ensure that we don't lose customers, should they face headwinds in the economy.
Okay, makes sense. Thanks for that. I guess also nice to see Pizza 73 joining in, in the fun. Anything, I know you pointed out, Paul, to the Poutine there and the Curly Fries, but anything specific that you can point out that's driving that nice 7% jump?
Yeah, I think it's a combination of factors, but I think we talked to you in our last call about our new website and app there. That really, I think, it's so much easier to use. It's faster, quicker, much more pleasant experience. We, believe it or not, we didn't have a Create Your Own Pizza capability, and a lot of people don't, by the way, and so it's just very easy. I think just the ease, convenience, it's just so much more pleasant an experience there. Then I think we have been successful with poutine, has been very successful out there. People like those curly fries, but they also like the poutine twist on it.
And the Gourmet Thins that we've had great success with out here and still do have success with, it continues to do, you know, pretty well as well out there. So many innovations to technology stuff. Also, I would highlight our local marketing team there, that works very closely with our team here. We've got some very senior people that are invested in more people, that are very capable, and they're, you know, they're Alberta-based, and we think that's really given a new, kind of, renewed vigor, I guess, and some different approaches. We're not just taking what Pizza Pizza does and sticking, you know, blue color on the logo out there, right? I mean, it's a different market, different behavior, different demographics. So we're trying to really do a lot more sort of localized stuff.
Then we also are cross-pollinating when it makes sense. If it works here, certain things do port really nicely over there. I think it's sort of a combination of all those things, and I think the brand is sort of... You know, the renovations that we're underway with as well, people do start to see us. Just we're, we're continuing to reinvest in the brand, just like we did here. I think it's, you know, I don't think consumers there necessarily are massively better. I don't think the market is, you know, tremendously healthier than it was last quarter, I'd say, out there, but, I just think generally, we've, we've, we've kind of been picking up our game there overall.
Okay. I think, you mentioned, 25% of the restaurants, have been renovated. Is the plan to roll it out to, I guess, the remaining 75%?
Yes, pretty much. We do have some new stores as well, that, you know, as we're building, we haven't had as much, you know, pace with the growth there as we have in the rest of the country with Pizza Pizza, but we still do have some growth there. Those renovations are smaller by nature. It's a smaller footprint restaurant. The customer area is smaller. It's, it's just a slightly different approach, where people are more trained to come for pickup, and they might sit at some high counter, kind of, bar stool type arrangement. But it's very small compared to your typical Pizza Pizza.
The cost associated with renovating that, what we call the sort of the lobby or customer area, is much smaller for the, for the operator, and it's, it's quite a quick and easy relative to the Pizza Pizza one, which is actually pretty substantial for our operators at the time when we undertook that.
Right. It seems, for here anyway, it seems like the summer of rain here in Montreal, and that, otherwise forest fires. That got me thinking about, I guess, the first thing is, like, how have your, your outdoor venues been doing? Second, do you guys benefit from inclement summer weather?
Yeah, that's a good question. I think we have, for instance, you know, had some big success. I mean, the weather does play a big role, and often, when it's raining, generally speaking, we do get a, kind of, a boost in deliveries. It might hurt walk-in overall, but, you know, in weather, when it's raining, even in summer, people do, do do delivery a little more, and we do see still pick up overall growing very rapidly, like, faster than delivery growth. But we have had some success. You know, I know it's more getting into, close quarter, but, we do annually do quite a big exercise in Montreal, Moving Day and Canada Day there.
This year, we did a, a huge amount of extra marketing promoting our, how, you know, how we are very active in Montreal. We do certain things like, you know, Boots & Hearts and Calgary Stampede, obviously, and that's sort of, again, this next quarter. You know, we, we have done very well in these outdoor venues in places like Canada's Wonderland. I mean, we've been very successful there for many years, and they've been a great partner, and we've actually just been increasing our presence and number of our units on site there at very key locations for them, the most popular rides and things.
You know, we-- I would say it's a real specialty we have that, you know, really, I can't think of anyone else that really has that specialty, where, our outdoor events, our special events teams, they're kind of a mobile army. They know how to set up equipment and tents and trailers and deploy, student resources, mostly train them up fast. We can be really nimble, you know, really increasingly nationally, still primarily Ontario and Alberta, but we also think there's potential to do even more in Quebec, even more in British Columbia, places like the Maritimes. So I think that is a really unique, you know, skill set we have in our, in our team.
You know, weather overall, you know, sometimes it does hurt, walk-in business if, if the weather's not so good, but we do get the delivery boost, I would say, overall.
Okay. I know it's always tough out there, but has there been any changes to the competitive intensity, or, or has sort of that inflationary backdrop kept everyone, you know, sort of, honest, so to speak?
I haven't really noticed overall. I mean, we certainly, you know, have some, you know, very serious competitors that we monitor very closely, and I think we have, we really have our ear to the ground there. We're trying to be driven by our own, you know, our own demographics, our own analysis, our own data, and customer behavior. You know, it, it doesn't lighten up for... I think that there's some, some strong competitors \ out there as well, and they, they're creative as well. We, we think that relative to the peer group, especially in pizza, we've been outpacing pretty much everyone we can think of. We don't get cocky about it, because we know that things can change pretty quickly.
Our view is, let's, let's keep innovating, and let's keep, let's keep being the leader, and let's not let anyone leapfrog us. It's, it's a strong field out there. I mean, there's some really smart companies out there. We're not the only one, but we think that we've got the best track record recently, and we hope to keep it that way.
Okay, that's it for me, everyone. Thanks for taking my questions. Have a good night.
Okay, thanks very much, Derek. Appreciate it.
Thank you. There are no further questions at this time. You may proceed.
Thank you all for your time today. If you have any other questions, you can contact myself or Christine D' Sylva. Our contact information can be found on our earnings press release. Thank you again.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.