Pizza Pizza Royalty Corp.

Ladies and gentlemen, thank you for standing by and welcome to the Pizza Pizza Royalty Corps earnings call for the fourth quarter of 2022. 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 the number one on your telephone keypad. As a reminder, this conference is being recorded on Tuesday, the 7th of March, 2023. I will now turn the conference over to Alexander Saratin, Director of Finance.

Thank you, and welcome to the call. Today, we'll be discussing the 2022 fourth quarter results for Pizza Pizza Royalty Corp. For complete details on the financial results, please see our fourth quarter materials filed earlier today on CDAR or visit the investor relations section of Pizza Pizza's website. 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 a monthly royalty to the partnership, calculated as a percentage of royalty pool sales. For a complete description of the fund and its business, please see the annual information form dated March 7, 2023, which was filed on CDAR.com. Before I turn the call over to Paul Goddard, President and CEO of Pizza Pizza Limited, I would like to note that certain information in the following discussion may constitute forward-looking information. For a more complete definition of forward-looking information and the associated risks, please refer to the Corps' management discussion and analysis issued earlier today. Forward-looking information is provided as of the date of this call and, except as required by law, we assume no obligation to update or revise forward-looking information to reflect new events or circumstances. And with that, I will now turn the call over to Paul.

Thank you, Alex, and welcome everyone to Pizza Pizza Realty Corp's fourth quarter investor conference call. Today, I'll be discussing our Q4 initiatives and results, and we'll share a brief outlook for what's ahead in 2023. And Christine, our CFO, will then summarize our key financial highlights. And as usual, we will save time for analyst questions at the end of today's call. We finished the year on a strong note and are pleased to report double-digit sales growth for the quarter and year, which led to record royalty pool sales and three dividend increases in 2022. We also opened a record 45 new restaurants. We are most proud that these successes were achieved during a year that started with restaurants operating under COVID-19 restrictions and was marred with labor and supply chain challenges, inflationary pressures, and general market uncertainty. It goes without saying, our corporate teams worked hand-in-hand with our restaurant operators, who have all shown extreme resilience, resourcefulness, and commitment. Briefly touching on our sales results, for the quarter, our same-store sales, the key driver of yield growth for shareholders, increased 13.0%. By brand, Pizza Pizza increased 15.1%, and Pizza 73 increased 1.3%. Overall, our growth for the quarter was due to increases in both guest traffic and the average customer check. This speaks to our brand's strength and value propositions resonating well with customers. Our strategy to drive higher guest traffic includes attracting a range of customers into our restaurants by offering a variety of products at compelling value while increases in average ticket are achieved through strategic retail price increases and new product offerings. At both brands, the average customer check increased as customers accepted retail price increases, which were necessary in a climate of unusually high commodity and labor increases. The good news is that we centrally manage our retail prices and use our own distribution centers organically, so we can nimbly adjust prices as we see costs rising. The increase in retail prices helped to successfully maintain our restaurant's gross profit levels. Speaking to traffic, at Pizza Pizza, the increase in sales growth was driven by consumers significantly increasing in-restaurant visits, partially due to the lifting of COVID-19-related public health restrictions. Sales also benefited from food innovation, value messages, and promotional brand activities, plus the reopening of non-traditional locations, as well as students returning to in-person classes. At Pizza 73, which depends heavily on pizza delivery versus in-store visits, Our same-store sales growth was adversely affected by customers preparing more meals at home, plus strong competition from third-party food delivery apps, resulting in a decline in overall customer orders there. The long-term growth and success of Pizza Pizza Realty Corp is heavily tied to that of Pizza Pizza Limited, so let's discuss the initiatives at the private operating company level. In Q4, our marketing activity concluded the year with continued focus on our strategic pillars, building the brand, innovating our menu, driving organic orders and maintaining profitability for our franchisees. Related to the Pizza Pizza brand, we continue to roll out our new Everyone Deserves Pizza campaign with messaging focused on our unique position to bring Canadians of all walks together and to be part of key social occasions. In addition to ongoing media executions via out-of-home, programmatic web banner placements and social media, we integrated our campaign messaging into key sports partnerships, building more meaningful connections with fans. And during the fall, we continued to leverage consumer trend data to identify menu expansion opportunities that were a logical fit for our restaurants and operations capabilities. Poutine was highlighted as a key opportunity and menu gap. We launched the product nationally in October at Pizza Pizza, following extensive in-market testing throughout the spring and summer. Three recipes were launched, classic, popcorn chicken, and bacon poutine. And we immediately sold an average number of units per restaurant per week that was close to 30% above our forecasted sales for poutine. And that product remains a top seller and a customer favorite. So really happy with that one. Meanwhile, at Pizza 73, we promoted our high quality fresh wings throughout Q4, reinforcing the unique taste of our signature golden crispy wings. Tactical sales promotions continue to be a key traffic driving activity for both Pizza Pizza and Pizza 73. Heading into the holiday season, we partnered with Bell Media and secured free one month Crave streaming subscriptions for our customers. The subscriptions were bundled with popular combo offerings at each brand and promoted over the holiday window. The featured bundle was a top seller, particularly at Pizza Pizza, anchoring a successful holiday sales window. And as we move into 2023, we will continue to leverage our brand assets as we implement new promotions, knowing that the best way to improve the financial health of our franchisees is to drive traffic and top-line sales, while also implementing programs to improve the bottom line and quality offerings. Turning to Restaurant Grove, We remain laser focused on growing our business across Canada, and it's safe to say we are known and respected as a major homegrown national brand and the leading pizza chain in the country. During the quarter, 10 traditional and eight non-traditional pizza restaurants opened, one traditional and two non-traditional pizza restaurants were closed. At the Pizza 73 brand, we closed one non-traditional restaurant. As I mentioned earlier, for the full year, we opened a record 45 new restaurants across Canada. However, we also reviewed the health of our restaurant system as a whole and decided to close 30 underperforming locations. Of the 30, 20 were smaller volume non-traditional locations and 10 were traditional locations. For most traditional closures, adjacent restaurants benefited by absorbing the closed store territory. And as with any closures, the royalty pool is made whole for any lost sales. And Christine will touch on the details of that in a bit. Pizza Pizza Management expects to continue its restaurant network expansion by 3% traditional restaurant growth in 2023. To date, we are proud to say that 85% of our restaurants feature our hot and fresh new look and or a refresh on the interior and exterior, and significant upgrades continue to be made in regards to restaurant equipment such as new and more efficient ovens, digital menu boards, and in-store technology. We've also renovated many Pizza 73 locations, but are not yet as far along with our renovations there relative to Pizza Pizza. And those renovations are actually a lot smaller scale given the smaller layout of Pizza 73s in the front lobby area as well. So not as far along, but we can do them much more easily. And we continue to have a large pipeline of franchisee leads that are eager to join our team. And we also have many of our current franchisees looking to expand too. All good signals to the healthy system. And looking ahead in 2023, you will see us continue our menu innovation, marketing initiatives, restaurant growth, technology, other digital investments, And we will work closely with franchisees and our partners at West as well at Pizza 73 to ensure that they are delivering excellent and consistent products in a clean and safe restaurant environment. I'd like to close by congratulating our entire team, our corporate employees and our owner operators alike on an excellent year, despite difficult and challenging operating environment. I'm also very proud of our team for being recognized recently by Waterstone Human Capital as one of Canada's most admired corporate cultures. The most critical ingredient to our ongoing success is our people, and we've all worked hard together to create a very innovative, ambitious, resilient, and collaborative culture right across the country at both brands. With that, I'd like to turn the call over to Christine for a brief financial update.