As a reminder, this conference is being recorded on November 2nd, 2026. I will now turn the call over to Christine D'Sylva, CFO.
Thank you. Good afternoon, everyone, and welcome to Pizza Pizza Royalty Corp.'s earnings call for the third quarter ended September 30th, 2026. Joining me on the call today is Pizza Pizza Limited's Chief Executive Officer and President, Paul Goddard, and Chief Operating Officer, Philip Goudreau. Just a quick note, 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 release and the risk factors included in our annual information form. Please refer to our earnings press release and the MD&A in the Investor Relations section of our website for our reconciliation and other disclosures related to non-IFRS. As a reminder, analysts are welcome to ask questions after the prepared remarks.
Portfolio managers, media, and shareholders can contact us after this call. I will now like to turn the call over to Paul to provide a business update.
Thanks, Christine, and good afternoon to everyone, and thanks for joining us for our third quarter results conference call. This afternoon, we released our results for our third quarter of 2026, which is available on our website. Our operating environment remained challenging throughout the third quarter. Discretionary consumer spending remains tight amid intensifying promotional competition across the quick-service restaurant sector, and particularly on third-party delivery aggregator platforms. In the third quarter, our overall same-store sales decreased by 2.3%. Pizza Pizza restaurants were down 2.7%, while Pizza 73 restaurants fared comparatively better as they held flat with 0% same-store sales growth. Despite the obvious challenges in our operating environment, going into our third quarter, we knew that our traffic would see pressure due, in significant part, to the Blue Jays' extended World Series run right up to those extra innings in game seven a year ago on Halloween night.
Unfortunately, it didn't quite work out, but it was a great night for business. Government immigration policy changes also continue to work against us with our non-traditional sales, including a large number of affected colleges. Several of these locations were operating a year ago, but have subsequently closed due to changes by the government's student visa and permanent residence program, or PR program. This demographic represents a high-frequency customer segment. Consequently, this shift pressured both our on-campus non-traditional restaurants as well as our neighboring traditional restaurants. However, turning to our direct channels, we saw encouraging signs of stabilization. Our proprietary digital platforms did well, led by order growth from our iOS, iPhone, et cetera, and Android apps, alongside solid gains in our walk-in and pre-order pickup business. Supporting the sales on each channel are innovative marketing and brand activations.
During the quarter, we launched a premium, delicious, and healthier option with our Ancient Grains Crust pizzas to connect with evolving preferences for smaller portions and lighter crusts with protein-forward recipes. To balance our premium offerings, we also continued to highlight value with our Buck an Inch pizzas. This deal caters to every customer, where every two-topping pizza is priced at CAD 1 per inch. So yes, an 18-inch XXL two-topping pizza is only CAD 18. At Pizza 73, our Double Up deal performed well, given its strong value offering of two medium two-topping pizzas and four drinks for just CAD 22.50. To attract walk-in customers, we continued to promote our CAD 5 Mega Slice deal, featuring a new, bigger slice and a drink. We also launched pizza rolls with six different delicious flavors at a compelling value-oriented price of two for CAD 5.
Our pizza rolls are packaged very nicely, are incredibly tasty, and are very portable and travel-friendly to people, very ergonomic. Finally, to capitalize on the strength of our well-known and loved dipping sauce category, we introduced a new delicious Chicken Chicken dip to complement our best-in-class dips and chicken offerings. At Pizza 73, following the successful launch of our Golden Crispy Chicken Tenders, we expanded the offering to Golden Crispy Chicken Sandwiches. This product launched in September and is positioned at a value price point of CAD 5. Our marketing calendars balance value perception with check-building innovation. We also capitalized on peak summer foot traffic through high-impact brand activations.
