VAUGHAN, ON, Nov. 3, 2021 /CNW/- Recipe Unlimited Corporation
(TSX: RECP) reported financial results today for the 13 and 39
weeks ended September 26, 2021.
- Q3 Total System Sales of $834.2
million, increased by 23.3% compared to Q3 2020 and 48.5%
compared to Q2 2021, driven by the enthusiastic return of Guests to
our dining rooms
- Operating EBITDA of $50.3
million compared to $42.5
million in Q3 2020 and $49.5
million in Q3 2019, despite the ongoing effects of the
COVID-19 pandemic and significant reductions in government
subsidies
- Long term debt repayments of $50.0
million for the quarter as a result of strong financial
performance in the third quarter and prudent cash
management
- Net Earnings of $13.2 million
compared to $5.2 million in Q3
2020
- Our ability to pivot during the COVID-19 pandemic was
recognized by the food service and hospitality industry and in
2021, Recipe was named the recipient of the prestigious Pinnacle
Award as Company of the Year
"We are encouraged by our third-quarter results and the
enthusiastic return of Guests to our restaurants. Despite dining
room closures at the start of the third quarter which impacted
30.8% of our operating weeks in the quarter, our business generated
$50.3 million of EBITDA.
During the past 20 months, we have taken significant steps to
strengthen our overall business. Some of the initiatives include
streamlining menus, improving our digital platform, testing higher
efficiency kitchen equipment and more importantly, investing in our
people and our franchisees. We have also made strategic changes to
our brand portfolio mix, closed underperforming restaurants and
opened 46 new restaurants since the start of the pandemic. In
addition, we have restructured many of our joint venture
restaurants to either full corporate or franchise ownership and we
divested certain non-strategic investments; all of which enables us
to control the growth and operation of these brands or locations.
All of these steps have placed us in a strong position to thrive
and compete as we emerge from the pandemic."
-Frank Hennessey, CEO
Highlights for the 13 weeks ended September 26,
2021:
- Total System Sales(1) for the 13 weeks ended
September 26, 2021 was $834.2 million, compared to $676.4 million in 2020 and $869.1 million in 2019, representing an increase
from 2020 of 23.3% and a decrease from 2019 of 4.0%. The increase
from 2020 reflects the easing of government mandated restrictions
and the return of our Guests into our dining rooms. The decrease
from 2019 reflects the continuing impact of the remaining
government mandated restrictions in certain parts of our
restaurants network, which affected 30.8% of the Company's total
operating weeks in the third quarter of 2021.
- E-Commerce System Sales for the 13 weeks ended September 26, 2021 was $134.1 million, compared to $114.7 million in 2020 and $73.5 million in 2019, representing increases
from 2020 and 2019 of 16.9% and 82.5% respectively. Consumer demand
through e-commerce channels remained strong as dining rooms
reopened in the third quarter of 2021. The Company continues to
build on its omni-channel business model through its established IT
platform infrastructure, which makes it convenient for Guests to
enjoy their experience in whatever manner they choose.
- Retail and Catering System Sales for the 13 weeks ended
September 26, 2021 was $93.4 million compared to $86.3 million in 2020 and $76.9 million in 2019, representing increases
from 2020 and 2019 of 8.2% and 21.5% respectively. The increases
were driven by increased sales to retail grocery customers and the
sales recovery of the catering segment in the third quarter of
2021.
- Operating EBITDA(1) for the 13 weeks ended
September 26, 2021 was $50.3 million, compared to $42.5 million in 2020, representing an increase
of 18.4%. Operating EBITDA Margin on System Sales(1) for
the 13 weeks ended September 26, 2021
was 6.0% compared to 6.3% in 2020. The Operating EBITDA increase in
the quarter was primarily driven by increased System Sales,
partially offset by lower government subsidies and an increase in
food costs.
- The Company completed the sale of substantially all of the
assets of its Milestones restaurant brand on September 26, 2021. This transaction is part of
the Company's strategy for its restaurant portfolio, which may
include divesting of certain under-performing brands that no longer
fit the portfolio strategy. This transaction will enable the
Company to adjust its restaurant portfolio to focus on large brands
that generate significant free cash flow, as well as young brands
that offer new restaurant growth opportunities.
