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Ladies and gentlemen, thank you for standing by, and welcome to the Pizza Pizza Royalty Corporation Earnings Call for the Third Quarter of 2020. [Operator Instructions] As a reminder, this conference is being recorded on Wednesday, November 11, 2020. I will now turn the call over to Christine D'Sylva, Vice President of Finance and Investor Relations. Please go ahead.
Good afternoon, everyone, and welcome to Pizza Pizza Royalty Corp.'s Earnings Call for the Third Quarter ended September 30, 2020. 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 the MD&A in the Investor Relations section of our website, for a reconciliation and other disclosures related to non-IFRS financial measures mentioned on this call. Joining me on the call today are Pizza Pizza Limited's Chief Executive Officer; Paul Goddard; and Chief Financial Officer, Curt Feltner. Before we begin our discussion of the third quarter results, we wanted to highlight the structure for those new to our call. Pizza Pizza Royalty Corp. indirectly owns the Pizza Pizza and Pizza 73 brands and trademarks through its subsidiary, Pizza Pizza Royalty Limited Partnership. This partnership has 2 partners: Pizza Pizza Royalty Corp., which owns 76.5% and the other partner, Pizza Pizza Limited, a private operating company, which owns the remaining 23.5%. The Royalty Corp. is a top line restaurant Royalty Corp. that earns a monthly royalty through a lease agreement with Pizza Pizza Limited for the use of the Pizza Pizza and Pizza 73 trademarks in its restaurant operations. The partnership's monthly royalty is calculated as a percentage of Royalty Pool system sales reported by the restaurants in the Royalty Pool. Increases in royalty income are derived from both increases in same-store sales growth and the opening of new restaurants. The success of the Royalty Corp. depends primarily on the ability of Pizza Pizza limited to maintain and increase restaurant system sales and to meet its royalty obligations. Before I turn the call over to Paul Goddard to provide the business update, we wanted to share a note on the company's reporting. As you are probably aware, when the pandemic first triggered shutdowns in March, creating extraordinary conditions for the country and our business, Pizza Pizza began to provide monthly updates on comparable sales in addition to our normal quarterly reporting. Though there remains uncertainty and volatility around the impact of the pandemic going forward, on a relative basis, the sudden increase in uncertainty and volatility that initially led us to institute monthly sales reporting has passed. For that reason, we will return to our normal quarterly reporting going forward, which is in line with our industry peers. Now I would like to turn the call over to Paul Goddard.
Thanks, Christine. Good afternoon -- evening, and thanks, everyone, for joining our call today. Our Pizza Pizza and Pizza 73 traditional restaurants are fortunate to operate in the Pizza segment of quick service industry, especially considering the widespread devastation that has occurred in the entire foodservice and hospitality industry since the pandemic began affecting Canada back in mid-March. As winter months arrived, there's real concern about the survival of dine-in restaurants across Canada. And I think you're probably seeing that in the media as well. It is honestly a very real cause for concern. For Pizza Pizza, colder weather signals the arrival of increased delivery business as Q4 has historically been our strongest quarter in sales. From a high level, the company's Royalty Pool sales mix includes sales generated by our traditional restaurants from 3 main ordering types, which are number one, pizza deliveries; number two from customers who order ahead for pickup; and three for -- from pure walk-in sales. And in addition to these main ordering types, we also have nontraditional locations as well as sales at various special events, both indoor and outdoor. So 3 main sales channels: the deliveries, the pick up and the walk-in. So if we look at these more closely, break them down, our traditional restaurants accounting for 90% of Royalty Pool sales have remained open for delivery and takeout since the pandemic began. At times, certain health authorities have allowed limited customer dine-in only to restore restrictions, especially as we've seen cases increasing across Canada. And certainly, even the last few days, you can see the case surging and the government's public health reactions. The other 10% of sales is generated by our nontraditional locations and special events, special community events, the majority of which have been closed due to these government mandates during the pandemic. Our nontraditional business, including sporting arenas, colleges, universities and major outdoor entertainment venues are largely responsible for the reported decrease in our third quarter sales. All being allowed to remain open, Pizza Pizza and Pizza 73 system sales have still been impacted in material ways as restaurant operators took significant and necessary measures in their restaurants to protect the health of their employees and customers. Our teams were very proactive and agile in complying with all social distancing recommendations and requirements of the applicable health authorities, including the closure of restaurant seating areas, which the dine-in restrictions we saw being temporarily relaxed for a portion of the quarter, but also put on in places like Ontario back in October. So what this