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Good morning. My name is Mariana, and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call for Cara Operations 2018 first quarter results. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Before turning the meeting over to management, please be advised that this call contains forward-looking statements that are based on current expectations and are subject to a number of uncertainties, risks and other factors which may cause the actual results, performance or achievements of CARA to be materially different. Further information identifying risks, uncertainties and assumptions and additional information on certain non-IFRS measures referred to in this call can be found in the company's management discussion and analysis and annual information form available on SEDAR. I will now turn the meeting over to Bill Gregson, Chief Executive Officer of Cara Operations Limited. Mr. Gregson, you may begin your conference.
Thank you, Mariana, and good morning, everyone. Thank you for joining today's conference call. On the call with me today is a new face, well, you can't see his face, but you'll hear his voice, and that's Frank Hennessey. And as we announced earlier this month, Frank has been appointed the CEO of Cara and his first day was yesterday. As the Executive Chairman of Cara, of the board, I will be providing continuity on our business and on transitioning my CEO duties to Frank. Frank, as you know, has a long successful history in the restaurant industry, did great things recently at Imvescor, and he's the ideal individual to lead the Cara organization through our next generation of growth. And we are thrilled at CARA to welcome back Frank as he did some time here a number of years ago. Also with me -- as always, on the call today is Ken Grondin, our Chief Financial Officer.So the format is going to be a little bit different today because of the transition and because of Frank joining us. So Ken and I will do the call as we always have in the past, and we'll review CARA's results for the first quarter ending April 1, 2018. These results were released yesterday evening and are available on SEDAR. Now following the review of our financial results, we'll open it up to -- for questions on the quarter. We'll ask you to confine your questions to the quarter as you normally would. Then when we're done, Frank and I will talk about the reasons for the transition and we'll reopen the line to everybody for questions that they might have about the transition or any questions that you want to ask Frank or myself. So a little different format for today.Now turning to our first quarter. We continue to deliver year-over-year growth in top line sales and in EBITDA. Total System Sales were $755.9 million for the 13 weeks ended April 1, 2018 compared to $659.1 million in 2016, representing a $96.8 million or 14.7% increase for the quarter. The increase in System Sales was the result of Same Restaurant Sales increases, which we're quite happy with, the additions of Burger's Priest in June of 2017, Pickle Barrel in December of 2017 and The Keg for a part of the quarter as we merged with them in February of 2018.Same Restaurant Sales growth for the quarter was 2.1% compared to the same 13 weeks in 2017. And why I call that out, we're comparing that to the same calendar weeks, not the same fiscal weeks, so that 2.1% is over the same calendar weeks. Beginning in Q1 of 2018, our SRS results include all our banners. Last year, certain ones were excluded. Management is pleased with the 2.1%, despite SRS being negatively impacted by the first quarter, including the Easter weekend, which is a low-sales period as compared to 2017 when Easter was included in Q2. We believe that the work we started in 2016 when we began to experience negative same-store sales is beginning to pay off. And that work revolves around renovations, operations, digital and food initiatives and the SRS trends since [indiscernible] 2017 has been much improved. Having said that, we still have lots to do to continue to build on those initiatives. And again, I'm very pleased to have Frank aboard to lead this. I think he brings a ton to the table and will be able to accelerate the pace and the initiatives that we continue to work on.Operating EBITDA for our first quarter was $47.4 million compared to $42.9 million in 2017, an improvement of $4.5 million or 10.5% for the quarter. And the increases have been driven by the addition of The Keg and synergies at St-Hubert and improvements in Original Joe's, partially offset by The Keg royalty expense, paid to The Keg's royalty income fund, a decrease in contribution from the St-Hubert Food Processing and Distribution operations as a result of change in sales mix that lowered gross margin that was a result of inventory shortages after record sales in December 2017, and onetime listing fees with grocery providers for the new products offered in retail. Also the first quarter calendar shift as well. And so in the first quarter of 2018 as compared to 2017, in 2017, we had the week of December 25 to December 31, which is a higher sales period. We also had -- didn't have Easter in Q1 of 2017. In Q1 of 2018, we had both Easter and our fiscal month -- our fiscal quarter started in January. So those 2 events, if you will, or calendar events, negatively affected our Q1 total System Sales and our EBITDA.As I said, our SRS, we report on a calendar basis, so that shifted -- Easter affected the SRS, but the calendar shift of December did not affect SRS, if you follow all that sorry.Operating EBITDA before royalties paid to The Keg royalty income fund was $48.8 million, representing a 6.5% contribution as percentage of total System Sales for the 13 weeks ended April 1, 2018 compared to $42.9 million and 6.5% in 2017. Operating EBITDA margin on System Sales was 6.3% for the first quarter compared to 6.5% in the same quarter last year. And the decrease from 6.5% to 6.3% is because of the addition of the royalty dollars that we paid to The Keg royalty income fund. The Keg adds EBITDA dollars to our business, but after the royalty payment, their operating EBIT margin as a percentage of System Sales drops below 7%. Original Joe's and Pickle Barrel also operate below 7% as well. So over time, we're going to continue to focus on improving the earnings efficiencies of these assets to grow operating EBITDA as a percent of System Sales back to within our 7% to 8% target range by 2020 to 2022.Operating EBITDA margin on System Sales before the royalty paid to The Keg, as I said, was 6.5%, which was the same as 2017. So at this time, I'd like to turn it over to Ken to review our financial results.
