Pizza Pizza Royalty Corp.

Ladies and gentlemen, thank you for standing by and welcome to the Pizza Pizza Royalty Corp's earnings call for the fourth quarter of 2021. During the presentation, all participants will be in the 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 number one on your telephone keypad. And as a reminder, this conference is being recorded on Wednesday, March 2, 2022. And I would like to turn the conference over to Alex Radden, Director of Finance. Please go ahead, sir.

Thank you. Good afternoon, everyone, and welcome to Pizza Pizza Royalty Corp's earnings call for the fourth quarter ended December 31st, 2021. Joining me on the call today are Pizza Pizza Limited's Chief Executive Officer, Paul Goddard, and Chief Financial Officer, Christine De Silva. 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 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. 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 Limited Partnership. This partnership has two partners. Pizza Pizza Royalty Corp., the public company, which owns 76.5%, and the other partner, Pizza Pizza Limited, the private operating company, which owns the remaining 23.5%. 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 sales. Growth in the corp is derived from increasing the same store sales of the restaurant 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 2021, The royalty pool was adjusted on January 1st, 2021 to include 622 Pizza Pizza restaurants and 103 Pizza 73 restaurants. With that review, I'll turn the call over to Paul Goddard to provide a business update.

Thank you, Alex, and welcome everyone to Pizza Pizza's fourth quarter investor conference call. Today I'll be discussing our fourth quarter results and we'll share a brief outlook for 2022. And then Christine will summarize our key financial highlights before the Q&A at the end. Last year, our Pizza Pizza and Pizza 73 restaurants were impacted by local government's restrictions in response to the COVID-19 pandemic. However, we were encouraged to see our results strengthen as 2021 progressed when compared to 2020. Customer orders and sales in the second half of 2021 improved significantly compared to the first half of the year, especially at key non-traditional locations and in our catering and walk-in businesses. However, by the end of the fourth quarter, the Omicron variant caused restrictions to be reinstated, which negatively impacted our restaurants. Provincial governments across Canada reinstated restrictions on in-restaurant dining and indoor social and event gatherings. These restrictions continued into 2022. Just the opposite of the recent lifting of restrictions in most provinces, we will have the wind at our backs and we'll continue experiencing the strong momentum we experienced in the latter part of 2021. And that's, of course, barring any new unexpected restrictions. Today, we are pleased to present the financial results of the Realty Corp for the fourth quarter, which ended December 31st, 2021. Results for the fourth quarter were driven by strong same-store sales at both brands. Pizza Pizza reported same-store sales growth of 13.9%, and Pizza 73 reported 5% growth for a combined 12.4% same-store sales growth. The positive results for the quarter were mainly due to the increase in guest traffic and the easing of government restrictions. As a result, our board was pleased to announce an 8.3% increase in the shareholder dividend effective February 2022. Even with the easing of restrictions, we still have restaurants that continue to be impacted by the loss of walk-in sales, specifically those located in urban markets, which are particularly impacted by corporate work from home policies. As a reminder, at Pizza Pizza, approximately 40% of our sales typically come from our walk-ins. Additionally, many of our non-traditional locations, specifically those in colleges and universities, had not reopened by December 31st. So, while we wait for the full and hopefully permanent reopening of the economy at Pizza Pizza Limited, we continue to focus on our core competitive advantages of convenience, innovation, high-quality menu offerings, and network expansion. This year, we had tremendous success with our national expansion program. During the year, Pizza Pizza opened 22 traditional restaurants and 12 non-traditional Pizza Pizza locations and opened two traditional Pizza 73 restaurants. The new locations opened across all provinces Pizza Pizza operates in, including BC, Quebec, Ontario, Alberta, Manitoba, Nova Scotia, and New Brunswick. That's seven provinces. Proud of that. It's something we're really pleased to see, and we've really bolstered our construction efforts right across the country and really seen that accelerated growth this year. And we expect to maintain this pace, by the way, with projected unit growth of approximately 5% in our traditional restaurants in 2022. During the year, two traditional and 30 non-traditional Pizza Pizza restaurants closed, and three non-traditional Pizza 73 restaurants closed permanently. While the sheer number of non-traditional closures seems large, the locations that closed have been closed for most of the last two years in any event due to COVID and are smaller, low-volume sites. So I just wanted to mention that. And as mentioned last quarter, the majority of these closures were lower-volume movie theater locations. Beyond the borders of Canada, in November, Pizza Pizza Limited signed an international license and royalty agreement with the Pizza Pizza Realty Corp to use the Pizza Pizza rights in Mexico. We have a master franchisee in Mexico and are in the early stages of a long-term development plan there. The appeal for pizza continues to grow in Mexico as one of the highest per capita pizza consumption markets in the world, in fact. And accordingly, we are definitely excited to introduce Mexico to our innovative and unique offerings and do see further international potential as well for Pizza Pizza down the road. That said, we remain laser-focused on growing our business across Canada, and it's safe to say we are certainly known and respected as a major homegrown national brand and the leading pizza chain in the country. Whether the architecture is store count, overall sales, or pizza market share, we believe we are the market share leader in all major urban markets, though we do see a definite incremental opportunity in parts of the country where we may not yet have deep enough market penetration. So, turning now to our Canadian restaurant operations. Pizza Pizza, like companies across all industries, is facing significant inflation in our input costs and labor. And our goal is to strike a balance between increasing retail prices to guard our restaurant's bottom line profits, but also ensuring we don't adversely impact overall transaction volumes or customer order counts. Over the last year, we have been strategic in taking modest price increases across our menu to offset those input costs. And we will continue to monitor the supply chain landscape and judiciously pass along price increases where needed to while also looking at operational efficiencies to lower costs, and also just keep our overall food costs as a percent of sales in line with historical levels as best we can. And all the while, we will be careful to make sure that we still provide tremendous value to our customers, something we are certainly known for. And this is definitely no small task when we see double-digit increases in virtually every input cost we see, whether it's meats, tomato sauce, dough with wheat futures and oil. Cheese, we've seen approximately 8% mandated price increase with supply management in Canada as of February, and we're likely to see more increases there as well. And just to give people a sense, if you don't know already, cheese is about 40% of the cost of a