has meant for our stores is it walk-in sales, especially for those in our urban locations, which typically represent 40% of our total sales, these walk-in sales, has decreased significantly. And as I alluded to earlier, fortunately, delivery and pickup sales, that key 60% portion of our sales, continue to offset a large portion of those lost walk-in sales.So turning to Q3 results. Same-store sales growth, a key driver of yield growth for shareholders of the company decreased 9.5% in Q3, which was a significant improvement from the 16.3% decrease in Q2. And when the loss of the vast majority, frankly, nearly all of our nontraditional sales, same-store sales growth is expected to continue facing headwinds in the near future as the pandemic and its harsh effects continue to impact us all. Since the pandemic began, Pizza Pizza Royalty Corp. and Pizza Pizza Limited, the private operating company, adapted and innovated even faster than we normally do to boost both companies' financial strength. Stronger order volumes, particularly in delivery, pickup and digital ordering, have enabled the company to increase the shareholder dividend by 10% as the company generated $1.3 million in surplus cash during the third quarter. And so overall, we feel our restaurants have performed quite well compared to the wider restaurant industry, both in Canada and the U.S., and we've really shored up our financial strength at the corporate and franchisee level and reduced costs wherever possible, controllables, while driving sales and channels, we are still allowed to have open, such as delivery and pickup. And you'll recall that back in April of 2020, we chose to temporarily decrease the dividend by 30%. So we are making good progress here for this 10% dividend increase. Royalty Pool sales from the 749 restaurants in the Royalty Pool decreased 9.4% to $125 million (sic) [ $125.4 million ] from $138.5 million in the same quarter last year when there were 772 restaurants in the Royalty Pool with the majority of the decrease due to the closure of most of our nontraditional locations, as I said. During the third quarter, at both brands, we continued executing our long-term strategy of promoting our value-based menu offerings supported by product innovation, food quality, on trend product introductions and operational excellence in our restaurants. And we've kept the majority of our marketing efforts focused on delivery as part of our ongoing promise to provide our customers with that delivery done better. And lots of examples of that. We talked about, I think last time, some of them, but the tamper proof box, best-in-class contactless delivery from Unifor drivers you can trust, our time guarantee, of course, our laser fast award-winning apps, et cetera, et cetera. So we're pleased with our significantly improved results of both brands, especially with Pizza 73 operating in a very challenged economic environment in the prairies. In Alberta, obviously, particularly, but the prolonged negative effects on employment and the overall economy are certainly of concern to us. Our strong and growing delivery focus at both brands, together with our successful relaunch of our digital ordering apps, have been major sales driving advantages during the pandemic. Customers are finding our digital channels faster, our apps, our websites, even our AI-enhanced call center queue other channels, more convenient than ever before. I'll turn now briefly to restaurant operations. As I mentioned, Pizza Pizza and Pizza 73 delivery and pickup business have grown significantly, and we continue to take nimble and targeted actions via our marketing, our operations and technology teams to further drive our delivery business. And I would like to say, too, it's probably hard to understand, just listening to the call, but one of the things that has been really helpful is the fact that we're just operating very holistically, I would say, more than we ever have, actually, despite the fact that our workforce is predominantly remote, and it's been nice to see that agility, which I think is also a key advantage.And we have implemented rigorous additional health and safety measures, of course, including face shields and masks and tightened sanitation on all work and touch services. And we're also one of the first in Canada to provide our customers safe 100% contactless transactions, not only for delivery but also for in-store pickup as well, which has been encouraging to see the pickup channel grow as well. So it is important to note that as a part of contactless delivery, as some of you may be aware if you ordered, customers are now able to also easily pre-tip their driver, much as third-party aggregators have provided on their functional apps. And that's proven to be extremely popular with most of our customers pre-tipping. Meaning, really, there's no need for a physical contact at all. The driver can leave the order on the doorstep, if you like, or whatever instructions you give them. And this, of course, speeds up the entire delivery, it makes it safer for both the customer and the drivers. And so it's really truly a win-win. And customers can't opt out of contactless delivery too. But if they want to check the box, it defaults to contactless right now. And so we can easily switch that off if you ever wanted to, but it's a nice feature, and people really love it. At both brands, our marketing strategies are structured to support restaurant profitability while also increasing customer orders and order frequency by placing orders for delivery or pickup