- Net earnings was $13.2 million
for the 13 weeks ended September 26,
2021 compared to $5.2 million
in 2020, representing an increase of $8.0
million from 2020. The $8.0
million increase was primarily driven by an increase in
Operating EBITDA of $7.8 million and
an increase in the fair value of Exchangeable Partnership and KRIF
units of $10.0 million, partially
offset by an increase in impairment charges of $9.1 million.
- Adjusted Basic EPS(1) for the 13 weeks ended
September 26, 2021 was $0.48 compared to $0.29 in 2020, representing an increase of
$0.19 from 2020. Adjusted Diluted
EPS(1) for the 13 weeks ended September 26, 2021 was $0.47 compared to $0.28 in 2020, representing an increase of
$0.19 from 2020.
- Free Cash Flow(1) before growth capex, dividends,
and share repurchases under the Company's normal course issuer bid
("NCIB") for the 13 weeks ended September
26, 2021 was $36.9 million
compared to $33.4 million in 2020 and
$36.1 million in 2019.
- Free Cash Flow(1) per share before growth capex,
dividends, and NCIB on a diluted basis was $0.63 for the 13 weeks ended September 26, 2021, compared to $0.59 in 2020 and $0.58 in 2019.
Impact of COVID-19
The actions taken by the Company throughout the COVID-19
disruption period have allowed the Company to generate meaningful
levels of system sales, positive EBITDA and free cash flow, and
maintain a stable net debt position, despite the significant impact
of the COVID-19 pandemic.
The following table summarizes the impact of the COVID-19
pandemic and compares the Company's quarterly results to the
pre-pandemic results of operations in the third quarter of
2019:
(C$ millions
unless otherwise stated)
|
Q3 –
2021
Sep
26,
2021
|
Q2 –
2021
Jun
27,
2021
|
Q1 – 2021
Mar 28,
2021
|
Q4 –
2020
Dec
27,
2020
|
Q3 – 2019
Sep 29,
2019
|
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
% of Operating Weeks
impacted by COVID-19 related
restrictions
|
30.8 %
|
96.5 %
|
88.7 %
|
42.2 %
|
— %
|
Total System
Sales
|
$
|
834.2
|
$
|
561.8
|
$
|
537.6
|
$
|
611.3
|
$
|
869.1
|
E-Commerce System
Sales
|
$
|
134.1
|
$
|
167.1
|
$
|
149.8
|
$
|
143.8
|
$
|
73.5
|
Operating
EBITDA
|
$
|
50.3
|
$
|
30.4
|
$
|
24.0
|
$
|
35.0
|
$
|
49.5
|
Net debt
|
$
|
424.3
|
$
|
472.1
|
$
|
457.7
|
$
|
451.3
|
$
|
487.4
|
Number of restaurants
(at period end)1
|
1,284
|
1,327
|
1,330
|
1,341
|
1,375
|
Free Cash Flow before
growth capex, dividends, and NCIB
|
$
|
36.9
|
$
|
17.2
|
$
|
8.8
|
$
|
17.5
|
$
|
36.1
|
Free Cash Flow per
share - basic (in dollars)
|
$
|
0.65
|
$
|
0.30
|
$
|
0.16
|
$
|
0.31
|
$
|
0.59
|
Free Cash Flow per
share - diluted (in dollars)
|
$
|
0.63
|
$
|
0.29
|
$
|
0.15
|
$
|
0.31
|
$
|
0.58
|
1 Number
of restaurants at the period ended Q3 2021 excludes 41 Milestones
locations that were divested on September 26, 2021.