pizza. So it's the major one, but everything's going up basically. So there's no question input costs have gone up significantly across the board, and we expect them to continue to go up more this year. putting pressure on our franchisees and on our private operating company as well, Pizza Pizza Limited. Fortunately, however, we have been able to manage our overall food costs well and non-food costs. And it's challenging, but we're doing quite well on that so far. And part of this has been due to the selective price increases, as I mentioned earlier. And one key point we'd like to reiterate on these calls to our investors as well is that a key attribute of the Royalty Corp, remember, is that revenues are based on top-line revenues. system sales of the restaurants in the royalty pool and not on the profitability of either PPL or the restaurants themselves. Moreover, the company is not subject to the variability of earnings or expenses of either PPL or the restaurants. So this therefore mitigates much risk for our investors. And as long as we consistently generate those positive same store sales growth and grow the net number of restaurants in our network, investors should continue to be well rewarded with our strong monthly dividend. And our yield is circa 6%, as you all know at the moment. and over time should see further dividend increases based on strong performance, as long as we get that strong performance. So we think this has really been an outstanding, longstanding track record. We're proud of that, and we're more ambitious than ever about creating even more value for our shareholders as we look to the future. Finally, Pizza Pizza continues to leverage its brand and its proud history of homemade innovation and innovation alongside our strategic partners, too. By way of example, last quarter, through our longstanding partnership with MLSE, we introduced our score slice promotion, which was significantly enhanced from a prior version we had. And now, if some of you haven't had the chance to go to Raptors release game, you'll see that very visually and very, very apparently. But during Raptors games and more recently for 2021, the Leafs for the first time as well are part of this. But fans are essentially directed to a massive QR code shown on the arena scoreboard and it loads basically a free slice coupon into their digital wallets to use with their Pizza Pizza app. So, for instance, if the Leafs score first in the first period, that's a concept we set up, you know, up pops the QR code and thousands of fans at the venue pull out their smartphones and they download our award-winning Pizza Pizza app. In addition to being a fun digital giveaway for existing customers, it's fun. The crowd loves it. It really gets them going, supporting the team more as well. Really, this was a phenomenal program to drive organic app downloads for fans that didn't already have our app as well. That introduces them to our entire array of fast and convenient organic ordering platforms. We're really pushing the app. Also, with the apps, we continue to reinvest in those and enhance them all the time. We're not going to stop. If anything, we'll do even more in the future. We also, as part of that, introduced SMS push notifications, which are Sounds pretty simple as text messages, but actually there's a lot of complexity behind the scenes to get something that's really data-driven, intelligent, and based on marketing data. And so we've just started to do those now, and that's really exciting. I think we're going to see some real benefits from that. It's just early days right now, but we really like what we see, which a lot of companies really don't have the capability of doing in a sophisticated way. So I feel pretty excited about that one. And we continually... evaluate and enhance these ordering platforms to ensure that customers have the best experience possible, want it to be fast, easy, and we want to be available to them no matter how they want to come to us. So from the time they place their order to delivery at their door or pick up at the store, we'll do it right, we'll do it fast, we'll make it easy. And customers will continue to see us bring out new innovative features in the coming quarters with our apps. We like being first, we like doing things that are truly making the experience better. Just as one example, at Pizza 73, we have a digital scratch and win aspect. So when you finish your order, it's kind of like a lottery scratch and win card, but it's on your screen. And you actually scratch away the different squares to see what you won. And that's something that I haven't seen anyone else do. And that's just a fun little thing designed to get a return order. It's not redeemable until your next order. So it keeps you sticky in that channel, keeps you ordering on the app, and keeps you coming back to Pizza 73. And you'll continue to see other innovative app features develop for Pizza Pizza app as well. Our diverse, high-quality menu, our appealing websites and apps, and our strong customer ratings, all these things help keep us out in front of our competitors and have helped us weather the COVID-19 pandemic well over these past two years. They say never waste a good crisis, and we sure took these words to heart and went on offense, not defense, these past two years. It's certainly been tough for us and everyone else in the world, but we have emerged stronger and closer and better. I think that means not only our corporate people, but our franchisee teams as well as operators. I think we're really more cohesive than ever going through tough times together. And that's really proven out by our latest results and our overall trends. And with this accelerated network growth to boot, we are committed more than ever to delivering great food and the very best customer experience across Canada. And we know that this means we'll gain new and returning loyal customers more and more over time. So we are seeing growth. positive economic signs in many ways, as I mentioned earlier. We have the inflationary concerns as well, but I think that overall we're more hopeful that now that these long-lasting restrictions have been lifted that we'll be able to do better than we have been. And yet we are trending well, which is great. So we know that as the restrictions continue to lift and customers return to these urban city centres, which we can start to see happening now, and to our non-traditional sites when they all reopen, We'll be ready to greet them with our high-quality, hot and fresh food, our welcoming staff, and our newly opened restaurants, which we're super excited about. And again, you know, you see most of our growth is in the BC and in Quebec regions, but there are other places such as New Brunswick where we've opened up another location too, even in the smaller markets. So looking back at 2021, I just want to thank our strong team of restaurant owner-operators across the country for all their efforts, especially during these tough times, as well as our internal teams at both brands. I think everyone's been working hard. really nicely together. And there's an excitement level inside the company that despite the challenging, you know, macro environment for the world and for everywhere, we are excited to see our momentum, you know, picking up. So, you know, a crisis like COVID really does test a company's culture and fortitude. And yet we feel like we've learned to work even closer, like I said, and more united than ever before. So we think we have a special combination of entrepreneurial nature, you know, real innovative entrepreneurial attitude and a real hunger to do better and better, and it's pretty exciting when we start to see the fruits of our labours come to reality. So thank you for listening, and I'll now turn it over to Christine to provide a brief financial update.

