A&W Food Services of Canada Inc. | Q3 2026 Financial Results - DEFI TECHNOLOGIES INC

Financial Performance:

• Total revenue reached $79.3 million, an 11% year-over-year increase driven by higher equipment/turnkey sales and increased service fees.
• Net income rose to $19.5 million ($0.80 per share) from $17.6 million ($0.71 per share) in Q3 2025; adjusted EBITDA was $26.6 million (3% growth).
• Adjusted EBITDA margin contracted to 33.6% from 36.2% due to lower-margin turnkey/equipment revenue, though trailing four-quarter margin remained stable at 33%.
• System sales grew 3.8% to $497.6 million, with same-store sales increasing 1.8%, largely fueled by the "Smashed Burger" promotion (peak 15% weekly growth).
• Net debt-to-adjusted EBITDA ratio improved to 2.2x, down from 2.4x in Q3 2025; free cash flow was $19.5 million, up $2.5 million YoY.
• Operating costs increased 27% to $40.5 million due to cost of sales from new openings and timing differences in marketing expenses.

Guidance and Future Outlook:

• Fiscal 2026 guidance remains unchanged: Adjusted EBITDA expected between $103M-$105M; System sales growth of 2.5%-5%; Same-store sales growth of 0.5%-3%.
• Restaurant count target for fiscal 2026 end is 1,112–1,120 A&W locations (up from 1,094), with 9 new openings in Q3 and 21 year-to-date.
• Pret-a-Manger expansion plans include opening 3–4 additional franchised shops by fiscal 2026 end, bringing total to 4+ sites.
• Long-term goal is to achieve 33%+ trailing adjusted EBITDA margin once the current mix of lower-margin turnkey revenue normalizes.

Business Segments and Product Lines:

• A&W Core: Successfully executed the nationwide "Smashed Burger" LTO; introduced a lower-cost, freestanding restaurant design to accelerate expansion in Quebec and Ontario.
• Pret-a-Manger: Strong performance at Vancouver International Airport location; 26 restaurants currently under construction; strategy focuses on premium grab-and-go in airports and pedestrian areas.
• Turnkey Program: 3 of 9 new A&W locations were turnkey sales; revenue recognized upon completion of construction and sale to franchisees.
• Innovation: Strategy emphasizes "scroll-stopping" menu items, including premium beef, plant-based options, and globally inspired dishes.

Market and Competitive Landscape:

• Consumer Trends: Market characterized by a "barbell" effect; consumers are either highly value-conscious due to cost-of-living pressures or seeking premium indulgence via novelty and social media-driven trends.
• Beverage Sector: Continued focus on core root beer while exploring new beverage innovations to complement food offerings.
• Positioning: A&W aims to capture market share by being "number one in Canada" for the new generation of QSR fans through distinctive value and convenience.
• Competition: Management states performance is tracking at or slightly ahead of the broader market despite macro headwinds.

Risks and Challenges:

• Economic Pressure: High cost of living and volatile oil prices continue to constrain household discretionary income, particularly affecting family dining.
• Margin Compression: Temporary reduction in profitability margins due to the timing and mix of lower-margin turnkey restaurant sales.
• Execution Risk: Need to balance rapid expansion with maintaining operational excellence and franchisee success in a competitive QSR environment.
• Forward-Looking Uncertainty: Management notes that actual results may differ from projections due to economic, geopolitical, and competitive variables.

Management Commentary and Tone:

• Tone was confident and strategic, emphasizing a clear evolution from cost-of-living pressures to a "premium value" and "novelty" driven strategy.
• Management highlighted the successful execution of the Smashed Burger promotion as validation of their innovation strategy.
• CEO Susan Senecal stressed that the new mission aligns guest loyalty with franchisee success through a franchisor-capital-light model.
• CFO Kelly Blankstein maintained a steady tone regarding financial metrics, framing margin fluctuations as temporary timing differences rather than structural issues.

Analyst Questions and Answers:

• Diversification: Management clarified that while evaluating other brands, A&W and Pret remain the primary strategic focus; any new acquisitions are contingent on finding suitable opportunities.
• Value vs. Premium Strategy: Confirmed a dual approach: offering affordable "premium value" for budget-conscious diners while appealing to guests seeking indulgent, novel experiences.
• Beverage Strategy: Confirmed focus on refreshing core root beer offerings alongside new beverage innovations, leveraging existing store infrastructure.
• Macro Impact: noted that while oil price volatility impacts consumer budgets, Q3 performance remained resilient; Q4 outlook is currently unquantifiable but cautiously optimistic regarding domestic travel uplifts.

Other Key Points:

• Capital Return: Declared a $0.48 per share dividend for Q3 2026; NCIB approved to repurchase up to 600,000 shares (61,000 repurchased year-to-date).
• Franchise Migration: Ongoing migration of 120 remaining franchised restaurants from 2.5% to 3.5% service fee rate, contributing to revenue growth.
• Strategic Framework: Unveiled a new three-pronged strategy: 1) Expand burger market share via innovation; 2) Support new formats/franchisee growth; 3) Scale Pret and evaluate complementary brands.
• Sustainability: Reaffirmed commitment to climate goals that have guided operations for over 50 years.