|
Financial Summary
|
For the 13 weeks
ended
|
(C$ millions
unless otherwise stated)
|
September 26,
2021
|
September 27,
2020
|
September 29,
2019
|
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
Total System
Sales
|
$
|
834.2
|
|
$
|
676.4
|
|
$
|
869.1
|
|
System Sales Growth
(1)(2)
|
23.3
|
%
|
(22.2)
|
%
|
(1.2)
|
%
|
Total number of
restaurants (at period end)
|
1,284
|
|
1,355
|
|
1,375
|
|
|
|
|
|
Operating
EBITDA (1)
|
$
|
50.3
|
|
$
|
42.5
|
|
$
|
49.5
|
|
Operating EBITDA on
System Sales
|
6.0
|
%
|
6.3
|
%
|
5.7
|
%
|
|
|
|
|
Corporate restaurant
sales
|
$
|
166.4
|
|
$
|
123.8
|
|
$
|
191.3
|
|
Number of corporate
restaurants (at period end)
|
211
|
|
216
|
|
208
|
|
Contribution from
Corporate segment
|
$
|
16.1
|
|
$
|
12.8
|
|
$
|
16.8
|
|
Contribution as a %
of corporate sales
|
9.7
|
%
|
10.3
|
%
|
8.8
|
%
|
|
|
|
|
Franchise restaurant
System Sales
|
$
|
574.4
|
|
$
|
462.6
|
|
$
|
597.1
|
|
Number of franchised
& JV restaurants
|
1,073
|
|
1,139
|
|
1,167
|
|
Contribution from
Franchise segment
|
$
|
26.6
|
|
$
|
17.1
|
|
$
|
26.1
|
|
Contribution as a %
of Franchise sales
|
4.6
|
%
|
3.7
|
%
|
4.4
|
%
|
Retail and Catering
sales
|
$
|
93.4
|
|
$
|
86.3
|
|
$
|
76.9
|
|
Contribution from
Retail and Catering
|
$
|
8.2
|
|
$
|
12.6
|
|
$
|
8.0
|
|
Contribution as a %
of Retail & Catering sales
|
8.8
|
%
|
14.6
|
%
|
10.4
|
%
|
|
|
|
|
Contribution from
Central segment (excluding net royalty
expense)
|
$
|
2.5
|
|
$
|
2.0
|
|
$
|
1.9
|
|
Contribution as a %
of total System Sales
|
0.3
|
%
|
0.3
|
%
|
0.2
|
%
|
|
|
|
|
Total gross
revenue
|
$
|
308.1
|
|
$
|
243.3
|
|
$
|
309.0
|
|
Operating EBITDA
Margin on gross revenue
|
16.3
|
%
|
17.5
|
%
|
16.0
|
%
|
|
|
|
|
Earnings before
income taxes
|
$
|
17.7
|
|
$
|
9.7
|
|
$
|
11.9
|
|
Net
earnings
|
$
|
13.2
|
|
$
|
5.2
|
|
$
|
6.7
|
|
Adjusted Net
Earnings (1)
|
$
|
27.6
|
|
$
|
16.1
|
|
$
|
19.5
|
|
|
|
|
|
EPS attributable to
common shareholders of the Company (in dollars)
|
|
|
|
Basic EPS (in
dollars)
|
$
|
0.23
|
|
$
|
0.09
|
|
$
|
0.11
|
|
Diluted EPS (in
dollars)
|
$
|
0.23
|
|
$
|
0.09
|
|
$
|
0.11
|
|
Adjusted Basic EPS
(1) (in dollars)
|
$
|
0.48
|
|
$
|
0.29
|
|
$
|
0.32
|
|
Adjusted Diluted
EPS (1) (in dollars)
|
$
|
0.47
|
|
$
|
0.28
|
|
$
|
0.31
|
|
|
|
|
|
Free Cash Flow before
growth capex, dividends and NCIB (1)
|
$
|
36.9
|
|
$
|
33.4
|
|
$
|
36.1
|
|
Free cash flow Per
Share - Basic (in dollars)
|
$
|
0.65
|
|
$
|
0.59
|
|
$
|
0.59
|
|
Free cash flow Per
Share - Diluted (in dollars)
|
$
|
0.63
|
|
$
|
0.59
|
|
$
|
0.58
|
|
|
|
(1)
|
See "Non-IFRS
Measures" section of the Company's press release for definitions of
System Sales, System Sales Growth, Operating EBITDA, Operating
EBITDA Margin, and Operating EBITDA on System Sales.