At the Canadian National Exhibition, the CNE as we call it in Toronto, our brand campaign, highlighted by our viral Creamy Garlic Dipping Sauce attraction with high divers jumping from staggering heights into a massive Creamy Garlic Dipping Sauce-shaped swimming pool, generated over 180 million media impressions, which is pure media gold. In the West, meanwhile, Pizza 73 achieved its strongest Calgary Stampede activation to date, earning third place in a highly competitive food innovation award competition with our deep-fried Hot Cheetos cheese slices. Turning to our restaurant development, during the quarter, the brand's expansion was limited to two non-traditional Pizza Pizza openings, offset by the closures of 10 non-traditional and two traditional restaurants. The total number of Pizza 73 restaurants remained unchanged.
There are several new restaurant openings that are slower to come online due to construction delays, and in a few markets, sourcing highly qualified franchisees has been somewhat more challenging. Accordingly, we have adjusted our development outlook to 1%-2% for the year, down from a typical 2%-3%, which we feel is also prudent in this tougher economic cycle. In closing, I'd like to thank all of our franchisees, partners, and our company team members for their relentless commitment, energy, and resiliency as we navigate through the new business norm and work diligently on controlling what we can.
Having been in business now for almost 60 years, with our big anniversary coming up next year in 2027, we've always found a way to enhance our brands through good times and tougher times, and we'll continue to do so, focusing on value, quality, convenience, innovation, and most importantly, delighting our customers each and every time. All of this means we remain focused on the fundamentals that will drive our business forward, strengthening our brand, delivering compelling value to our customers, and driving operational excellence through consistency and unyielding innovation. By staying true to our customers, continually sharpening our execution, and building on our core strengths, we are confident in our ability to navigate the current environment and position the business for sustainable long-term growth. Thank you again for joining us today, and I'll now ask Christine to provide our detailed financial update.
Thanks, Paul. As a reminder, Pizza Pizza Royalty Corp. is a top-line restaurant royalty corp that earns a monthly royalty through a license agreement. Growth in the corp is derived from increasing the same-store sales of the restaurants in the Royalty Pool and by adding new restaurants to the Royalty Pool each year. As announced earlier this year, on January 1, 2026, the Royalty Pool increased by 20 restaurants as a result of opening 39 new restaurants, less 19 which permanently closed. So for fiscal 2026, there were 814 restaurants in the Royalty Pool, comprised of 712 Pizza Pizzas and 102 Pizza 73s. This is compared to 2025 when there were 794 restaurants. Now I'll briefly cover the financial results for the quarter. As Paul mentioned, same-store sales, the key driver of yield for shareholders, decreased 2.3% in the quarter.
Both brands saw a decline in traffic, which resulted in Pizza Pizza restaurants reporting same-store sales decreases of 2.7%, while Pizza 73 restaurants were flat. The positive impact of the 20 net new restaurants added to the Royalty Pool was offset by the same-store sale decline and resulted in an overall decrease to the Royalty Pool system sales and the corresponding royalty income. Royalty Pool system sales for the quarter decreased 0.9% to CAD 157.4 million from CAD 158.8 million in the same quarter last year. The partnership's royalty income, earned as a percentage of Royalty Pool sales, decreased 0.7% to CAD 10.1 million for the quarter. As a reminder, the Pizza Pizza and Pizza 73 restaurants are subject to seasonal variations in their business. System sales for the first quarter of the year are generally the lowest, while system sales for the last quarter are generally our highest.
Turning to partnership expenses, administrative expenses, including listing costs as well as director, legal, and auditor fees, decreased in comparison to the prior year. This quarter, they totaled CAD 141,000 compared to CAD 181,000 in the prior year. The decrease in the quarter reflects lower professional fees and director fees. In addition to administrative expenses, the partnership is making interest-only payments on its CAD 47 million credit facility. Interest paid in the quarter was CAD 444,000. As a reminder, in March of 2025, the company renewed the facility for three years, with maturity now set for 2028. The balance of the facility remained unchanged. However, the credit spread table increased slightly, with the lowest tier increasing from 0.875% to 1%. Additionally, in April 2025, the partnership entered into a three-year forward swap. The new three-year swap commenced when the existing ones expired, and our locked-in rate is currently at 2.51%.