Thanks, Paul. Today I'll briefly cover the financial results for the quarter, a quarter where the easing of restrictions and the partial reopening of the economy helped support sales. Same-store sales growth, the key driver of yield growth for the shareholders of the company, increased 12.4% for the quarter. Pizza pizza restaurants had same-store sales worth of 13.9% for the quarter, while pizza 73 restaurants had positive 5% for the quarter. For the year, same-store sales increased 0.5%, with pizza pizza increasing 2.1% and pizza 73 decreasing 7.1%. Royalty pool system sales for the quarter increased 11.4% to $137.7 million from $123.7 million in the same quarter. By brand, sales from the 622 Pizza Pizza restaurants in the pool increased 12.9% to $116.7 million for the quarter. Sales from the 103 Pizza 73 restaurants increased 3.5% to $21 million for the quarter, compared to $20.3 million in the fourth quarter of 2020. For the year, sales increased 1.1% to $493.6 million from $488. The partnership's royalty income, earned as a percentage of royalty pool sales, increased 10.8% to $8.9 million for the quarter and increased 0.4% to $31.8 million for the year. The increase in royalty pool sales and royalty income reflects the increase in same-store sales. Additionally, while the number of stores in the royalty pool are 24 fewer than the comparative period, the financial impact for shareholders was mitigated by Pizza Pizza Limited continuing to pay royalties as part of the deficit or make-hole carryover amount. This make-hole payment will continue to be added to the royalty pool until Pizza Pizza Limited has sufficient sales from new store openings to offset the sales lost when stores permanently closed. Turning to the partnership expenses, administrative expenses include listing costs as well as director, legal, and auditor fees. Administrative expenses for the quarter were $179,000 and were $559,000 for the year. In addition to admin expenses, the partnership paid interest expense on its $47 million credit facility. Interest paid in the quarter was $350,000 and was $1.3 million for the year. The partnership is presently making interest-only payments on the facility. The interest rate swap agreement fixed the facility at bankers' acceptance rates of 1.81% plus a credit spread. The credit spread ranges based on the level of debt to EBITDA. Due to the impact of COVID-19 on the partnership, the credit spread on the facility increased by 25 basis points in April of 2021 for a combined interest rate of 2.935%. The debt-to-EBITDA ratio for the last four quarters was 1.49 to 1, and therefore the credit spread will decrease to the lower tier in 2020. Please reference the company's MD&A for a full credit spread schedule. Now, after the partnership receives royalty income and pays administrative and interest expense, the net resulting cash is available for distribution to the two partners based on their ownership percentage. So speaking to shareholder dividends and working capital, the company declared dividends of $4.4 million for the current quarter, or $0.18 per share, compared to $3.9 million, or $0.16 per share, in the fourth quarter of 2020. The resulting payout ratio for the quarter was 87%. On an annual basis, the company declared dividends of $16.9 million, or $68.5 per share, compared to $16.6 million, or 67.39 cents per share in 2020, and the annualized payout ratio was 94%, compared to 90% in 2020. In April 2021, the company was initially impacted by COVID-19 and reduced its monthly dividend. Since then, the dividend has increased three times, with the most recent dividend increase being an 8.3% increase effective February 2022. The monthly dividend is now $0.065 per share for an annualized rate of $0.78 per share. The result of all of this is a company's working capital ratio, which increased $1.1 million in the year, and we end the year at $6.5 million. With the government mandated restrictions beginning to ease in most provinces, the company will continue to monitor sales and royalty income to determine when additional dividend adjustments may be warranted. That concludes our financial overview. I'd like to turn the call back to the operator to pull for questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by a one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. And should you change your mind and like to withdraw your question, simply press star followed by two. And if you're using a speakerphone, please lift the handset first before pressing any keys. Please go ahead and press star one now if you have a question. And your first question will be from Derek Lessard at TD Securities. Please go ahead.