|
(2)
|
Results from East
Side Mario restaurants in the United States are excluded in the
System Sales totals and number of restaurants
|
Outlook
The restaurant and food services industry continues to
experience disruptions as a result of the COVID-19 pandemic. Near
the end of the third quarter of 2021, the government-mandated
presentation of a vaccine passport or proof of vaccination for
indoor dining Guests was introduced in some provinces, which
negatively impacted sales trends, particularly in smaller
communities. This public health measure was introduced in response
to a resurgence of COVID-19 cases due to the fourth wave of the
pandemic and is expected to continue to impact sales trends in the
fourth quarter of 2021.
As economies reopen, the global recovery from the economic
impacts of COVID-19 is disrupting supply chains around the world.
Multiple economic sectors reopening simultaneously is creating a
temporary but significant labour shortage throughout North
America. Management expects that this labour shortage may
lead to short term higher labour costs due to increased overtime
hours, retention pay programs and higher training costs as new
employees are brought onboard. The recovery is also negatively
impacting commodity food prices as supply and demand dynamics
normalize. While management is responding with cost saving
initiatives, some sectors such as retail, may experience temporary
margin impacts until price adjustments can be properly
administered.
The Company has proven that its brands and franchisees are
strong and resilient. The Company's restaurants are predominantly
situated in non-urban locations and its recovery is not dependent
on the recovery in urban city-center areas where the effects of the
COVID-19 pandemic were the most significant due to offices being
closed and the reduction in business travel. The actions we have
taken to strengthen our overall business during the COVID-19
pandemic (including streamlining menus, improving our digital
platform, testing and introducing higher efficiency kitchen
equipment, investing in our people and franchisees, as well as the
strategic changes made to our brand portfolio mix and restaurant
network) will also allow us to recover swiftly from the effects of
the pandemic. Management believes that Recipe is well positioned to
increase its market share through its omni-channel customer
relationships, the continuation of its off-premise sales growth,
expanded and enhanced patios (including many that will operate for
three seasons) and the continuation of Recipe's Social Safely
program to offer safe and comfortable dining experiences for our
Guests and staff.
Focus on the short to medium term will include:
- Reopening restaurants that have been temporarily closed as a
result of the COVID-19 pandemic and providing exceptional service,
food, ambience and value that reinforces to customers what they
have been missing, while focusing on being an employer of choice in
Canada;
- Continue to practice amplified "Social Safely" safety protocols
across all of our corporate and franchise locations to protect the
health of our Guests, teammates and franchise partners. This
includes comprehensive protocols related to food safety, strict
standard operating procedures, independent third party audits and
our rigorous safety training programs;
- Continue to execute on our plans to support the expansion of
our multi-channel offerings for post-COVID success. This includes
the introduction of new restaurant layouts and designs with
separate entrances to facilitate delivery, takeout and curb-side
pick-up orders, tailored menus for dine-in and off-premise
experiences, as well as the investments in our restaurants to
comfortably extend outdoor patio season to three seasons;
- Actively negotiate early exit and permanent closure of
under-performing restaurants that were identified at the end of
2019 to strengthen each brand portfolio and improve the long term
Operating EBITDA contribution rates of both the Corporate and
Franchise restaurant segments;
- Prepare Recipe's portfolio of brands for post-COVID success
including identifying the brands for accelerated growth, possible
brand acquisition and rationalizing under-performing brands;
and
- Continue to expand the Company's off-premise business for all
brands with digital and mobile order applications and brand
appropriate features including curb-side pick-up, preorder and pay,
as well as other payment convenience options. The Company is also
focused on the expansion of Ultimate Kitchens, our multiple brands
delivery and take-out only concept.
The foregoing description of Recipe's outlook is based on
management's current strategies and its assessment of the outlook
for the business and the Canadian Restaurant Industry as a whole,
may be considered to be forward-looking information for purposes of
applicable Canadian securities legislation. Readers are cautioned
that actual results may vary. See "Forward-Looking Information" and
"Risk & Uncertainties" for a description of the risks and
uncertainties that impact the Company's business and that could
cause actual results to vary.