through our wide array of digital ordering platforms or by visiting one of our many locations across the country. So really more than ever before, Pizza Pizza is focused squarely on future growth and innovation. Innovation has always been a big part of our story, but I think you'll see going forward, it's going to be an even bigger part, which is pretty exciting. And I think it's essential. When consumers are moving to online purchasing, of course, in large numbers, of course, that's accelerated in 2020, in large part due to the pandemic and we're in a good position because of that. We've got the infrastructure, all of the investments we've made. We're very fortunate to benefit from that despite the pandemic and it's awful effects. So we feel that people aren't going to move back offline after the pandemic recedes, this is sort of a transformation of society. And that's just all good for us. And of course, for many, many years, Pizza Pizza Limited has invested heavily in technology platforms from our business intelligence dashboard software to our now state-of-the-art accounting and distribution ERP software. That's gone very well, enable us to make things more efficient. Sharing of data, a lot more automation, a lot less manual labor. And so there's lots of internal efficiencies as well at the operating company. And really, we're building the best platforms to run our business and also for our customers. And we're building not only the platforms but also the company for the future. And that includes the organizational structure as well and how we reconfigure ourselves to just to be ready for the future. And we're going to continue to reinvest in our business every quarter as well. The largest single investment, of course, has been in our digital ordering platforms. No other pizza player in Canada has more digital channels for hungry customers to choose from. We've got the whole laundry list of web, mobile web, iPhone app, Android app, et cetera. And we'll continue to invest in those areas. We've got an Apple Watch app, an AI-enhanced automated phoner in queue or IVR and all these things add up, they really do and give us an advantage over others. And customer delivery and pickup orders transacted through this various rated platforms accounted for over 60% of all orders, and we see this percentage going up. And we're certainly ambitious about increasing it more and more. And I think more rapidly over time as well than the already rapid rate we've had converted people to more digital. And that really helps our customers. Who want it and it helps the company, obviously, and it helps our franchisees and our JV partners out of Pizza 73. Innovation also key to our growth, Pizza Pizza, not only in technology but in menu offerings and really every facet of our business. It's not just tech position, it's all aspects of our business. We can look to see where can we innovate the best and get the biggest bang for our buck. So in Q3, we continued baseline menu promotional activity. We did a complete overhaul of our menu and looked at things that were working and things that maybe weren't working, but we had perhaps left on there for a while, and we really optimized it. And so one example of something that really worked nicely was our very popular $7.99 unlimited medium, 2-topping pizza, Pizza Pizza and out in Alberta and in the Prairies, we had the $9.73 special Pizza 73, also worked well. We also promoted our alternative crests, particularly the new -- or fairly new Cauliflower Crust, paired with a side of our new Cauliflower Bites, which are lightly battered and fried Cauliflower Florets, served with your choice of dip. So that's been nice to see. And additionally, we leveraged our Toronto Raptors and hockey team partnerships during the return of sports to TV, which I think people liked in the summer. And of course, although we didn't see the Raptors in any Canadian NHL teams last as long as we would have all liked in the playoffs, we certainly did see that people continue to love ordering and eating pizza at home on game nights. And our diverse high-quality menu, our newly relaunched web in apps, plus our improved customer service and market share have positioned the company well to weather this pandemic and heaven forbid any similar future pandemics or continuation of this pandemic. So I think we're just assuming conservatively that if things continue to be really tough out there for not only Canada but the world that we need to control what we can and be well positioned. And I think we are despite these headwinds that we see in general. And touching on franchisee financial health. I know that's of interest to folks out there. Pizza Pizza Limited has also worked really closely with our restaurant owners through these unprecedented market conditions to come up with financial solutions where required, such as obtaining sufficient financial support from governments for restaurant operators, whether it's a [ CBA loan, SUs or CRA ]. And obviously, the wage subsidy was extended, which is helpful. The government tried to do something that's a little more fitting, I guess, on the rent relief side, although even that they frankly didn't get right. And I think now they're rapidly shifting to try and accommodate to getting more rent relief to direct to tenants. Without them hopefully having to pay back rents, first, which was kind of ridiculous if they even thought that could happen. But anyway, I think that we will see some more rent relief where possible. Our real estate team, by the way, has done a tremendous