Thank you, Bill, and good morning, everyone. My overview will refer to our first quarter financial statement and MD&A issued yesterday evening, both of which are available on SEDAR. For the first part of the highlights, I will focus on Cara's consolidated results and I'll finish with a summary of our segmented business performance.Total gross revenue was $246.5 million for the 13 weeks ended April 1, 2018 compared to $198.6 million in 2017, representing an increase of $47.9 million or 24.1%. The increase in gross revenue was primarily the result of positive SRS, the Pickle Barrel acquisition in December 2017 and the addition of The Keg in February 2018.Operating income for the 13 weeks ended April 1, 2018 remain flat year-over-year at $30.8 million, impacted by The Keg royalty expense of $2.4 million, which is included in SG&A. It's also impacted by asset impairment and restructuring charges of $800,000 and Keg transaction fees of $500,000.Net interest expense and other financing charges were $3.3 million for the 13 weeks ended April 1, 2018 compared to $3 million in 2017, an increase of $300,000. The increase is due to the additional borrowings made for the Pickle Barrel and The Keg transactions. Earnings before change in fair value and income taxes was $27.1 million for the first quarter of 2018 compared to $27.5 million in 2017, a decrease of $400,000 or 1.5% for the quarter. The decrease was primarily related to lower contribution from St-Hubert Food Processing and Distribution as a result of a change in sales mix at lower gross margins compared to 2017, onetime listing fees with grocery retailers for new products added for sale, transaction fees of $500,000 related to The Keg merger and the first quarter calendar shift compared to 2017 where Q1 2018 did not include the higher sales from the December 25 to December 31 holiday week, and the shift in Easter into Q1 2018 that both negatively impacted System Sales and related corporate and franchise contributions.Adjusted net earnings for the 13 weeks ended April 1, 2018 was $25.9 million compared to $25.8 million in 2017, an increase of $100,000. The increase was driven by the addition of The Keg in February 2018, offset by lower contribution from St-Hubert Food Processing and Distribution and transaction fees of $500,000 related to The Keg merger.Adjusted diluted earnings per share for the 13 weeks ended April 1, 2018 was $0.41 per share and flat to 2017 as a result of net earnings that were marginally higher than last year and the increased number of subordinated voting shares outstanding as a result of The Keg merger transaction.Turning to segmented results for the quarter. Total contribution from corporate restaurants was $13.1 million for the 13 weeks ended April 1, 2018 compared to $8 million in 2017, an improvement of $5.1 million or 63.8%. The increase was primarily driven by SRS increases and the increasing number of corporate restaurants, including the additions of Burger's Priest, Pickle Barrel and The Keg. For the 13 weeks ended April 1, 2018, total contribution from the corporate restaurants as a percentage of corporate sales was 9% compared to 8.1% in 2017. The addition of The Keg, which operates corporate restaurants within our targeted 10% to 15% corporate contribution range, was offset by lower percentage contribution rates from Original Joe's and Pickle Barrel corporate restaurants that operate at lower contribution levels. Total contribution from franchise restaurants was $22.4 million for the 13 weeks ended April 1, 2018 compared to $20.4 million in 2017, an increase of $2 million or 9.8%. The increase is related to higher royalty income as a result of franchise sales increases and the addition of The Keg.The effective net royalty rate for the 13 weeks ended April 1, 2018 was 4.1%, which was flat to 2017, which was also 4.1%. Cara's standard royalty rate is 5%. There are brands acquired since 2014 which charge different standard royalty rates, in particular, St-Hubert, which charges 4% as its standard royalty, and The Keg, which charges over 5% when considering its total franchise portfolio.As at April 1, 2018, a total of 136 restaurants were paying CARA a royalty below the standard rate as compared to 138 restaurants at December 31, 2017. 58 out of the 136 restaurants paying below a standard royalty are related to previously agreed upon conversion agreements and improvement of 1 restaurant compared to 59 as at December 31, 2017. 