Sales and profits fell in the first three months of the year at MTY Global, as you’d think would happen with a brand that built its business largely by collecting mall-based restaurant chains. System sales declined 24% while profits fell 29%, the company said on Friday.
It would have been far worse without the Montreal-based brand operator’s two big U.S. holdings: Papa Murphy’s and Cold Stone Creamery.
The two chains generated CA$53 million ($42 million U.S.) additional sales in the first three months of 2021, the company told investors on Friday. And it appears as if Papa Murphy’s is growing even as it starts lapping especially strong results from a year ago, when sales took off at the outset of the pandemic.
“Last year, we saw our sales of Papa Murphy’s go really strong … late March, beginning of April,” Eric Lefebvre, CEO of MTY, said on Friday, according to a transcript on the financial services site Sentieo. “We’re still comping positive now as we’re lapping these early stages of the pandemic.”
And then there is Cold Stone, where sales increases last year took a bit to take hold, but have been thriving ever since. “Right now Cold Stone is selling a lot of ice cream,” Lefebvre said.
MTY operates more than 80 brands that collectively operate 7,000 locations. Many of those are in malls and office towers, where sales have been hammered by pandemic-related closures and consumers now working from home. This is especially true in Canada. Sales at mall locations there last year fell 51%, the company said in February. Sales at office tower locations plunged 81%.
The market for pizza and ice cream was almost the exact opposite. As the pandemic hit a year ago, consumers stayed home and ordered pizza in surging numbers. Once the summer hit, they bought themselves treats in the form of ice cream. Both pizza and treat chains thrived in 2020, according to data from the Technomic Top 500 Chain Restaurant Report.
MTY acquired Cold Stone in 2016 through its acquisition of the U.S.-based franchisor Kahala Brands—a deal that gave MTY its first real foothold in the U.S. market. It somewhat surprisingly acquired Papa Murphy’s three years later.
The wide gap in performance between those two chains and MTY’s mall-based units has made the company more dependent on its U.S. business now. In 2020, U.S. sales accounted for 61% of MTY’s total system sales—up from 48% in 2019.
MTY hasn’t been issuing same-store sales results for several quarters. But both Cold Stone and Papa Murphy’s have had their problems in the past.
Papa Murphy’s grew aggressively in locations far away from its core markets that knew well its unique take-and-bake model. Such locations struggled and often closed. The chain’s same-store sales weakened. It operates 200 fewer locations today than it did in 2015, the year after the company went public.
Last year, Papa Murphy’s system sales rose 6.5%, essentially reversing recent trends. Yet it still closed 26 locations. And its company-operated locations are still not profitable enough for the company to sell them to franchisees—MTY’s long-term goal. Papa Murphy’s has 59 company units.
“Our goal is always to have no corporate stores,” Lefebvre said in February. “We are working on these corporate stores that we have in the portfolio to improve the profitability, stabilize them in some cases and then refranchise them.”
Lefebvre said on Friday that the chain is still up, albeit in the single digits, as opposed to the “double digits” of recent quarters. “But we’re still comping positive for now,” he said. “There’s no guarantee for the future, but it’s still working out.”
Cold Stone did not have as strong a year in 2020 as did Papa Murphy’s—it still saw system sales fall 6.7%, according to Technomic, a likely reflection of continued unit closures and a weak spring.
The chain was one of the hottest franchises in the early 2000s with its unique model of mixing various toppings into ice cream on a cold slab of marble. But Cold Stone sold locations to almost anybody and many of those franchisees closed their doors. Today, the chain operates 865 locations, or 30% fewer than it operated 15 years ago.
The sales momentum beginning in the summer appears to have stabilized things for now. But MTY executives are hopeful it can last beyond the pandemic, saying that they made changes for the better. “It’s a great product,” Lefebvre said. “We’ve improved a lot of different things just before the pandemic hit. And hopefully, these sales are going to be sticky in the future as well. We’re optimistic.”
But, he said, “we’re going to have to wait and see and do our best to try to maintain those levels.”