job negotiating with some tough landlords and some more sympathetic landlords as well. But regardless, we pride ourselves on being a great tenant and a reliable and reputable one. And in fact, all of our teams have worked very hard to maximize any and all opportunities to bolster our network financially from all angles. And I'm very proud, as I said earlier, of the collaboration and commitment everyone has shown. And particularly with almost everyone working remotely as well other than critical people that have to be in the office, like our distribution people in our Bell plant and things like that. That's really a manufacturing distribution operation. But we really embraced a mindset of what we call teammate self, where everyone has everyone else's back. And it's really an amazing culture of trust and collaboration we develop. Up and down and across the entire Pizza Pizza and Pizza 73 network. And especially during tough times, that's actually a really achievement in my view, and it speaks to our culture because you can get, of course, a lot of emotion and a lot of real stress, obviously, in the system. And yet, it does actually I don't know if we pull people together. So we feel good about that. And these various actions and continuous iterative improvements have been tremendously helpful and essential. And in my view, put us on extremely solid footing as an operating company now and for the future. Now turning to restaurant development for a moment. During the quarter, we opened 2 traditional restaurants and 1 nontraditional Pizza Pizza location. 5 traditional and 3 nontraditional Pizza Pizza restaurants were permanently closed. So for the first 9 months, we've opened 5 traditional restaurants and 2 nontraditional Pizza Pizza locations, 14 traditional and 15 nontraditional Pizza Pizza restaurants were closed. Additionally, 1 traditional Pizza 73 restaurant opened and 1 closed. And during the third quarter, substantially all traditional Pizza Pizza and Pizza 73 restaurants remain open across Canada. However, the majority of nontraditional Pizza Pizza, Pizza 73 restaurants have remained closed, as I said, with the exception of a few typically smaller locations in hospitals and gas stations and the like, and we do have in some interesting new takes on the nontraditional or quasi traditional, which is some Walmart locations. I believe we have 2 in Ontario, and there's a couple in Alberta as well. So those are locations that are sort of more of a nontraditional experience if you go to Walmart, but they actually have the capability of delivery, which is really nice in some of these smaller towns.So we think that's kind of an interesting model that we may do more of, we'll see how that goes. So I would also like to mention just quickly that we also continued on with our renovation and site refresh program. And this last quarter, we saw a number of sites renovated as well. We did try to keep the pace up there. But we feel it's very important to demonstrate to the market that we always will reinvent ourselves and keep refreshing our brand, and I think the franchisees like it. And so to our customers, they see us refreshing the entire environment. But at the same time, we are being very careful right now, not to burden our operators our franchisees with too much expenditure with renovations as well or any other nonessential spending that they don't have to do right now. So we're I think we're striking the balance there. We're doing things, frankly, more affordably than we were before. Many rentals in some cases, as it makes sense, just to make sure we are doing something. But we are very careful with that. And as we weather this pandemic storm, we're making sure we're helping versus hurting unit cash flow for our operators wherever we can. And we do have a strong pipeline of stores to ramp up for later in 2020 here, the remainder of the year and into 2021, especially. And barring any massive resurgence or adverse long-term effects of the pandemic, we currently do expect 2021 to be much stronger than 2020 in terms of network growth and our pace of renovations as well. I hope that will pick up as well. We've been okay, but I'd like to see that faster. So I think we're poised to do that. And certainly, that's given the unique challenges that 2020 has shown at all of us delaying us in some respects with construction and rentals. But in closing, I just want to personally thank all of our employees and our restaurant owners across the country and their team members, our incredible delivery drivers who've just been absolutely just phenomenal, their dedication and especially all health care workers and other frontline workers, including emergency responders, you're putting others first daily and continue to do so, especially through this worrying surge we're seeing. They've all shown tremendous courage and leadership. And I think it's real inspiration to everybody. So during the pandemic, our team has been performing extremely well under extremely unprecedented circumstances. And it's truly inspiring to see that happen. The people helping each other, doing anything through to the front lines as well as charities, hospitals, especially sick kids hospitals, which is always a big component for us for our main charity, Slices for Smiles, right across the country and just keeping the faith and staying on offense, controlling what we can control. So that's really it for me. I'd say thanks again for joining the call this evening, and I'll now ask Curt Feltner, our CFO, to provide a brief financial update.
