CA - Pizza Pizza Royalty Corp. (PZRIF) Q1 2023 Earnings Call Transcript
2023-05-13 19:27:07 ET
Pizza Pizza Royalty Corp. (PZRIF)
Q1 2023 Results Conference Call
May 09, 2023 05:30 PM ET
Company Participants
Alexander Sewrattan - Director of Finance
Paul Goddard - President and CEO
Christine D'Sylva - Chief Financial Officer
Conference Call Participants
Derek Lessard - TD Cowen
Presentation
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Pizza Pizza Royalty Corp.'s Earnings Call for the First Quarter of 2023. During the presentation, all participants will be in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded on Tuesday, May 9, 2023.
I will now turn the calls over to Alexander Sewrattan, Director of Finance.
Alexander Sewrattan
Thank you. Good afternoon, everyone, and welcome to the Pizza Pizza Royalty Corp.'s earnings call for the first quarter ended March 31, 2023. Joining me on the call today are Pizza Pizza Limited's Chief Executive Officer, Paul Goddard; and Chief Financial Officer, Christine D'Sylva. Our discussion today will contain forward-looking statements that may involve risks relating to future events. Actual events may differ materially from the projections discussed today.
All forward-looking statements should be considered in conjunction with the cautionary language in our earnings press release, and the risk factors included in our annual information form. Please refer to our earnings press release and MD&A in the Investor Relations section of our website for a reconciliation and other disclosures related to our non-IFRS financial measures mentioned on this call. As a reminder, analysts are welcome to ask questions after the prepared remarks and portfolio managers and media can contact us after the call. Before turning the call over to Paul for the business update, I wanted to spend a few moments reviewing the structure of the call for our new investors. Pizza Pizza Royalty Corp.
indirectly owns the Pizza Pizza and Pizza 73 brands and trademarks through its subsidiary, Pizza Pizza Royalty Limited Partnership. The partnership has two partners: Pizza Pizza Royalty Corp., the public company, which owns 76.1% and the other partner, Pizza Pizza Limited, the private operating company, which owns the remaining 23.9%. The Royalty Corp. is a top line restaurant royalty corp that earns a monthly royalty through a lease agreement with Pizza Pizza Limited. In exchange for the use of the Pizza Pizza and Pizza 73 trademarks in its restaurant operations, Pizza Pizza pays the partnership a monthly royalty calculated as a percentage of Royalty Pool sales.
Growth in the Corp is derived from increasing the same-store sales of the restaurants in the Royalty Pool and by adding new restaurants to the pool each year. The Royalty Pool is adjusted at the beginning of each year by adding new restaurants opened in the previous year, less any restaurants that have been permanently closed. For the fiscal year 2023, the Royalty Pool was adjusted on January 1, 2023, to include 644 Pizza Pizza restaurants and 99 Pizza 73 restaurants. So with that review, I'll turn the call over to Paul Goddard to provide a business update.
Paul Goddard
Thanks, Alex. Good evening, everyone. Thank you for joining us on today's call to discuss the results of our first quarter of 2023. After our strong finish to 2022, we are happy to report the continued momentum with our eighth consecutive quarter of positive sales growth. For the quarter, our same-store sales, a key driver of yield growth for shareholders increased 13.6%.
This translated into our dividend increase in the last three years, a working capital reserve of $7.2 million and adjusted EPS growth of 16.2%. So I'm excited about the year ahead for each of our brands, and I'm incredibly proud to see the hard work of our employees, our franchisees and our partners and their team members who are responsible for the results we're sharing today. As we discussed on our last call, in 2023, we will continue to leverage our brand assets as we implement new promotions knowing that the best way to improve the financial health of our owner operators and shareholders is to drive traffic and top line sales, while also program to improve the bottom line and continue to provide quality offerings. Now let's get into our details of our performance by brand, starting with Pizza Pizza. We kicked off the year with a 15.5% increase in same-store sales in Q1.