The all-in rate for the facility for the next three years is 3.51%. After the partnership receives royalty and interest income, pays administrative and interest expense, the resulting net cash is available for distribution to its two partners based on their ownership. After the 2026 vend-in and the prior year true-up, Pizza Pizza Limited's ownership increased to 27.2%. Pizza Pizza Royalty Corp. shares in the remaining 72.8% of the partnership distributions. It pays taxes on its share of the partnership earnings, and any residual cash is available for dividends to shareholders. For the quarter, the company declared shareholder dividends of CAD 5 million, or CAD 0.2025 per share, compared to CAD 5.7 million, or CAD 0.2325 per share in the same quarter of last year. The dividend reduction in May of 2026 lowered the payout ratio for the quarter to 93%, down from 111% in the prior year's comparable period.
This resulted in the company's working capital increasing by CAD 400,000 to end the quarter at CAD 2.6 million. This CAD 2.6 million working capital reserve is available to stabilize dividends and fund other expenditures in the event of short- to medium-term variability in system sales. The company has historically targeted a payout ratio at or near 100% on an annualized basis, and any dividend decisions will be made with this target in mind. That concludes the financial overview. I'd like to turn the call back to our operator to poll for 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 touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline the polling process, please press star followed by the number two. If you are using speakerphone, please leave the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Cheryl Zhang, TD Cowen.
Great to hear from you and thanks for taking. Hi, Paul and Christine. Great to hear from you and thanks for taking our questions.
Thanks, Cheryl. Nice to hear you too.
My first question is on same-store sales. I think you noted that consumer discretionary spending remains tight. How did the overall same-store sales trend from July to September and into October?
Sorry, yeah, we haven't really given detail throughout the quarter. But I think that we can say that certain things were introduced at certain times that worked really well, like for instance, our Buck an Inch promotion, which is our number one mixer. That was sort of late Q2 and it's in all of Q3, so I think that had a positive impact there. I just don't want to get too granular on that for competitive reasons. But, I mean, overall, we obviously want positive same-store sales every quarter, and we're not thrilled with having a negative again here. But we do feel it's a step in the right direction if you look at our prior results, and then seeing Pizza 73 come up to flat is progress from where they were as well. Overall, we're encouraged by some of the trends.
Okay, got it. Do you see any performance difference by geography, like within what certain markets doing better or worse than the others?
Yeah, I could give a little bit on that. I mean, a lot of it has to do with how long we've been in certain markets as well and how new our network is. I would say we've been encouraged recently with the GTA area, broader area, Ontario core, which makes us really happy. That's a real sign of hopefully more contagion in a good way. Also, markets like Quebec continue to be strong for us, especially more core to the more urban areas. That's generally been positive for us. Some of the newer markets, we're still climbing up and getting our average unit values up, and that would include places like B.C. and in Maritimes where we don't have that many restaurants, and some of the newer areas that we're in are still really, I think, early days, and it's also a tough economic environment.
In Ontario, we're encouraged in a lot of ways with what we're seeing, but we certainly have concerns here too with the geopolitical environment, tariffs, potential further impact to the auto plants and things like that. We want to make sure that we have a firm footing in value and convenience with the customers who are no doubt struggling, and some may end up struggling even more than they are now.
Got it. That's helpful. I wanted to double-click on the performance by different brands. For Pizza 73, it's pretty impressive that it's flat given the environment. I'm curious what's driving that outperformance other than, I think you highlighted quite a few of menu innovation in the quarter.
Yeah, we were happy with the menu innovation. We were really happy with the Stampede, as we said this year, weather-wise, and our team just executed very well on the food development side. We got a lot of attention there, and we've really been highlighting the Alberta element there. It's a homegrown brand from Edmonton, but we're super popular in Calgary, really all over the whole province, and that's been really, really good. And we have seen their check overall up, but orders still down. So, what we really want is orders up, right? And we'll certainly get check growth when we can get it, but really, we look at traffic as more important, and that's how we want to really build our growth. So we have work to do still there, even though it is better than it was.
