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On Tuesday, Raymond (NSE:RYMD) James maintained a Market Perform rating on MTY Food Group Inc. (TSX:MTY:CN) (OTC: MTYFF), with a steady price target of Cdn$55.00. Analysts at Raymond James highlighted MTY Food (F:9MF) Group's fourth-quarter results, which largely met their forecasts. The company's net new store openings increased by 13, a development seen as a positive sign. System sales reached $1.38 billion, surpassing the Raymond James estimate of $1.33 billion. Same-store sales growth (SSSG) remained flat, with a slight decrease in Canada and a marginal increase in the United States, compared to the firm's projection of a 1% decline.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $59.4 million, closely aligning with Raymond James' expectation of $59.9 million and above the consensus of $58.9 million from FactSet. The reported earnings per share (EPS) was -$2.34, which contrasts with the Raymond James estimate of $0.75 and the consensus estimate of $1.09 from FactSet. However, after adjusting for foreign exchange losses and impairment charges, the adjusted EPS was calculated at $0.69. Analysts noted that MTY Food Group would have benefited from providing an adjusted EPS figure in its report.
The company's free cash flow was reported at $26.4 million, exceeding the $22.7 million forecast by Raymond James. MTY Food Group ended the quarter with a leverage ratio of 2.5 times, a level deemed conducive to potential tuck-in mergers and acquisitions. In the U.S., quick-service restaurants (QSR) and fast-casual segments performed well, with brands like Wetzel's, sweetFrog, and Coldstone highlighted as outperformers. In Canada, while QSR and fast-casual faced headwinds, the casual dining segment saw a positive comparable sales increase of 2.4%.
Corporate-owned restaurants, which account for 3.6% of total locations, experienced a 39% decrease in EBITDA. Analysts suggested that MTY Food Group could benefit from transitioning closer to a pure franchise model due to the higher operating costs, rent, and capital expenditures associated with corporate-owned restaurants.
Looking ahead, MTY Food Group referenced favorable performance from Canadian restaurants in the first quarter, while U.S. locations faced challenges due to abnormal weather in the southern states and the impact of the recent California fires. Raymond James analysts believe that increasing investor interest in MTY Food Group is driven by the company's steady share repurchase activity and a reduction in the store closure gap, evidenced by positive net store openings this quarter. They also recommend that MTY Food Group communicates a clear capital investment program, including explicit targets for net store openings and organic sales growth, to potentially enhance investor reception.
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