Yeah, good afternoon, everybody. Happy to hear your voices. Hopefully, I see you in person soon. Likewise. Hi, Derek. A couple of questions for me. Good to see some really positive comps this quarter, Paul. You pointed to improving customer traffic and the easing of restrictions. Just wondering if you could help me maybe connect the dots on the Omicron spike that hit us just before the holidays and wondering if you could or if you're able to quantify the impact on sales.

I think Chris probably has a little more detail than me, but basically, in essence, I mean, we have very good momentum for most of Q4. But if you recall, as of about mid-December, I don't know the exact day, that's when really Omicron, I think, sort of suddenly kind of into the four and really resulted in those restrictions that went really from mid-December all the way through pretty much end of January, right? So that will, you know, Alex, that's a new part. But the second half of December is a pretty big chunk of time of Q4 where we were really restricted. You know, and so we did, I think, considerably well, but we were a little disappointed because we were really, you know, I guess early on in Q4, really seeing the momentum come back, even despite a lot of non-traditionals, for instance, being closed. So I guess I just say, you know, that mid-December was this really kind of sudden, you know, cutoff of a lot of good momentum. But that said, I mean, we did still do really well on some of our key dates, such as Christmas Eve, Christmas Day, Boxing Day, New Year's Eve. I can't recall, Chris, if it fell in this year within fiscal 2021 or if it was in 2022, but I don't know if you can comment on that.