We're encouraged, but we just got to be careful to maintain the order growth.
Okay, that's helpful color. Then speaking of traffic and check, you noted that traffic is down. Is that becoming more negative from last quarter, or has it improved?
I think it's improved a bit, the traffic. I mean, Christine was just going to jump in there.
Yeah.
Go ahead, Christine.
I think as the quarters have progressed this year, we've seen the declines in traffic moderating. We're happy to see a lot of our iOS and digital orders improving as well as we focus on growing those channels. We also, leaning into value, knowing customers are shifting their buying preferences to picking up and walking in, we've really leaned into the value there with some great compelling offers, as Paul mentioned, an extra large slice of pizza for $5 with a pop, speaking to people just trying to grab and go and get something that will fill the belly at a reasonable price point.
Okay, that's great to hear. On average check, I think adjusting the promo pricing helped, but what about the number of items being ordered? Is that stabilizing? Is that down, or has it improved?
I think it's pretty stable overall. People can chime in, but I think overall, I mean, we still think, checks up and orders overall are down, but not as much. We are encouraged by the early days of the trend there.
Okay, that's helpful. In prepared remarks, you noted heightened competitive activity. Are you seeing a step-up in promo, or is it just staying at a high level?
We certainly see it at a high level, and on third-party aggregator platforms, we really see a lot of activity, branded promo offers from everyone, not just Pizza QSR, but all QSR. That tends to be the go-to sort of tactic for folks, and it does generate sales, but those are also pretty expensive sales. We feel that we're quite unique and relative to many players in that our digital platforms, our organic offering is so compelling, and we've got more channels than anyone else. We're trying to really steer things more in that direction. We have certain products that are only available on our organic channels or on digital channels. Not everything's available on, say, third-party aggregator.
It is a valuable channel to us too, but we really want to make sure for ourselves and for our stores, the profitability is there as well as the sales growth.
Cheryl, we've augmented. We're not just doing value. We have Ancient Grains, which are nice premium, higher-priced products. We're trying to get check where we can and where we know it's going to resonate with certain customers. Everyone, competitive-wise, has a always-on value message. That really hasn't changed much over the course of the year. It's just that it's still there at that same competitive level. We're just trying to balance the premium with the value message for the overall profitability of our stores.
Okay.
Yeah, we are trying to innovate as well, just aside from all the other comments that Christine D'Sylva just made, is on the food side, for instance, at Pizza 73, I said in my prepared comments, but on the Golden Crispy, I mean, that is a real movement in itself. I mean, people love our chicken out there, and they always have, and we've been innovating on that. Just expanding our Golden Crispy tender success to sandwiches and other chicken products, we think there's still some more runway there too, and that's pretty encouraging there. We sell a lot of product out there. It's not just pizza. That also applies to Pizza Pizza as well. But the Golden Crispy is unique to Pizza 73, and we've been pretty encouraged by how that's performed.
Okay. That's very helpful. Thank you both. I wanted to double-click on the new restaurants. You lowered our outlook on restaurant development this year and noted challenges in sourcing qualified franchisees. Could you elaborate on those challenges, please?
Sure. Yeah, I think it's sort of just a sign of the times. I mean, we've actually seen a lot of franchise sales activity, for instance, within our network. But we certainly, in places like Quebec, for instance, as you get further and further away from Montreal and the more purely French-speaking areas where perhaps our brand is less known, that has been a bit of a challenge, just finding good, capable franchisees where we want them. We have cases, it's not very common, but we have had a few cases where we have a store ready or we have a location we know will be successful, but actually getting someone to buy a store in that environment is more challenging than perhaps buying an existing restaurant, let's say. So, we are seeing that in some pockets.
We've also consciously slowed down a little bit, just consciously to also focus on our existing network a little bit. For instance, in B.C., where we've been really happy with our number of restaurants growth there, but we really want to focus on driving up the performance of our existing portfolio, especially in the Lower Mainland, rather than just adding tons of B.C. new stores as well. So, part of it's our being more selective ourselves of where we have restaurants as well and just making sure that wherever we do open one up, as much as we would rather open 2%-3%, we would really, if it comes to it, rather go a little slower and make sure that there's a greater chance of those sites being profitable for the franchisee.