Great. Thank you, Paul. That was a really great update. Our financial statements for the quarter continued to be impacted by the pandemic. Of course, our same-store sales decreased 9.5% for the quarter and decreased 10.8% for the first 9 months. And as Paul mentioned, the partial loss of walk-in sales and nontraditional sales are largely responsible for the reduction in our system sales, however, the increase in our delivery and pickup sales at both brands are working to partially offset this reduction, although same-store sales growth is expected to continue facing near-term headwinds. The company's royalty income is earned as a percentage of Royalty Pool system sales, which for the quarter decreased 9.4% to $125.4 million from $138.5 million in the same quarter last year. By brand, sales from 645 Pizza Pizza restaurants in the Royalty Pool decreased 10.2%, and sales from the 104 Pizza 73 restaurants decreased 5.6% for the quarter compared to the same quarter last year. So sales for the 9 months decreased 10.3% to $364.6 million -- decreased to $364.6 million from $406.6 million in the prior year comparative period. So total Royalty Pool sales for the quarter and year-to-date decreased over the comparative periods, largely as a result of the negative impact of the pandemic and the change in the number of restaurants in the Royalty Pool on January 1, 2020. So a note on the restaurant closures and the effect on Royalty Pool, Royalty Pool sales and royalty income. Pizza Pizza Limited, as Paul mentioned, has permanently closed 15 traditional and 15 nontraditional restaurants during the first 9 months in 2020. So how does this affect shareholders? So the partnership and its Pizza Pizza license and royalty agreements provide that if a restaurant is closed during the reporting period, Pizza Pizza Limited will continue paying royalties to the partnership for the closed restaurant and for the balance of the reporting year as if the restaurant did not close. At the next January 1 adjustment date, a make-whole payment carryover calculation is performed to determine if the make-whole payment will continue into the next reporting period. So therefore, shareholders are made whole for the effect of any closed restaurant. So turning to company statement of operations, the partnership's royalty income earned as a percentage of Royalty Pool sales decreased 9.2% to $8.1 million for the quarter and decreased 10% to $23.8 million for the first 9 months.Turning to partnership expenses. Administrative expenses for the quarter increased to $157,000 compared to $108,000 in Q3 2019. This increase is a matter of timing in that the administrative expenses reflect that the annual shareholder meeting was normally held in Q2 last year was held in Q3. So the admin expenses were slightly higher in Q3. In addition to admin expenses, the partnership pays interest expense on its $47 million credit facility. Interest paid for the first 9 months of the year decreased to $904,000 from $942,000 compared to the same period in 2019 due to the company renewing its credit facility. So the partnership's new interest rate swap agreements came into effect on -- in April of 2020. The new interest rate swap agreements fixed the interest rate at the bankers' acceptance rate of 1.81% plus a credit spread currently at 0.875% for a combined rate of 2.685%, which is slightly lower than the previous rate of 2.75%. So now -- so the credit facility bears interest rate at the -- as I said, at the Canada Bankers' acceptance rate plus a credit spread between 0.875% to 1.375%. And so it depends on the level of debt to earnings before interest, taxes, depreciation and amortization or EBITDA. So the credit facility includes affirmative and negative covenants customary for arrangements of this nature. And as of September 30, 2020, all of our covenants have been met, and the company expects to meet all covenants in 2020. The partnership is required to maintain a funded debt-to-EBITDA ratio not to exceed 2.5:1 on a 4-quarter rolling average basis. And so the debt-to-EBITDA ratio for the last 4-quarter rolling average is 1.44, so which is below the 1.5:1. So -- and this is the threshold to retain our current credit spread. So if you want to see our full credit spread schedule, you can reference our company's MD&A. And just a note on the interest expense on our statement of earnings, it differs slightly from our interest actually paid and that's due to hedge accounting, and you can also see in our MD&A, the reconciliation from the statement of earnings to actual interest. So after the partnership receives royalty income and pays admin and interest expense, the resulting net cash is available for distribution to its 2 partners based upon their ownership percentage. So Pizza Pizza Limited's ownership is held through its Class B and Class B exchangeable shares. So that ownership increased by 0.5% to 23.5% after the January 1, 2020, adjustment to the Royalty Pool and the true-up of the January 1, 2019 Royalty Pool adjustment. So therefore, Pizza Pizza Limited is the largest shareholder of the company on a fully diluted basis. So turning to shareholder dividends and working capital. So the company declared shareholder dividends of $3.7 million for the quarter or $0.15 per share compared to $5.3 million or $0.2139 per share for the prior year comparable quarter. So the decrease is due to the previously announced April dividend decrease. So the payout ratio for our current quarter was 74%. And in the prior year comparable quarter, it was 103%. For the first 9 months, the company declared shareholder dividends of $0.5139 per share compared to $0.6417 per share for the same period last year. Payout ratio for the first 9 months is 92% compared to 106% in the prior year comparable period. So when a pandemic first impacted system sales in March, the company reduced its monthly dividend from $0.0713 share to $0.05 per share beginning with the April 2020 dividend. And since April system sales have partially recovered, resulting in the 74% payout ratio for the quarter. The company's working capital reserve increased $1.3 million in Q3 to $4.6 million. And for the 9 months, the reserve has increased $1.1 million. And as Paul mentioned that we mentioned also in the press release today as a result of the $1.3 million excess cash generated and the 74% payout ratio earlier today, our Board of Directors announced a 10% increase in the monthly dividend and monthly dividend would now be $0.055 per share from $0.05. Beginning in November, annualized, the dividend will increase $0.06 per share from $0.60 to $0.66 on an annualized basis. So dividends were funded entirely by cash flow from operations and the working capital reserve, no debt was incurred during the year to fund dividends, and it's expected that future dividends will continue to be funded entirely this way. So the company will continue to monitor sales and royalty income. We'll consider further changes to the monthly dividend taking into account the duration and the impact of the pandemic on restaurant operations and the timing and the pace of any economic recovery in the markets that Pizza Pizza and Pizza 73 restaurants service. So that concludes the financial overview. I'll now turn the call back to Sheryl, our operator for question.
