MTY Food Group Inc. (TSE:MTY) announced Friday its intention to shutter 68 company-owned restaurants over the next nine months, following a disappointing second-quarter earnings report. The move represents 29.3% of the 232 locations the Montreal-based franchisor operates directly, with the majority of closures concentrated in the United States. CEO Eric Lefebvre characterized the decision as "the right long-term action for the business."
The stores targeted for closure generated combined losses exceeding C$10 million over the past year. MTY expects the restructuring to cost between C$10 million and C$12 million, primarily due to lease exit expenses. On a pre-tax basis, the company estimates that eliminating these losses would recover the closure costs in approximately 1.2 years once fully implemented.
Despite the seemingly small number of closures relative to MTY's total network of 7,040 locations—less than 1%—investors reacted sharply. MTY shares closed at C$33.75 on Friday, down C$3.99 or 10.57%, erasing about C$91 million in market capitalization. That figure is roughly nine times the company's stated minimum annual loss from the closing stores, suggesting the market is pricing in broader concerns about traffic trends and unit economics beyond a one-time lease charge.
Second-Quarter Financial Performance
MTY's second-quarter results revealed significant deterioration. Net income attributable to owners plunged 73% to C$15.4 million from C$57.3 million in the same period last year. Revenue fell 8.2% to C$279.9 million from C$304.9 million. Normalized adjusted EBITDA, which excludes acquisition and software costs, declined 14% to C$60.2 million. A notable factor was a C$42.7 million swing in foreign exchange, from a C$35 million gain to a C$7.6 million loss year-over-year.
The company's company-owned segment posted a margin of just 5%, generating C$5.7 million in profit on C$111.7 million in revenue. This was down C$5.6 million in profit from a year ago, accounting for more than half of the total decline in normalized adjusted EBITDA. In contrast, the franchise segment delivered a 51% margin, with C$50.6 million in profit from C$98.6 million in revenue. CFO Renée St-Onge stated that the store closures should help MTY "consistently deliver corporate segment margins at the high single-digit level."
Papa Murphy's at the Center of Closures
Papa Murphy's, the take-and-bake pizza chain acquired by MTY, accounts for 45 to 50 of the 68 closing stores, or 66% to 74%. At the end of 2025, MTY reported 49 corporate Papa Murphy's locations, suggesting most or all could be eliminated. The first closures began the week of July 13. Lefebvre indicated that some stores might be sold but stressed it is "not a fire sale."
The scale of MTY's planned closures is modest compared to broader industry pullbacks. Papa John's International (NASDAQ:PZZA) plans to close about 200 North American shops in 2026, reaching 300 by end of 2027, while Pizza Hut, part of Yum! Brands (NYSE:YUM), aims to close roughly 250 U.S. locations. Both cited weak store performance and a lack of sustainable growth prospects.
Cash Flow and Outlook
Free cash flow after lease payments rose 80.7% to C$32.2 million, but the improvement was largely driven by a C$24.7 million swing in working capital. Stripping out working capital, taxes, interest, and other items, cash from operations fell to C$60.0 million from C$69.4 million, casting doubt on the sustainability of the cash flow boost.
Looking ahead, MTY faces ongoing headwinds. U.S. traffic remained soft in June, and rising protein prices continue to pressure some segments. The company's strategic review could lead to a sale of the entire company, part of it, or no deal at all. Investors will watch for June retail and food-service sales data from the U.S. Census Bureau, due Thursday, July 16, for signs of broader consumer demand trends.