Right. Absolutely. And then you also noted construction delays. Is that due to permitting or equipment supply issues?
Yeah. Mostly, Cheryl, this is Philip Goudreau. It is just really permitting. We did not show any growth in Q3. However, in the quarter that we are in now, we are on track based on what Christine mentioned, 1%-2%.
Okay. Thanks so much. On franchisees, can you comment on the health of your existing franchise system? How has the average franchisee margin and return trended in the past few quarters, and are you seeing more or less franchisees requiring financial assistance?
I mean, what we do, because we are doing all the procurement for the stores, we are trying to stabilize what we can control, things like food cost and what we do charge them, trying with our marketing messages to make sure that their net penny profits are still whole, and we try to keep it within a safe, healthy range. We do see a lot of pressure on a lot of the fixed costs. Utilities are going up, rents are going up, labor, minimum wage, things that we cannot control. What we are looking at is trying to be more efficient in the stores, making sure that the stores have the best equipment to have a better output and throughput for what they are selling. We do see, though, that the top line, same-store sales has decreased, does put pressure on our stores.
It is something that all stores right now are facing generally in the industry where there are negative sales comps.
That is helpful. Speaking of those internal initiatives, I think you shared some of them over the past couple quarters, from construction to procurement, just trying to help improve franchisee profitability. Curious if you can give any update on those initiatives, any impact that you can share on how it has been helping franchisees.
On my end, Cheryl, we have obviously continued to implement the conveyor oven versus deck ovens. Every conveyor oven that we add to the system, it definitely saves 40- 50 hours of staffing. At the end of the day, everybody can cook on a conveyor oven versus you have to have a highly skilled cook to go through a busy day with a deck oven. We are really happy with that. We are almost 75% complete, which is great. We have done some optimization with our pizzas and our veggies and so forth as well that has helped stabilize just some of the inflation we have seen on some of the proteins and so forth. Ultimately, as Christine mentioned, if we had 2%, 3%, 4% sales growth, it would certainly help our EBITDA and our restaurant-level profit.
We also look at the menu and look at menu simplification. Are there items on the menu that take a lot of labor that are high labor costs that do not really generate a lot of net penny profits? We are constantly looking at our menu for revisions and looking for efficiencies that way too, Cheryl.
We also have a lot of touring and meeting with our franchisees, Cheryl, and anything that is working really well, we hear about it real quick. Anything that is not working really well, our franchisees are wonderful at providing feedback and so forth.
Yeah, I would just add to that, those comments are all very valid. It is just the use of technology, we just see more and more of that from us. I mean, we are already using some technology to allow customers to track their orders visually, like some of the third-party aggregators are doing, but I think we are unique in that regard in Canada, aside from the third-party aggregators. That has also helped give us more operational data to actually improve our order delivery times, because we always want to honor our guarantee, which is 40 minutes or better, and we are well under that. I think the fact that we know exactly when the orders are leaving and when they arrive at the customer's home using technology our drivers have on an app for them, is also a step in the right direction.
That just enables more throughput, and that can result also in things like, it seems to maybe not as immediately evident, but more tips for our drivers because they get more orders, the food is hotter, delivered faster. It is the use of technology to benefit the customer experience and the food quality. We are going to keep focusing on things we can automate, improve the delivery time, the experience overall of the customer, make it extraordinary.
This is all super helpful. Thanks everyone, and good luck.
Thank you.
Thanks very much, Cheryl.
So, as a reminder, if you wish to ask a question, please star one. So there are no further questions at this time. I will now turn the call over to Christine D'Sylva, CFO. Please continue.
Thank you everyone for joining us on the call today. If you do have any questions after this, please give us a call. Our information is on the release. And thank you, as always, for supporting the brand and Pizza Pizza. Have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.