78 out of the 136 restaurants paying less than the standard royalty were related to temporary assistance provided to certain other restaurants, an improvement of 1 restaurant compared to 79 as at December 31, 2017.The Central operations segment consists of processing fee revenues from Cara's and St-Hubert's off-premise business, franchise fees, property and equipment rent, Food Processing and Distribution sales and vendor volume rebates reduced by central overhead cost. Central segment contribution for the 13 weeks ended April 1, 2018 before the net royalty paid by The Keg to The Keg royalty income fund, was $13.4 million compared to $14.5 million in 2017, representing a decrease of $1.1 million or 7.6%. Total Central segment contribution as a percentage of total System Sales for the quarter before the net royalty expense was 1.8% compared to 2.2% in 2017, a decrease of 0.4 percentage points. The decrease is primarily related to the decrease in contribution from the St-Hubert Food Processing and Distribution business and the addition of The Keg Central cost offset by synergies at Original Joe's and St-Hubert.And finally, yesterday evening, we announced that for the 13 weeks ended April 1, 2018, the company declared a dividend of $0.1068 per share for subordinate and voting and multi-voting common shares outstanding, an increase of 5% over last year's first quarter dividend and consistent with the per-share dividend paid for Q4 2017. The dividend will be paid on June 15, 2018 to shareholders of record at the close of business on May 31, 2018.Before I turn the discussion back to Bill, looking ahead to 2018, just another reminder that our 2018 fiscal year is returning to its usual 52-week calendar compared with the 53-week calendar in fiscal 2017. This will affect how we interpret and compare quarterly, in particular fourth quarter and full year 2018 results to 2017.Also as a reminder for comparative purposes, results in the second quarter of 2018 compared to 2017 should be positively impacted by Easter weekend, which will not be in Q2 2018, unlike 2017. However, other factors, including the Central Canada ice storm in mid-April, may offset the benefit of the Easter weekend shift. This concludes the financial commentary of the call. Now I'll turn the discussion back to Bill.
Thanks, Ken. When we look at our business pro forma of The Keg, our total System Sales, as we said before, will be approximately $3.4 billion. Compare that to $1.4 billion in 2013, and operating EBITDA will be approximately $211 million compared to $47.9 million of EBITDA in 2013, both well within our revised upward target range for 2020 to 2022 of $2.9 billion to $3.7 billion total System Sales and $203 million to $296 million for operating EBITDA. Net income before tax increased from a loss of $42 million in 2013 to a profit of $123 million in 2017, and debt has been reduced from approximately 8.8x EBITDA to approximately 2.1x at the end of 2017. We have seen transformational growth in our business on a faster time line than originally expected, and as I said though, we still have lots of work ahead of us and we have lots of opportunities ahead of us. We will continue to evolve and improve and grow.We are pleased with the positive same-store sales growth of 2.1% in the quarter, and we continue to focus on our goal of long-term sustainable SRS growth with both short-term and long-term strategies to improve SRS through such things as continued emphasis on menu evolution, enhanced guest experiences, expanded off-premise sales through new and improved e-commerce applications that will be expanded to most brands over the next 2 years, operational excellence, including in there initiatives that would use technology to improve the timeliness and transparency of the data available to everyone, brand-specific digital and social media marketing and restaurant renovations. And in the first quarter, we completed 8 major renovations versus 3 a year ago in 2017.In addition to growing sales, we also continue to focus on operational improvements and returning EBITDA margin as percent of System Sales back to within the 7% to 8% EBITDA target range by 2020 to 2022. We have built our top line and our EBITDA and our net income through acquisitions and internal growth. However, with the acquisitions, EBITDA margin as a percent of System Sales has come down. But over time, as we realize synergies, we can return to that 7% to 8% on a much bigger System Sales number. So we like that now.With our strong balance sheet and growing cash flows, we are also well positioned to pursue additional acquisitions, and at the same time, we can explore alternatives to return more capital to our shareholders, including the continuation of our normal-course issuer bid and like we did in -- at the end of last year, we increased our dividend.Today CARA will also be changing its name to recognize and better reflect what the company has become since Fairfax invested in the company in 2013. There has been a lot of changes and we thought it was appropriate to change our names. These changes included the company's IPO in 2015, the acquisition of St-Hubert, Original Joe's and New York Fries and most recently, the merger with The Keg. The company will be changing its name to Recipe Unlimited Corporation, and will be traded under the new stock symbol RECP. Feel