Yes, that's exactly right, Paul. It happened in the middle of the year, and it really hit us more in the nontraditional and the social gatherings that would have happened over the holidays. However, we did have strong results on those peak days, Christmas, Christmas Eve, as well as New Year's Eve.

Okay, and that's helpful. On the piece of 73 sales, you know, clearly they're not back to pre-pandemic levels yet, but trending in the right direction and If I remember correctly, they were down in Q3. How should we be thinking about the sequential sales trend there out west? And are you seeing the consumer come back in a more meaningful way?

Yeah, I think we've put a lot of effort into 73 because, like you say, we have had some negative sales, infrastructure for a while. So I think it does seem to me, especially in recent times, that we are We are seeing some positive momentum that hopefully we can hang our hat on a little more reliably. I mean, just in a macro level, too, when you're getting these very high commodity prices, obviously there's negative aspects of that, too, of course, not only in Canada but abroad. But, I mean, you know, there's some of that. I think we're trying to really make sure there, though, that we really keep the focus on value as well. You know, I think it's still early days. A lot of people think Alberta is going to be very strong this year. I'd like to think that's the case. You'd think that a lot of indicators point that way, but it's still early. So I think we're just really assuming that if we don't have the economy help us, what are we going to do? So we're trying to really make sure we maintain a lot of our value offerings so we don't see a decline in transaction volume. And we're trying to do a little more marketing, some more digital as well, and just try and drive a lot of new new business as well that perhaps we haven't had before. I don't know if Christine can add to that or wants to add.

And we are doing, you know, we're looking at our website and our apps, and we're always looking in the process of innovating and improving. So that's one project that we will be looking at to look at the customer service from the time they place the order to the time they deliver it. The entire process is being evaluated. So there's a lot of work happening at Pizza 73 that we'll continue to build on the momentum we have.

Yeah. And just to add maybe a little more Derek to, you know, we are, we have launched beer at both brands and we've, you know, we've got, I think it's over 30 locations in Alberta where we now have beer available. We'll be working more closely as well with the flames and oilers. We hope to extend our score slice program, which we've done with MLSC into a lot of these other NHL markets, because we think it's, it's so beneficial to us and to the teams as well in the fan base. So we're doing that. We're also, you know, our, Chicken sandwiches, you know, a lot of our food innovation side we've really been pushing as well. Chicken has been really strong at both brands. So I think, you know, we're focusing on the value on the pizza side, but also the chicken side, even though you're getting a lot of inflation there, especially on chicken. I think we've kind of successfully added to our kind of our whole menu there and introduced things like ice cream as well at Pizza Pizza, which is actually kind of an experiment. And actually, it's incredible. People really like Ben and Jerry's ice cream throughout the winter season. pizza. So there are all these things do kind of add up. And I guess we're trying to sort of provide a lot of innovation and hopefully get some real transaction volume on some of these new things. Just in case consumer confidence isn't necessarily that strong, if you know what I mean. And I think we definitely see a stronger customer sentiment here, I would say overall than in Alberta. I think Alberta, we're still, you know, just waiting and seeing a little bit and hopefully we'll get the economy a little more in our backs.

And maybe just a little bit more color on that innovation pipeline. I mean, sandwiches or the chicken sandwiches seem like it was a big one for you. How does the future pipeline look?

Well, I mean, we've certainly done a lot of innovation. You know, I think this year, to be honest, you might see, you know, we've done so much, I guess, in the last year or two especially, that you might see a bit less in terms of macro new categories and things. Exactly. We successfully introduced a lot of things like keto crust at Pizza 73, which did really well here, and it's still kind of early days there. So we've got a lot of new crusts, emphasizing chicken, new sauces, that type of thing. But we also are also trying to not necessarily load up franchisees with too much in the way of new food innovation right now, either just because of the overall environment. They've got a lot to deal with. They've got labor constraints right now. There's operational simplicity is still a high priority as well. So that's another balance we have to strike. So I think we will continue to see food innovation. We've always been really successful, not with every single innovation, but generally our track record is pretty good. Most of the time we hit it pretty well. And so we'll keep innovating, but I think that might be a little bit less than the last year overall, I would say, just in terms of what we've already done. And it's more leveraging and marketing what we have created and getting more traffic there.