Growth this quarter was driven by increases in both guest traffic and the average customer check. Customer traffic rebounded from pandemic-related restrictions in the first quarter last year, especially at our nontraditional locations like Scotia Bank Arena and others. Additionally, sales have been [indiscernible] profitable calendar initiatives and strengthened core offerings and results were further aided by enhanced restaurant operations and smart pricing. Highlights during the quarter included a focus on the well-received value-driven fixed-rate pizza deal supported by a new TV campaign, new menu innovation focused on our well-loved chicken wings, memorable brand activations around Valentine's Day and our ownable dipping sauce category, which laddered up to our recently established brand positioning, "Everyone Deserves Pizza." Pizza Pizza has always celebrated special occasions and dates, and this year, we augmented the already busy Valentine's Day with a new brand action targeting Canadian singles called "Singles for Singles." select locations in multiple markets change their name to just one word Pizza instead of the double Pizza Pizza to celebrate single people, and we gave up presliced adding into each unattached diner [indiscernible]. With over 10 million [indiscernible] it was our most successful social media activation to date.
And just to give you a rough indication of that of the preslices that were redeemed, 3/4 of those were from new app downloads. So we're really happy with that. Our customers have a deep love for our brand clearly and especially our dips. So this quarter, we developed a brand action rooted in [indiscernible] pizza based on varying dip behaviors such as tipping the whole slice versus just a crust. And as a result, we developed a new tool to make Pizza eating that much easier.
The Pizza Pizza dip roller. They had 20 how much this might viral, by the way, it was last late in the quarter and early responses met with excitement and positive responses from tens of thousands of entries to win a limited-edition dip roller in the first couple of weeks, and our second largest number of impressions on organic social channels ever behind the Singles for Singles. So that's been a lot of fun really, lots of fun chatter plus millions of impressions in our media by the end of the quarter. We were really delighted that the positive fun buzz around this on social media. So just give us more ideas for the future as well.
Our brand activations and campaigns have not only been well received by our customers. They have also garnered us attention from news outlets, and we won several industry awards and gained several more nominations this quarter. So congrats on team as well for their great work there. Turning now to Pizza 73. This quarter, we focused on innovation in food, restaurants and technology, and a 3% same-store sales growth for the quarter.
This growth has come from an increase in average customer check and traffic. The Company successfully passed a lot of retail price increases largely related to commodity and labor increases and the reopening of our nontraditional venues really drove the overall increase in traffic for the Pizza 73 brand. Digital ordering has fundamentally changed the business over the years and will continue to be a major driver of growth for the next several years and beyond. To help accelerate growth in this channel, Pizza 73 launched a brand-new suite of digital ordering platforms in Q1. The new website and apps greatly improved the customer experience with easier navigation, new product categorizations and a smoother and faster interface.
The customers can create their own pizza from scratch now, but which believe it or not, we couldn't do previously at Pizza 73. So a lot more flexibility for the customer as well. And all of these improvements have translated into an average, average customer check -- increased [indiscernible] customer check on our digital platform. And early signs are that it is also having a positive impact on traffic and our overall percent of digital versus nondigital transactions. So we're really encouraged there now it's early days.
It's a good time. And in addition to the new website this quarter, Pizza 73 introduced a new product category, Gourmet Thins, which many of you will be familiar with, we launched here a while ago. So we've tagged it with an interesting -- a slightly different approach of it saying: [indiscernible] without the snatchy price. So we're trying to maintain that value image about quality, quality products. But the product is very similar to the gourmet Gourmet Thins of Pizza Pizza and takes more of a true [indiscernible] and Gourmet feel that would have been crust for people.
And this new category for Pizza 73 is really designed to buy that sort of higher quality in crust express in its people to our existing customers and also appeal to new customers looking for a lighter pizza options. The three new recipes were developed, and five top-selling recipes were configured for our Gourmet Thin category. In 2023, our marketing activity will continue with a focus on our strategic pillars, which, as a reminder, are building the brand number one. Number two, cost of innovation across all aspects of our business, be it menu, tech, restaurant, or any other aspect of our business. We're always looking to automate internally as well and we really leverage technology and AI is a part of that as well, more and more, of course.