[Operator Instructions] The first question is from Derek Lessard of TD Securities.
The first question on -- I mean, last we spoke, the same-store sales trends were -- you're definitely showing improvement monthly. And I know you're not providing that and that's combined with the industry. But maybe could you just talk about the dynamics you saw through the quarter, specifically for Pizza Pizza, which it seems like it did struggle a little bit later in the quarter.
Yes. I can shed a bit of light on that, and perhaps Curt could chip in if he has other thoughts. But I think first of all, we're encouraged overall that we've got the machine working well, but we've lost those big chunks of our nontraditional and our walk-in. I mean with the rules changing as they need to in different jurisdictions, that's definitely impacting us. And I think things like -- the catering business, for instance, although in the summer, there's not as much, that's a real impact, right? I mean, corporate catering, normally, people are -- and a lot of people might take vacation in the summer, but they're still at their offices in the urban environments, that's Downtown Montreal, Calgary or Toronto. And that's one aspect where we just don't have that, whereas last year, we did have that. So that's one thing I'd really highlight. It's something like the loss of catering that we haven't really talked about before I don't think in detail. So that's one of the big differences there, not a total surprise. And obviously, we're thinking about how can we best address that because it's hard to replace that, obviously, right now. And I would say that catering aspect is a big one. And I'd also say that if you look at the impact of the third party aggregators, I mean they continue to -- they may continue to lose money every quarter, let's say. But they continue to market heavily and spend a lot and give away fantastic delivery offers and 75% off or free delivery and things like that, to customers on. It's an interesting marketing strategy. And all that just to say it's extremely competitive out there. So we're competing with all our usual people. And you see, I would say, almost more heightened marketing activity from those folks as well as losing our catering.
Okay. Yes. So...
And that's -- go ahead, sorry.
Yes. So Derek, I'll just add to that. So we definitely did show improvement in the Q3 versus Q2, especially in our traditional restaurants. And with our loss in our nontraditional business, which is the 10% that we've mentioned, right, especially at Pizza Pizza. So that's where our weakness lies. So we did see good progression during -- especially compared to Q2 versus Q3 at Pizza Pizza traditional restaurants.
Yes absolutely. I guess is this the right way to look at it? I mean you did have a 10% -- so 10% of your nontraditionals are closed. Does that imply that same-store sales are roughly flat in your traditional restaurants. Is that the right way to look at it?
[ 4Q ], yes, we just don't break those down, but I mean, from a system sales, you could say that, right?
Okay, okay.
Yes. It's -- with the closure of stores, it impacts same-store sales. So...
Yes. And sorry, Derek, I think -- I don't think you -- I may have heard you incorrectly, but I think you said 10% of nontraditional is closed, and that's not a big case, right? I mean almost all the nontraditionals are closed, it's just in aggregate they represent about 10% of our total sales typically in the past, right?
Yes. No. Yes, that's what I meant. Yes. Yes.
Okay. Sorry. Yes, most of them are -- yes, right. As of sales, but almost -- virtually all are vast, vast, vast majority, and then some of our nontraditionals are just not able to operate right now.
Yes. Got that. Okay.
And Derek, sorry, just to add to that then. So our mixture of our sales channels that Paul went into so he gave a good summary of really the various channels and all the different levers that we push and pull to create total sales, right? In a normal recovered period, we really spread out our risks as far as we don't just depend on delivery or walk-in or -- so we do spread out to nontraditionals over our 50-plus years, right? We've managed to spread the risk around. But right now, our walk-in sales really are suffering, especially as we open and close dine-in. And in urban areas as well, we tend to suffer because there's lack of schools, there's lack of businesses, lack of people late out at night. So we do find that walk-in business, which historically can be 40% of our business at Pizza Pizza really is what we're trying to make up in our delivery and our pickup.