Non-IFRS Measures
These measures are not recognized measures under IFRS, do not
have a standardized meaning prescribed by IFRS and are therefore
unlikely to be comparable to similar measures presented by other
companies. Rather, these measures are provided as additional
information to complement those IFRS measures by providing further
understanding of the Company's results of operations from
management's perspective. Accordingly, they should not be
considered in isolation nor as a substitute for analysis of the
Company's financial information reported under IFRS. The Company
uses non-IFRS measures including "System Sales", "EBITDA",
"Operating EBITDA", "Operating EBITDA Margin", "Operating EBITDA
Margin on System Sales", "Adjusted Net Earnings", "Adjusted Basic
EPS", and "Adjusted Diluted EPS", and "Free Cash Flow" to provide
investors with supplemental measures of its operating performance
and thus highlight trends in its core business that may not
otherwise be apparent when relying solely on IFRS financial
measures. The Company also believes that securities analysts,
investors and other interested parties frequently use non-IFRS
measures in the evaluation of issuers. The Company's management
also uses non-IFRS measures in order to facilitate operating
performance comparisons from period to period, to prepare annual
operating budgets, and to determine components of management
compensation.
"System Sales" represents top-line sales from restaurant
guests at both corporate and franchise restaurants including
take-out and delivery customer orders. System Sales includes
sales from both established restaurants as well as new
restaurants. System sales also includes sales received from
its food processing and distribution division. Management believes
System Sales provides meaningful information to investors regarding
the size of Recipe's restaurant network, the total market share of
the Company's brands sold in restaurant and grocery and the overall
financial performance of its brands and restaurant owner base,
which ultimately impacts Recipe's consolidated financial
performance.
"System Sales Growth" is a metric used in the restaurant
industry to compare System Sales over a certain period of time,
such as a fiscal quarter, for the current period against System
Sales in the same period in the previous year.
"EBITDA" is defined as net earnings before: (i) net
interest expense and other financing charges; (ii) income taxes;
(iii) depreciation of property, plant and equipment;
(iv) amortization of other assets and deferred gain.
"Operating EBITDA" is defined as net earnings before:
(i) net interest expense and other financing charges; (ii)
income taxes; (iii) depreciation of property, plant and
equipment; (iv) amortization of other assets and deferred
gain; (v) impairment of assets, net of reversals;
(vi) losses on early buyout / cancellation of equipment
rental contracts; (vii) restructuring and other;
(viii) conversion fees; (ix) net (gain) / loss on
disposal of property, plant and equipment; * stock based
compensation, costs related to its restricted share units, and
one-time cash payments related to the exercise and settlement of
stock options; (xi) changes in onerous contract provision;
(xii) expense impact from fair value inventory adjustment resulting
from the St-Hubert purchase
relating to inventory sold during the period; (xiii) acquisition
related transaction costs; (xiv) change in fair value of
non-controlling interest liability; (xv) change in fair value of
Exchangeable Partnership units; (xvi) the Company's proportionate
share of equity accounted investment in joint ventures; (xvii)
interest income from the Partnership units; and the rent expense
impact related to the implementation of IFRS 16,
"Leases".
"Operating EBITDA Margin" is defined as Operating EBITDA
divided by total gross revenue.
"Operating EBITDA Margin on System Sales" is defined as
Operating EBITDA divided by System Sales.
"Free Cash Flow before capex, dividends and NCIB" is
defined as Operating EBITDA less (i) cash interest paid; (ii)
maintenance capex; and (iii) cash taxes paid.
"Free Cash Flow after capex, dividends and NCIB" is
defined as Operating EBITDA less (i) cash interest paid; (ii)
maintenance capex; (iii) cash taxes paid; (iv) growth capex; (vi)
dividends paid; (vi) shares repurchased under the NCIB; and (vii )
proceeds from sale of assets.