Number three, driving organic orders, very important for us; and number four, maintaining and growing profitability of our franchisees and partners. So turning now to our network. We ended the first quarter with a total of 749 locations, of which 649 were Pizza Pizza's and 100 were Pizza 73. We opened two traditional and seven nontraditional Pizza Pizza's and closed two traditional and one nontraditional location. Additionally, during the quarter, the Company opened one traditional Pizza 73 and we renovated 10 Pizza 73 locations, which we're also very excited about making great progress there.
Construction and supply chain issues have largely subsided early in 2023, but we are still experiencing some delays in obtaining permits and getting final inspections in some jurisdictions. And despite these temporary delays, our management team remains confident that we can continue to deliver profitable network growth. We remain focused on growing our business across Canada, and it's safe to say we are known and respected as a major homegrown national brand coast to coast and the leading pizza chain in the country. One exciting piece to note, subsequent to our quarter end, our team traveled to Mexico for the opening of our first two international restaurants the PZA, Pizzeria brand, as is known in Mexico, PCA Pizzeria has been well received in Mexico, and we are looking forward to updating you further as we continue to open more restaurants down there.
And by the way, we will be opening our third restaurant down there just south of Guadalajara in Lake Chapala region within the next month or so. So that's really exciting, and we'll have more to share in future quarters on that. Looking ahead, in 2023, you will see us pushing hard on menu innovation, marketing initiatives, restaurant growth, technology and other digital first investments, and we will work closely with our owner operators to ensure they are delivering excellent and consistent products in a clean, safe and attractive restaurant environment with the nice ambience. I'd like to close by congratulating our entire team. One of the critical key to our success is absolutely our people, our teamwork and our trust our work ethic.
I think they all to combine together in our creativity. I think we've all worked really hard together. We also have a lot of fun together to create a very innovative, ambitious and collaborative culture right across the country, and now internationally with our wonderful partners in Mexico, at both brands, and now we have a third brand, PZA. As we announced last quarter, I'm also very proud of our team for being recognized recently by Waterstone as one of Canada's most admired corporate cultures in this quarter by the Canadian Franchise Association as a leader in and the winner of their Diversity and Inclusion Award.
So with that, I'd like to now turn the call over to Christine for a brief financial update.
Christine D'Sylva
Thanks, Paul. Before I go over to financial results, I'd like to remind everyone about the January 1 Royalty Pool adjustment. As Alex mentioned, on January 1 of each year, the Royalty Pool is adjusted by adding new restaurants opened in the past year, less any restaurants, which are permanently closed. So on January 1, 2023, the Royalty Pool increased by 16 net restaurants, as a result of 45 new restaurants opening, less 29 restaurants permanently closed. For 2023, there will be 743 restaurants in the Royalty Pool made up of 644 Pizza Pizza locations and 99 Pizza 73 restaurants.
This has been compared to 2022 when there were 727 restaurants. So now I'll just briefly cover some key financial results for the quarter. And as Paul mentioned, it's a quarter that continued to build on the momentum of 2022. Same-store sales growth, the key drive of yield for shareholders increased 13.6% for the quarter. Pizza Pizza restaurants reported 15.5% same-store sales for the quarter, while Pizza 73 restaurants were 3% positive.
Both brands saw an increase in customer transactions as well as average ticket. The combination of restaurants being added to the Royalty Pool and the same-store sales resulted in an increase in Royalty Pool system sales and a corresponding increase in royalty income. Royalty Pool system sales for the quarter increased 16.1% to $142.7 million from $122.9 million in the same quarter last year. By brand, sales from the 644 Pizza Pizza restaurants increased 18% to $123.7 million for the quarter, and sales from the 99 Pizza 73 restaurants increased 5% to $19.1 million for the quarter. The partnership's royalty income earned as a percentage of Royalty Pool sales increased 15.3% to $9.1 million for the quarter.