And you seem to be decently successful at picking up some of that anyways.
Right.
Yes.
Okay. And just help me understand better. I mean it's a bit of a better performance at Pizza 73. Can you just help me understand the dynamic there?
Yes. I think, I mean, obviously, the backdrop is a really struggling economy, looking at unemployment and underlying conditions, of course. And that still remains the same. But I think things, as I highlighted on the call, like the $9.73 offer that we've had really resonated well. I mean just -- we're 90% delivery out there, right? And we are a real powerhouse there. So I think that where we we're able to offer that value, that's really continued to resonate, especially with people there are more challenged than ever. So the everyday deal does well. It always has been a great thing for us to rely on and the $9.73, and I'm not sure if there's anything else Curt would add to that, but I would just say the value focus and the delivery focus has been similarly helpful out there.
Yes. Just overall, the results there are the fact that the difference in sort of the true pure walk-in is a 10% to 12% versus a 40% Pizza Pizza. So there's less to make up.
Likewise out there -- yes. And -- but likewise out there, we also do lose the school effect hurts, right, not having the catering and things like that. So we're conscious of that and we're saying, okay, what can we control? And what can we do to offset that as we go through the year.
Okay. That makes perfect sense. Maybe just talk about the big drivers behind the increase in check. And I didn't quite catch if there was not both banners.
Yes. So sorry, Paul, you can just -- I'll just give like the overall. So again, our delivery business has increased significantly, and the delivery, in general, has a much higher average check than our walk-in business. So if you think slice versus a meal for a family. So our ticket is up with our traffic down significantly, right? So is that the question?
Yes. That's exactly. Exactly.
Yes.
I was also wondering if we should be reading anything into the dividend hike in terms of signaling your confidence in the business. And Curt, maybe you could just explain the jump in the cash despite the jump in same-store sales?
Yes. So the Q3 and Q4, Paul mentioned that these are our stronger sales quarters compared for Q1 and Q2, right? So whenever we adjusted and whenever the pandemic hit, we -- our company and the Board decreased our dividend by an estimated 30% because at the time, no one knew what was ahead. And so what we're seeing now is even though the same-store sales growth is down, we're seeing us move back to a more normal level. A 74% payout ratio is just not something that we would target. We're always targeting 100% payout ratio. So we've been fortunate to have strong delivery and thank God for that. So it's been a lifesaver. So now we're giving back and resetting the dividend, and we'll continue monitoring that very closely. Our Board, as you know, over the years, our Board has always been very conservative. So we do like to see consistent dividend. We do feel strongly in our 10%, and we'll keep a close eye on it and try to recover the rest of that walk-in sales.
Okay. That's fair. And maybe just one actual final one for me is maybe just talk about some of the successes you're seeing from you mentioned some of them on the call in your prepared remarks, Paul, but some of the success you're seeing from the digital initiatives? And more specifically, I'm curious about the AI aspect of everything.
Right. Okay. Well, I think that we just continue to invest heavily in the digital initiatives. And I think we're really big last year, right, with the new websites and new apps, and I think they've been very well received, and we're seeing -- it's just a so much faster and slicker experience. So that's done, but we continue to look for ways to enhance things. So we put in the contactless, for instance, we are bolstering our loyalty as well and think about how we can actually get more loyalty. We -- for some time, we have had the ability to have people sign up on any channel as well, which is pretty unique in the industry as well. So we're doing that. I think there's still more for us to do there. So we look to innovate even more. We are also using, I would say, more tools that are readily available that -- such as just automated intelligent e-mail blasts that are more intelligently distributed and more relevant messaging to people that are targeted based on what they actually like to buy and what they have bought in the past and things. So there's just a lot more intelligence behind the scenes based on our data analytics and our business intelligence that we do internally. And so there's that piece there, a lot of which is using digital tools, but it's more to do the analysis and come up with sort of better, more targeted approaches, I guess, you could say. Also a lot more use of social media. We do have -- although we do everything in-house, we do partner with some sort of smaller boutique digital strategist type agencies that are very, very good at specific social media strategies, whether it's Twitter or increasingly something like TikTok, Snapchat, even some of those channels that in Instagram, where I think you'll see us have a greater presence over time based on some of the recommendations and input we got some folks like that. So there's a lot going on there. And on the AI side, I mean, we still think that we've really only scratched the surface there, and we've done quite a bit of testing with our inbound queue where people have kind of an automated robot answering. They can walk you through the order, and it's got some intelligence in it, some AI. But I think there's still more work to be done there, and we do expect to do more next year on that front that I think will assist the business overall.
