A & W Food Services of Canada (AW) Q2 2024 earnings summary

Executive summary

• System Sales for Q2 2024 were $437.3M, up 1.6% year-over-year; YTD System Sales reached $826.6M, up 1.8% from 2023.

• Same Store Sales Growth for franchised restaurants was +0.3% in Q2 and +0.5% YTD, driven by higher average check size but offset by lower guest traffic.

• Net income for Q2 2024 was $8.8M, down from $11.0M in Q2 2023; YTD net income was $16.3M, down from $18.7M.

• Nine new A&W restaurants opened YTD, with one permanent closure; total restaurants reached 1,062 as of June 16, 2024.

• Announced a strategic combination with the A&W Revenue Royalties Income Fund to form a new public company, expected to close in October 2024.

Financial highlights

• Total revenue for Q2 2024 was $64.3M, down from $72.6M in Q2 2023; YTD revenue was $123.1M, down from $131.8M.

• Operating Earnings for Q2 2024 were $21.5M, down from $22.7M; YTD Operating Earnings were $40.9M, down from $41.7M.

• Royalty expense increased to $13.0M in Q2 2024 from $12.8M; YTD royalty expense was $24.5M, up from $24.1M.

• Operating costs and G&A expenses decreased in Q2 due to lower Brew Bar equipment sales and construction costs, but G&A rose due to inflation and the National Convention.

• Cash flow from operations YTD was $18.1M; $8.6M drawn on a $40M credit facility, with $31.2M available.

Outlook and guidance

• Management expects continued economic headwinds from inflation and interest rates impacting consumer spending.

• Strategic focus remains on guest experience, new restaurant growth, mobile app expansion, and environmental initiatives.

• Pret A Manger expansion in Canada continues, with one standalone location and Pret products in select A&W restaurants; national Pret coffee rollout planned for fall.

• The strategic combination with the Fund is expected to enhance growth and market position.