Turning to the partnership expenses. Administrative expenses for the quarter were $143,000 and these include listing costs as well as directors, legal and auditor fees, and this quarter included the annual shareholder meeting costs. In addition to administrative expenses, the partnership pays interest expense on its $47 million credit facility. The interest paid in the quarter was $316,000. The partnership is currently making interest-only payments on the nonrevolving facility.
Our interest rate is locked through April 2025 using a swap agreement that has fixed interest rate at the BA rate of 1.81% plus our credit spread. The credit spread changes based on the level of debt-to-EBITDA. And in April of 2022 as the partnership earnings increased, our debt-to-EBITDA ratio improved and our credit spread on the facility decreased 25 basis points for a combined rate of 2.685%, compared to the same period of last year when we were paying 2.935%. So after paying partners -- after the partnership receives royalty income and pays administrative and interest expenses, the resulting net cash is available for distribution to its two partners based on the ownership percentage. And as Alex mentioned, Pizza Pizza's interest increased to 23.9% on January 1 as a result of vending in new restaurants.
Pizza Pizza Royalty Corp. shared 76.1% of the partnership's distribution, paid taxes on its share of the partnership earnings and the residual cash is available for dividends to our shareholders. Speaking about shareholder dividends. During the quarter, the Company increased its dividend for the sixth time in the last three years. With this more recent dividend increase, our current dividend exceeds the pre-COVID rate and [indiscernible].
The Company declared shareholder dividends of $5.2 million in the current quarter or $0.2125 per share, compared to $4.7 million or $0.19 per share in 2022. The resulting payout ratio was 104% for the quarter. System sales in the first quarter of the year are generally the softest and [indiscernible] we have always had a payout ratio greater than 100%. Our target is 100% payout ratio on an annualized basis. The Company's working capital decreased by $200,000 during the quarter but ended the quarter strong at $10.3 million.
And [indiscernible] an increase in this working capital balance, the Company believes that there is sufficient cash flow to service all obligations as they fall in and we will continue to monitor sales and royalty income to determine when additional dividends may be warranted. That concludes our financial overview.
I'd like to turn the call back to the operator to poll for questions.
Question-and-Answer Session
Operator
[Operator Instructions] We have our first question from Derek Lessard with TD Cowen.
Derek Lessard
Yes. Congrats on some really nice results.
Paul Goddard
Thanks, Derek.
Derek Lessard
I guess I'm going to start in reverse order, and I wanted to talk about the Mexican initiative. I know Paul, you said it's in the early days, but congratulations on opening your first store there. I just wanted to know maybe if you can give us an idea of what you guys are thinking strategically long-term for the brand there, and then maybe internationally?
Paul Goddard
Okay. No, good question. We are excited about it. Like you say, it is early days. We really like these partners that came to us four years ago.
They're a very well-established group down in Guadalajara, we're actually working with another -- an American QSR brand, non-pizza is down there as well. We like that. We did our due diligence on them. We think there's a tremendous market opportunity down there. Just a rough number of food service sector there, especially in the pizza that we're in, it seems to be growing about double the rate of what it would be here, depending on which research has you look at, you hear numbers like 8% or 9% roughly growth there versus, say, 4% here.
There's a bit of play in there, but basically, it's at least double in the per capita, pizza consumption is high. It's a growing market. We've got 3x the population essentially down there. Obviously, it's a complicated environment down there for obvious reasons. But we didn't go into it lightly.
But we like the partner. They have great experience. They know the city well. We've spent a lot of time over COVID. It slowed us down a little bit.
We hope to launch sooner than we did, but we were not that much delayed, actually. We had extensive training with them, up here, down there. And it's just we feel like we really know how to the market there. I think there is existing competition. There's independent players down there.