We have another question from Ed Sollbach of Spartan Funds.
Yes. Just on that same topic, look, I find the app is a little difficult to use. And I know I was signed up, and I was getting e-mails, and now I'm not getting the e-mails, and I just find the whole marketing is kind of like, I don't know, doesn't really grab me. It's not simple. It's -- like the app is difficult to use. Is there initiatives to I don't know why I'm not getting e-mails now, like I was getting them, I ordered a bunch of times. But if you don't get the emails, you don't need -- it's not top of mind, you don't tend to order. Like what are you guys doing in that area?
Okay. And I can speak to that a little bit. And I think that, certainly, if you're having trouble, I apologize because that should not be happening if you are a registered customer. And you did opt in for email...
I'm just saying it's not the simple stop. Like you put an order in, and then it's not what you want, then you have to -- I don't know, I just -- I find it not the cleanest app. That's all.
Okay. No, I appreciate the feedback. I mean we are continuously iterating the app quite a bit. But obviously, we have major releases and minor ones, and we you even believe the amount of customer feedback we get versus on digital channels and otherwise on all of our -- whether it's the call lines or the app. But I mean, keep in mind, if you're having that trouble, we've got -- in our view, we have to be the best of the best. So our view is the fewest clicks, the fastest experience, the most easy, and we won awards for this stuff, right? I mean, recently. And so I do think that most customers aren't having that experience relative to some others low-budget pizza app that aren't secure, where the people can't rely on their credit card to be securely stored, for instance. We really have a leadership position. I think the market in general and customers see us as a very safe, fast app relative to most of our competitors that we see of any QSR. So I mean, I looked to some of the third-party apps that I think have, obviously, massive magnitudes of dollars of -- orders of magnitude of higher budgets. And to me, I mean, they have their shortcomings, but those are slick fast apps. And I think you'll start to see -- I apologize if you haven't seen that gap narrow yet, but you will. And already with contactless delivery and pay-in advance and tip-in advance and contactless. I mean, we are already very much emulating that effect and customers are voting with their feet. We can see people that have converted to our iPad app, or our iPhone app or our website, and they are adding on more now because the food is very visible. It's quicker, and we've got a lot more intelligence and personalization built into those channels. So I guess that most people are finding them very, very fast and quick. And our overall marketing strategy, what we're seeing, despite the pandemic is that we're outpacing most of our competitors, right? I mean we're talking value, probably #1, but we're also talking quality, innovation, alternative crust, cheeto, et cetera. So I think we're actually a real leader in really shaking up QSR in Canada with the approach that we're taking.
Yes. I guess to be specific, one of the issues I find is, say, if I take 1 of the specials, and it puts you in a box like you get 2 toppings. And then if you want to add third, it's not really flexible. Like I would be like, okay, give me the extra topping, I'll pay $0.50 or whatever. And then it kind of locks you in. And just maybe -- maybe just me, but...
I'm happy to walk you through that, but that's just designed to actually provide total flexibility. So I'm surprised because we want, believe it or not, as many toppings you want. But honestly, we could help you through that because it shouldn't be frustrated. I think that we've put a lot of time and effort to make it so that you can customize your own. You can remember it. It remembers your last 5 orders.
Yes. I know -- I've seen that, like it remembers your orders, and that's cool. But -- and remembers where you go to pick it up or whatever, that's cool. So it's -- well, maybe we can handle it offline like because I'd like to know more about how that works.
Sure. Happy to...
And like I said, I don't -- I like I go through my Junk Mail, I just -- I like I'm wondering like how come I'm not getting to -- I don't want to blast every day, but how come I'm not getting marketing blast anymore. Like it just it's kind of a mystery to me, but anyways [indiscernible] all that stuff, right?
No, absolutely. We'd want you to get them. And believe me, if you've opted it in, we'll certainly make sure that you do get those and they should continue. There's no reason why they should have stopped. But obviously, we haven't heard that happen with other people. So -- but thanks for letting us know. Appreciate that input very much.
There are no further questions at this time. I will turn the call back over to Christine D'Sylva for closing remarks.
Okay. Thank you, everyone, for joining us on the call. If you have any questions after this call, please feel free to contact us. Our information is on our website and on the earnings press release. Thank you very much. Have a good evening, and stay safe and healthy.
This concludes today's conference call. Thank you for your participation. You may now disconnect.