Okay. And that makes total sense. I guess, you know, you did touch on the tougher operating environment and, you know, inflation and wage pressure specifically. And I guess COVID hasn't helped the situation. Just curious about how the franchisee health has been holding up and whether or not, I know you mentioned it in your prepared remarks that the operating company is feeling some of the pressure, but just wondering if, you know, if you guys have had to step in and, and help a little bit more given the challenges?

Well, we have, I mean, I'd say that we're probably getting better and better at how we do assist stores as well. So we do, you know, we do provide some help to restaurants when needed, but you know, and we've taken advantage for the people that are really in the, you know, the really struggling, you know, bottom say quartile or so where they really need the things like the wage subsidy and serve and things like that. Like everyone was taking advantage of, but, you know, it's sort of a good news, bad news thing. As our sales have recovered, we become less eligible for those sort of programs and they'll be kind of winding down. And we don't want to be dependent on government handouts either, but it certainly helps some of our people. And then over and above that, even if those programs no longer exist or winding down, yeah, we do have mechanisms to temporarily subsidize or try and push landlords to give us rent breaks, et cetera. We, you know, there's a lot of different levers we can pull, but generally we believe the best way is to drive sales growth, right? I mean, And sometimes that's hard, but we try and really keep the focus there rather than keeping stores that are kind of not, over time, showing they can break even. Usually it's an indicator that either the franchisee's not the best franchisee, not to put it all on their shoulders, but it's often the case, or it's a hyper-competitive local market, even if you have a strong franchisee. So we'll kind of make the business judgment as to how do we best manage help that franchisee that may not be doing so well. And we have seen a lot of new people come to the system as well that have, you know, sometimes a franchisee change can bring in a refreshed person or family that has a lot of energy and really just takes a new look at things. So there's that. And there's also, I should mention, you know, a lot of, you know, more effort, I should say, than we ever have put into LSM. So we have actually kind of a, you know, a digital portal that essentially allows some level of LSM access community-driven, store-driven innovation and marketing capability. It's limited. It's still kind of templatized. I'm not going to make it sound like it's bigger than it is, but it is another tool that we think will really help at the local level as well when they have some nuances and special emphasis on certain parts of their marketing offering overall. So trying to innovate there on the tech suite as well and make their lives easier getting rid of things like paper as much as we can in our kitchens, and just streamlining operations because labor is such a key issue right now, whether it's in the restaurant or when it comes to drivers. So we're just trying to keep it as easy as possible. And, yes, we help them, but generally we want to just arm them with great products so that they can sell their way back to profitability if they're not currently that profitable. Okay. Sorry.

Sorry, Derek. In addition, we have been successful throughout the course of the year taking price increases, and I think Paul had mentioned it in his remarks, that we've actually been able to maintain food costs at the store level through selective price increases on key specials. So we've worked really diligently with a lot of the data we have in terms of pricing and building out our models to ensure that we are able to take price and then monitoring it so that we haven't lost traffic. And we've been actually successful this year taking price as well as increasing traffic. So that's something that we've done, and it's safeguarded at least food costs at the store level, so that way they can just focus on, you know, saving costs in terms of labor. So where Pizza Pizza, because we manage the menu at corporate level for all the stores, we're able to kind of strategically look at pricing on specials because our basket is so big. So we can take selective ones to drive overall basket increases.

Yeah, that's a really good point, Chris. What I'd also mention, just to add on to that, Derek, too, is, again, just our kind of behind-the-scenes, behind-the-curtain capability is we've also continually reinvesting in our system. And so even our capability to actually change pricing in a more localized way, in fact, down to store level, not that we necessarily price down to a restaurant level because there's diminishing returns. And with mass marketing, some of our mass marketing, you can't price every store differently, nor would you want to. But, for instance, when we introduced beer – That was only available in some markets. So depending if at some point when you're in Hamilton, if you log on to our apps or our web, for instance, or called in to our call center, you would get beer as an option. But if you lived in East Toronto where beer wasn't offered yet, you just wouldn't see it. So not only items would display or not display, but also the price for those individual items as well at the lowest level of granularity. So it gives us a lot more flexibility than we ever had way back when. So it's just another lever we can pull if we're in an extremely competitive local market or city or part of a city and things like that. So there's just sort of slowly a lot more capability getting developed behind the scenes. Same with the business intelligence platform and data mining work that we're doing.