There's also some familiar names you would know, down there, some global brands. So we're not the first people on the block. But we just think we have a very compelling value proposition as we do here, really by also our Canadian routes, you can get exactly the same pepperoni slices down there, same ingredients, same quality, really nice environment, just like our beautiful, renovated stores here. So people seem to really already be really resonating with it. We think we've been very pleased with the attention that we generated from here and also to credits to the Mexican folks down there.
They've done an amazing job with their partners and their marketing partners to drive attention. So we're starting slowly and carefully. We're training them to be a good master franchisee essentially and then subfranchise from there. They've got to meet certain criteria to do that. But we know what the store economics are very good there.
Margins are very good. Labor is obviously a lot cheaper down there. Things like construction are actually not that cheap. So there are some challenges down there. But overall, the saw a picture is much better on a unit level.
So we're encouraged by that because we know that not only can they make money while they have them corporately when the subfranchise, the subfranchisees should do very well. Even though we're saying okay, three stores right now, two to three and then we'll probably have something like eight to 10 end of the year, and probably 10 a year or so is our rough growth forecast in Guadalajara. That market probably has potential as a 30 or 40 or so in Guadalajara, if not more. And then we also hope with these folks to expand the partnership with them to other jurisdictions. So we're already kind of doing some thinking about that.
And certain criteria have to be met. But we think there's huge potential in Mexico. We won't go everywhere in Mexico. We're going to tail in certain places we may not want to go, but there's a heck of a lot of opportunity there, and we really like this brand because it's very clear graphically that it's our same brand, it sort of squished into the PZA, which obviously is our stock ticker, still about the Canadian flag in the letter A. The only difference is that we've [indiscernible] a little bit.
We've got things like a pass store pizza there. Very popular there. It's already, I think, they are selling item fast behind pepperoni and another one. So it's really encouraging, and we just like our position. We think for value, we can be a really key value player with better quality, better technology and all the other aspects that our brands can bring in Canada, we're bringing it down there.
And so just also our expertise behind the front counter is also an advantage. We just you have more automation, I think, more efficiencies than some of our competitors. So that makes us pretty optimistic. It's still early days. I want to over get too excited, but it's kind of encouraging.
So we think Mexico could be a very big market. And then obviously, on a broader basis, we're thinking, yes, if we can improve ourselves here, and we don't have to wait years by the way. We are also -- we're getting [indiscernible] knocking on our door even more since we announced this. So we are already getting some entities that have expressed interest from other countries, but that there's different structures that could [indiscernible] but we serve like a very sort of master franchise type structure that a lot of brands have done when they've gone global. And so again, we wouldn't necessarily say we're going to be in every country or anything.
But if a country makes sense and we can do well here with a good local partner like these folks in Mexico, then we think there's definitely multi-country potential, and we're pretty ambitious about that. So we also learned, I think, how to manage it better because it's quite a bit of work for us, right, in our team here, and we want to make sure that we have 750 or so restaurants in Canada. We've got three in Mexico right now. So we don't want to make sure we get too distracted, but we also have some very independent partners out there that are less and less reliant on us. They really are doing a great job.
They're very professional. Great team down there. So that model seems to work. So if we go to other jurisdictions, I think we can maybe even be lighter touch. Now that we have some more experience that are built earning how to be a good sort of Canadian big master franchisor.
Derek Lessard
That's a great update, Paul. I guess I'm also curious on, you mentioned that there are some of the same let's call them, like competitors down there. Curious on the market shares of the -- not -- but just generally speaking, is there anybody that has like a super big market share compared to everybody else?
Paul Goddard
I think it's fairly split. I mean I don't want to get too specific on who we've been looking at more things, but just for competitive reasons. But I mean a lot of the names that you would be familiar with are very active down there. And some seem to be doing a very good job down there that I expect to have quite significant market share versus some others that maybe haven't performed as well as you might think. And I'm not sure if that's just because of their partners, their structure, where they are right now and their evolution, some of them have been there for many years.
