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Summary
- Boston Pizza’s gross sales stood at C$129.8 million for the second quarter 2020, down by 53.8 per cent year-over-year.
- Recovering from the impact of Covid-19, the July sales for Pizza Pizza rebounded quickly, up by 20 per cent from the sales in April.
- The restaurant industry is adapting to the new takeaway delivery models and dine-in social distancing protocols to ensure safe places for customers.
As restrictions are now being eased and economies reopen, by adapting to the “new normal”, the consumer spending on miscellaneous expenditure is slowly gaining traction. Spending on art, entertainment and dining-out at restaurants is recovering from the lows witnessed in the recent months. While the change is turtle-paced, the restaurant industry stocks are on a rebound, showing positive signs of recovery. Two such restaurant industry stocks trending at the Toronto Stock Exchange (TSX) are Boston Pizza Royalties Income Fund Units (TSX: BPF.UN) and Pizza Pizza Royalty Corp. (TSX:PZA).
With a rather grim outlook for the restaurant industry in Canada, The Canadian Chamber of Commerce warns that about 60 per cent of restaurants will put down shutters permanently in the next three months.
Boston Pizza Royalties Income Fund Units (TSX: BPF.UN)
Current Stock Price: C$8.66
Boston Pizza Royalties Income Fund is an open-ended trust, operating 395 franchised Boston Pizza restaurants in Canada. The company earns its revenue in the form of royalty income. As of June 30, 2020, nearly 375 Boston Pizza restaurants were providing take-out and delivery services, and approximately 370 of them had their dining-in rooms and patios open with social distancing protocols followed and reduced seating capacity.
The fund however suspended distribution of fund on the units temporarily on March 23, 2020, as a part of the Pandemic Recovery Plan agreed upon by the Fund and Boston Pizza International Inc. (BPI). According to the plan, it was decided that distribution will not be paid to unitholders before October 1, 2020, to help preserve the fund’s reserves and cash.
Boston Pizza recommenced distributions once again because of improvement in performance and positive sales. The fund has declared a monthly cash distribution to unitholders at C$0.065 per unit for September 2020.
The Trustees further might consider a special cash distribution in December 2020 as well. This would mean a departure from the historically established distribution practices of BPF.UN because of the Covid-19 pandemic situation.
BPF.UN STOCK PERFORMANCE
The Boston Pizza Fund has a current market capitalization of C$ 188 million. The year-to-date performance of the scrips has decreased by 35.66 per cent, from C$13.46 to C$ 8.66 currently. However, the scrips have gained by 21.62 per cent in the last six-month period and rose by 20.63 per cent during the last three months.
The current profit-to-book (P/B) ratio of the stock is 0.752 and profit-to-cashflow (P/CF) ratio is 7.80. Data on TSX shows negative returns on equity and assets. With a negative dividend growth over a three-year and a five-year period, the company had to stop issuing dividends from April 30, 2020.
BPF.UN FINANCIAL HIGHLIGHTS
The company's system-wide gross sales stood at C$ 129.8 million for the second quarter 2020, down by 53.8 per cent year-over-year. While in Q1 2020, the company’s gross sales stood at C$ 2.24 million. The franchise sales by restaurants in royalty pool decreased by 50.6 per cent in Q2 2020 in comparison to the same period last year.
Impact of the pandemic was felt with decrease in franchise sales from C$1.74 million in Q1 2020, to C$1.07 million in Q2 2020. The cash balance as of June 30, 2020 was $0.9 million.
The total revenue went down to C$5.73 million in Q2 2020, down from C$11.5 million in Q2 2019 because of the pandemic.
The fund's net income was C$7.6 million for Q2 2020, down from C$9.2 million year-over-year. Its payout ratio for Q2 2020 was 0.0 per cent, as compared to 102.6 per cent in the same period last year. The fund’s payout ratio for the Boston Pizza restaurants is typically higher during the months of summer because they open their patios, experience higher franchise sales levels, and see increased tourist traffic.
Boston Pizza's business has recovered by approximately 80 per cent of overall sales levels from a year ago.
Pizza Pizza Royalty Corp. (TSX:PZA)
Current Stock Price: C$8.66
The company operates via its subsidiary Pizza Pizza Royalty Limited Partnership, that owns and operates its franchise restaurants under the Pizza Pizza and Pizza73 brands. The company has a current market capitalization of C$ 2.13 billion, and earnings-per-share (EPS) is C$0.82.
PZA STOCK PERFORMANCE
Year-to-date performance of the stock has decreased by 11.36 per cent. However, the scrips have gained during the six-months period by 2.11 percent and over the last three-months by 5.5 per cent.
As per data on TSX, the profit-to-equity (P/E) ratio of the stock is 10.30 and profit-to-book (P/B) ratio is 0.744. The company’s profit-to-cash flow (P/CF) ratio is 10.10. The company offers positive Returns on Equity (RoE) of 9.19 per cent and Return on Assets (RoA) of 7.35 per cent.
Decrease in the company’s royalty income, affected its monthly dividend payout which was reduced by 30 per cent from C$ 0.0713 per share to C$ 0.05 per share. From April 29, 2020, the company has been offering monthly dividend payout of C$ 0.05, with a dividend yield of 6.904 per cent. The dividend growth trend over the three and five-year period has been positive, added the TSX data.
PZA FINANCIAL HIGHLIGHTS
Recovering from the impact of Covid-19, the July sales rebounded quickly, up by 20 percentage points from the sales numbers in April. With the government imposing restrictions on dining-in at restaurants, the sales numbers plummeted significantly during the second quarter 2020 ending June 30, 2020. However, delivery and pick-up sales grew significantly empowered by digital channels in Q2 2020.
The royalty pool sales from the brand’s 749 restaurants plunged 15.5 per cent YoY to C$ 113.5 million. Sales from 645 ‘Pizza Pizza’ restaurants decreased by 17.9 per cent to C$92.1 million and from 104 of ‘Pizza73’ restaurants decreased by 3.1 per cent to C$21.4 million in Q2 2020.
The company’s working capital reserve stood at C$3.4 million as of June 30, 2020, an increase of C$7.6 million owing to 30 per cent dividend increase in April. The fully diluted basic EPS decreased by 8.3 per cent to C$0.189 for the quarter.
For better understanding, traditionally 60 per cent sales of the Pizza Pizza restaurant brand is through delivery and pickup, and the remaining 40 per cent is from walk-in sales. Whereas, for the Pizza 73 restaurant brand, 90 per cent sales is from delivery and pick-up, while walk-in makes up for only 10 per cent of the total sales.