"Adjusted Net Earnings" is defined as net earnings plus
(i) change in fair value of non-controlling interest liability;
(ii) change in fair value of Exchangeable Partnership units; (iii)
one-time transaction costs; (iv) non-cash impairment charges; (v)
restructuring and other; (vi) amortization of unearned conversion
fees income; (vii) losses on early buyout/cancellation of equipment
rental contracts; (viii) net gain on disposal of property, plant
and equipment and other assets; and (ix) write-off of deferred
financing fees.
"Adjusted Basic EPS" is defined as Adjusted Net Earnings
divided by the weighted average number of shares
outstanding.
"Adjusted Diluted EPS" is defined as Adjusted Net
Earnings divided by the weighted average number of shares
outstanding plus the dilutive effect of stock options and
RSUs.
Forward-Looking Information
The financial performance of the Company is subject to a number
of factors that affect the commercial food service industry
generally and the full-service restaurant and limited-service
restaurant segments of this industry in particular. The Canadian
restaurant industry is intensely competitive with respect to price,
value proposition, service, location and food quality. There are
many well-established competitors, including those with greater
financial and other resources than the Company. Competitors include
national and regional chains, as well as numerous individually
owned restaurants. Recently, competition has increased in the
mid-price, full-service, casual dining segment of this industry in
which many of the Company's restaurants operate. Some of the
Company's competitors may have restaurant brands with longer
operating histories or may be better established in markets where
the Company's restaurants are located or may be located. If the
Company is unable to successfully compete in the segments of the
Canadian Restaurant industry in which it operates, the financial
condition and results of operations of the Company may be adversely
affected.
The Canadian restaurant industry business is also affected by
changes in demographic trends, traffic patterns, and the type,
number and locations of competing restaurants. In addition, factors
such as inflation, increased food, labour and benefit costs, and
the availability of experienced management and hourly employees may
adversely affect the restaurant industry in general and the Company
in particular. Changing consumer preferences and discretionary
spending patterns and factors affecting the availability of certain
foodstuffs could force the Company to modify its restaurant content
and menu and could result in a reduction of revenue. Even if the
Company is able to successfully compete with other restaurant
companies, it may be forced to make changes in one or more of its
concepts in order to respond to changes in consumer tastes or
dining patterns. If the Company changes a restaurant concept, it
may lose additional customers who do not prefer the new concept and
menu, and it may not be able to attract a sufficient new customer
base to produce the revenue needed to make the restaurant
profitable. Similarly, the Company may have different or additional
competitors for its intended customers as a result of such a
concept change and may not be able to successfully compete against
such competitors. The Company's success also depends on numerous
other factors affecting discretionary consumer spending, including
general economic conditions, disposable consumer income, consumer
confidence and consumer concerns over food safety, the genetic
origin of food products, public health issues and related matters.
Adverse changes in these factors could reduce guest traffic or
impose practical limits on pricing, either of which could reduce
revenue and operating income, which would adversely affect the
Company.
The Company's unaudited condensed consolidated interim financial
statements for the 13 and 39 weeks ended September 26, 2021
and Management's Discussion and Analysis are available under the
Company's profile on SEDAR at www.sedar.com.
About Recipe
Founded in 1883, RECIPE Unlimited Corporation is Canada's largest full-service restaurant
company. The Company franchises and/or operates some of the most
recognized brands in the country including Swiss Chalet, Harvey's,
St-Hubert, The Keg, Montana's, Kelseys, East Side Mario's, New
York Fries, Fionn MacCool's, Bier Markt, The Landing Group of
Restaurants, Original Joe's, State & Main, Elephant &
Castle, The Burger's Priest, The Pickle Barrel, Marigolds &
Onions, Blanco Catina, Añejo, Fresh
Since 1999 and Ultimate Kitchens.
RECIPE's iconic brands have established the organization as a
nationally recognized franchisor of choice. As at
September 26, 2021, Recipe had 21 brands and 1,284
restaurants, 84% of which are operated by franchisees and joint
venture partners, operating in several countries (Canada, USA,
Saudi Arabia and the UAE).
RECIPE's shares trade on the Toronto Stock Exchange under the
ticker symbol RECP. More information about the Company is available
at www.recipeunlimited.com.
SOURCE Recipe Unlimited Corp.