Some have been their maybe just only five, 10 years type of thing. And they have some local strong independents as well, like some smaller chains and there's actually several that are quite well run from what we can see. But we had pretty demand segment when we open our [indiscernible]. I mean a lot of social chatter and real traffic. And we also were very unique down there that we offer slices.
There's some independent pizza shops there that also sell pizza by the slice, but none of the usual suspects, if I can call them that, do slices and we do that. And so I think that's one of our fortes, right? We don't have to sell old pies, that's for sure, but we also know how to sell slices and we see that as a tremendous on-ramp. We wouldn't sit with our own eyes. I mean I was sitting there a day after our grand opening -- office next to one of our locations, and I saw two ladies they drill up a title service van, they walked in, they must have been hungry.
They got a slice; they came out and ate their slice. They went back in and about five minute they came out with about six pizza boxes, a three-liter bottle of Coke and a whole bunch of chicken wings. And so I think it's a good on-ramp for a growing ticket and growing repeat visits as well. And the slice is not a big commitment. And I think others just don't know how operationally do it or afraid is going to really hurt their average ticket if you don't do it right.
So we've been doing this for decades. So I think it is really -- one of the many unique things you have -- we have our technology platform and our marketing power and our agility and all that kind of stuff and our innovation. Iteration, I think, is more rapid than some others as well. So I think we can be pretty agile, and I think things like a slice to augment our pizza offerings and our chicken is well down there. We're selling a lot of chicken already.
So I think that's pretty unique. And we plan to outflank some of our -- albeit our competitors we respect, but we think we can outdo them.
Derek Lessard
Again, super helpful. And then does any of this run through your commissaries?
Paul Goddard
Not our commissaries, which structure really no. It's more of a sort of a royalty stream we'll get back. So let's not replicating our model here to kind of the private opco model. So right now, the franchise is really [indiscernible] some of their existing relationships, et cetera. But we have definitely leveraged our relationships, our products at, the flour we use, the tomatoes we use.
I mean we -- it's identical wherever possible unless there's a slight difference because of just logistics and supply chain. So they have very good contracts as well that we like, we've met and so we feel pretty confident. But we're not really participating in that commissary model down there. And that definitely change in the future, I guess. But right now, we've kept it pretty simplistic that we essentially just collect a royalty stream back.
The operating company got some and then the PPRC. There's a stream back to [indiscernible] so it's just sort of additional royalty stream income if we can get some scale there.
Derek Lessard
Okay. Okay. That's fair. Congratulations again. Maybe just switching gears, come back to Canada and the strength in the same-store sales there.
More specifically, I know you touched on it in your opening remarks, but can you just maybe add some color to that pricing versus volume dynamics? And I guess, more specifically, the pricing is that coming through more through, because of the new menu innovation or bundling or just straight price increases? How should we be looking at that?
Paul Goddard
I'll ask maybe, Chris might have a bit more to comment on. But I mean, I think we are seeing -- we obviously want order volume growth. That's our biggest thing I want to get our sales growth to traffic and order count more than anything. But obviously, with what's going on with inflation, especially in the last year or two, we've really had to pass on more price increases than perhaps we have historically. But we've been pretty carefully, I think, find the balance quite well.
I mean we've been really closely monitoring traffic. Traffic is held up really nicely. And we've not gotten ingredient on price increases. We want to make sure [indiscernible] kind of find the balance there. So I'd say, generally, it's a mix roughly -- just roughly not exactly, but we've probably seen a little more of this whole growth come from more price, I guess, but it's -- there's a good balance of traffic their order count driving that as well.
At 73, I would say, we've still got work to do there, but it's going the right way. We really like these signs now that we've been working on it really hard. And it's frustrating, but we think we've really -- the plans we put in place, the technology, the enhanced marketing, everything is seeming to really start to really get some traction. So I think I said in my comments that a lot of the traffic was more driven by nontraditional coming back. And so we do need to drive the [indiscernible] are still, for sure, for 73, but it's going the right way now.