And that seems all positive. Do you think you guys have – do you have to take more price in the new year to keep ahead of the inflation?

I think we'll be careful about it, but I anticipate it. Go ahead, Chris. I mean, I think just we don't see really things abating with input costs in the short term. But, Chris, go ahead.

Yeah, I was going to say, we've been taking smaller increases, and we're trying to make it more scheduled so that we can do smaller increases over the course of the year and make them consistent increases instead of doing this large jump in terms of our pricing. So, yeah, it is something that we are looking at this year, and we'll be looking at it over the course of the year. It's not just once we're – once a year we're going to do it. We're going to look at it every couple months to make sure that we are staying on top of food costs, guarding profitability, but also guarding our transactions.

Okay. And I guess, you know, just in terms of the, because everybody's taking price, I was just wondering if there's been any changes to the competitive environment over the last, I guess, couple of weeks or several months and wondering if, You know, because everybody is in the same boat, wondering if that's actually translating into more pizza share for you guys and wondering if there's any competitors. And you don't have to name them, but just wondering if there's competitors, whether they're independents that are struggling more than others, given the environment.

That's always a hard one to get the competitive sentiment unless it's the larger publicly traded QSRs. But anecdotally, I mean, I do think that we are outperforming a number, probably the independents. I don't have any hard data on that, though, that I could really hang my hat on. But I think it's just stands to reason that as we seem to be getting more momentum and transaction count, in spite of some price increases here and there, I would think that we are winning some transactions from people. it otherwise might have gotten the pizza order. So it's a little hard to tell. I don't have good data on it, but I do sense that there's some people that are really having a hard time and, you know, just even being solvent. Whereas, you know, I think we're, we're being very cautious to manage our costs as best we can and control what we can control. And I think for others, it's, it's possibly a little harder.

That's terrible. And maybe just one last one for me. Um, You did think about construction in B.C. and Quebec as being particularly robust. Just maybe if you could talk about the network growth in B.C. and Quebec in particular.

Okay, sure. Yeah, we are around about 20 locations in B.C. It might be Christine, probably no stress to me or Alex, but I think we're 19, 20, 21, and we certainly think we've got on the slate something like 8 to 10 this year there. in that market. And we see still a lot of upside there. And that's really just lower mainland, not even considering essentially the other parts of BC or, you know, heading eastward into the province more deeply. And then in Quebec, I think we've, you know, built out a lot of sort of downtown Montreal. We've had great success in places like Laval to the north as well. And there's still a lot of opportunity there. And we are, you know, we're being fairly cautious as we sort of head outside of Montreal just because we know it's a very different market. And I think it will probably be tougher for us just naturally as we get deeper into the just you know almost purely french-speaking communities if we head towards somewhere like quebec city etc um i think our pace of growth will i i expect probably be a little slower and a little more cautious uh but i still think there's a lot of opportunity there and so those uh we've got i think it is including our non-traditional restaurants i think we're in the vicinity of about 60 restaurants in quebec so we do think that as long as we do our jobs right we've got a great strong local team there that's largely montreal based and uh Montreal natives, they know the market well, tons of experience. We're bolstering the team there, and I think we'll do more business development in that province as well to get non-traditional going. Right now, we haven't done that much on the non-traditional side in Quebec, so that's another future growth channel for us. But those are the biggest parts. We have done some work in the Maritimes. We've been happy with our growth in Halifax, actually, and our sales trajectory in that Nova Scotia market. Places like New Brunswick, we've also got, I think, two or three now, which is great. It's obviously a lot smaller, but it really is primarily the BC and Quebec story for the growth within Canada. But we will still opportunistically find other places to grow, and including even in the Toronto or expanding market outside of the greater Toronto area as well when we see opportunities.

Okay. That's it for me. Thanks, everybody.

Okay. Thanks a lot, Derek. Great questions, as always.

Thank you. And at this time, I would like to turn the call back over to our speakers for closing comments.

Thank you, everyone, for joining us on our call this evening. If you have any questions following the call, please contact us. Our information is on the earnings release. Thank you, and have a good evening.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Thank you.