And so we've got some check and we've got some traffic. And Pizza Pizza, I mean we're really happy and we look we've got some great, great double-digit growth in these last quarters and it's been great. And obviously, that will get harder and harder, given the increasingly difficult comps that were lapping double-digit comps, but we're pushing hard for the machine seems to be really, really firing on all cylinders, and 73 is really coming to life that too. So overall is at balance, I would say, Derek. It's a balance of both.
We still like to see a little more on organic orders. Now we're pushing digital delivery, see more deliveries. That's we've seen is growth will pick up lock in, which is a real sign of the times, I think, not just for us, but the industry people are getting out more whether they're just tired of being at home because of COVID isolation and they're making up for lost time and also economically, I think some people just select the convenience [indiscernible] view and just picking up whether it's Pizza 73 or Pizza Pizza owning that. I think you've probably seen some of the U.S. big global brands also comment that delivery is tough.
Third party is still going. Those folks we use them as well. But we prefer our organic delivery system. We have this tremendous organic delivery fleet, and we prefer that. So even though we use those folks a little bit, too, to bring us people that only use those apps, we try and convert them as much as possible, if they order one of these, we put QR codes on our packaging, other little nudges to try and get them to download our app and order through us next time.
So all of that together, I think we definitely have some work to do, but there's areas we know where they were not that strong in. So we want growth in all these areas. It's just that we have all these challenges, as you know. And so it's hard to get every channel firing and growing is all simultaneously. But we feel like we're hitting it pretty well right now.
We know there's places that we're not still happy enough. We don't [indiscernible]. So there's areas we're going to put more effort into. But overall, it's -- that's kind of the picture.
Derek Lessard
No, it's showing in those results for sure. And I guess on another note, I've personally seen some pretty aggressive promo activity in QSRs recently. And I guess -- and I'm assuming that's a reflection of the higher interest rates and the economic uncertainty. Have you guys seen any change in the competitive activity and/or consumer behavior and reaction to that?
Paul Goddard
It kind of depends on what market. We know we've seen a little bit of that. We certainly see some aggressive behavior by some competitors that we all know lately as well. And also, you see what is happening in FSR as well as it appears to be struggling quite a bit too. I just saw, in absolute one of the chicken wing chains it's shutting a lot of the stores and things.
So I mean there's definitely some pain out there. I think people that have high [indiscernible] franchisees as a big loan and interest rate exposures hurting them more than it used to. These things are pretty painful. So I think we're overall in a relatively good place. Maybe Christine has something to add.
Christine D'Sylva
Yes. And I think in the macro environment being placed in the QSR segment, we're known for our convenience and our value offering. So we have been a way to meet every customer's demand, whether they want to walk in to save the delivery fee, we can meet your needs that way. So I think given the backdrop and the uncertainty, I think we're well positioned, recession resistant is a word that was always thrown around, given the trade down, we would feel that we're there, we'll be able to meet the value, especially with what we've done in the past. We've had [indiscernible] pizza the $16.99.
And it was well received. It's actually from one of our top sellers. We introduced it last year. As those interest rates were starting to creep up, and it was perfectly timed, and we've just seen traction grow on it. So [indiscernible] proceeding at a value, seeing that we're offering things to customers.
We're not taking advantage of customers as a lot of those are doing when the inflation was going that people were just taking excessive price increases. We've managed to keep that balance for our customers.
Derek Lessard
That's fair. And I guess and maybe along the same note, how has the environment changed in terms of how, I guess, franchisee profitability or even your franchisee pipeline, given the higher interest rates and maybe the higher cost to acquire or finance a franchise?
Paul Goddard
Yes. Very good question. I mean, look, it's not easy out there for sure. I mean, we're still seeing pressure on output costs and things, we're not sort of trying to say, okay, it's all glorious out there and everything is back. But I mean, we just -- sales-wise, we see a lot of fundamental demand across all channels really.
So I think profitability franchise do look at cash flow for store and things like that internally. Overall, people are doing well. Obviously, when sales are good top line, and we control as much as possible. That gives them a good bottom line. That's fundamental for us.
So I think isn't really good. I think that it's shown some improvement overall for sure. I mean I know in Alberta. We've got -- our stores out there was wonderful about those JV partners in Alberta. They don't have a lot of debt on those stores.
So they don't have really any debt servicing charges. The most of them don't. So they've been able to weather the storm in Alberta. Now that seems to be coming back, they should be doing better. But I mean there's been some lean months for some of those folks, for instance, out there.
But I think they're very resilient. They've been through [indiscernible] these folks to most of them. And so I think for a franchisee profitability is moving the right way, and the pipeline has been really healthy. I mean, all over the place. I mean we always have more interest in Toronto than we have in other locations available.
But we have success putting people in some pretty remote places or smaller cities as well. So I think whether it's Quebec or Vancouver, Laura Mainland, et cetera, or elsewhere, even Alberta, we've had a little bit of growth. It's -- there's definitely interest. So I think that's quite good. And I do think we still have issues with drivers and things, but I think it has abated in terms of availability for labor.
I mean we're definitely still struggling on occasion to finding us drivers for sure. I think what industry is and third-party aggregators are as well obviously. But I think it seems to be abating. I saw -- I think it was RBC was expecting somewhat like was a 6% unemployment coming later this year is what their forecast is. So who knows how it shakes out.
But I do think to Chris' point earlier, I mean, we're just trying to make sure that we always having a message is there's something for everyone, right? And that's kind of "Everyone Deserves Pizza." It means we have something for everyone. This is sort of the other flip side of that, no matter who you are, we'll sell the Gourmet Pizza for a pretty high price tag, and it's going to be super high quality, it's actually a smaller tender crust pizza, but it's really nicely delivered really gourmet. But if you want a pepperoni slice, so you can get that from us with a Coke and it's a very, very affordable meal. So we're really trying to cover places, I think, pretty [indiscernible] and a lot of other competitors, I think, are trying -- and the really good ones are also being successful, too.
But I think we've shown that we're performing pretty well compared to the peer group, and we'll keep pushing.
Christine D'Sylva
And additionally, in terms of talking about capital cost and building out of restaurants, we can scale up and scale down our restaurants as we're building into different cities. So we see this inflationary period, say for ovens. We were not put in four ovens. We make good in two. We can also go into new markets -- smaller markets with our nontraditional partners and gas stations that have delivery.
So we're able to adapt as we look at our expansion to keep that pipeline to franchisees and distort growth going at a rate that we want to see.
Derek Lessard
Okay. And like one final one for me. And obviously, I don't want to add any salt to the wounds, but could you maybe talk about the impact deep playoff runs might have on your businesses?
Paul Goddard
Well, I mean, we definitely have seen -- it's always a positive effect when you get those extra gains, right? No question. There's just not a tool for excitement factor of people. So I mean the longer it goes on, the happier will be for sure, an aside from business. It's just nice for the city.
So we're definitely sharing for the others on the lease, and we'll -- hopefully, they can both hang in there. But it definitely does have an impact. I mean we see it and especially if it obviously weekend night or something. Yes, it's great. And the more the better, and we'll see how it goes.
Christine D'Sylva
Yes. And as we have our locations in the stadiums, it's been great when the teams are on full pack stadiums with people buying pizzas, always something to look forward to.
Operator
There are no further questions. I'll now turn the call over for any remarks.
Paul Goddard
Thank you all for your time. If you have any other questions, you can reach out to us after the call, and our contact information can be found on our earnings press release. Thank you.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.
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Pizza Pizza Royalty Corp. (PZRIF) Q1 2023 Earnings Call Transcript