free to dance along to that.The name Recipe was selected to reflect the many ways we probably serve food to our guests, but also more than just food, we believe it signifies the broader possibilities and the unlimited possibilities of what we will -- what will be created through our processes and methodologies which reflect our values as well as the strength of our brands, franchisees, associates and our companies. In other words, all these things combined equal our recipe for success.On that note, I'd like to thank all of you for attending our call today, although it's way too early to say that, so I'll take that back. On that note, I'd like to turn it back to the operator to open up for questions on our first quarter results. Again, I would ask you to please confine your questions to the first quarter results. After you -- we've exhausted them, we will then -- Frank and I will come back on the line, talk a little bit about the reasons for the transition and open it up again for Q&A on the transition, any questions you might have for Frank. So with that, I'll turn it back to the operator.
Okay. We're going to start part 2 of the call now. So we're going to talk about the transition. So probably a good idea to let everybody know the reasons for it and take this opportunity. Certainly some people just began speculating on the reasons. I woke up earlier in the week, and read The Globe and Mail and read the article and first thing I did was look at the date on the paper because I thought maybe I had picked up the Saturday Globe and Mail by mistake and I was reading the arts section and the fiction area. And then -- but it was a Monday or Tuesday I read up, whatever, and then -- so had the right date, so and I went and check the masthead just to see that it was Globe and Mail and they didn't drop the National Enquirer on my doorstep by mistake, because the relation to the truth was equal to what you would see in the National Enquirer. So I figured maybe we should take this call to let people know what's happening in the transition. So first of all -- to Frank in a second, but we're clearly excited to have Frank aboard. I've gotten to know Frank for the -- over the last few years. We're on the Golf Town board together, and so quality -- very quality individual.But why the reason for the transition? So it's something that I wanted to do. But the last 5 jobs I've had or gone to, the companies have all been losing money. And I've said it many times to many people, it's incredibly tiring turning around companies. The last 3 have been public, which increases the amount of effort and the also the thrust because of the scrutiny that goes on. And the last 2 that I've had which were the Brick and this one. In fact, I said no at first because I said I didn't want to do it again because I know it takes years off your life. So anyway, I love this company. We have a phenomenal company. We have phenomenal shareholders and don't -- and I do want to work and I do want to be involved in this company. I just don't want to -- I didn't want to do it every day, and I was tired. So I approached the board sometime last year and let them know. And so I said, there's no timetable, there's no urgency, I would like to get it done. But let's do it when we find the right person. And we had somebody in mind, we had Frank in mind, obviously. Then as somebody that has proven his ability to run a public restaurant company very, very successfully. So the -- when the Imvescor MTY deal came along, it opened up an opportunity. So we began the conversations. And from my point of view then, on a personal level is that, looking to work at a different pace, looking to be involved, but from a professional level, we've done a lot of things at this company in the last 4.5 years. And the growth has, I've talked to -- it has been exponential. I don't know that there's been many companies in the restaurant industry go like us in the last 4 years and that whether they be top line or bottom line. And so I'd like to say there's probably a thousand things to do when we came here because it was a troubled company. And we might have kept 600 of them, 200 might have ticks that are in progress and there's 200 we haven't touched them yet. And with my background and my experience, I kicked the ones that -- where I've got the history and experience on first, and I don't get them all kicked and Frank has a different experience. So I think from a professional point of view, and the fact that I'm a shareholder of this company, the fact of having somebody at an incredibly senior level with a great background and being able to kick a full pile of boxes that I don't kick is just a good thing. And having said that, the opportunity for me as the executive chair to provide continuity and so we're not throwing out the business under a radical change. This is an evolution. It is Frank's company to run. And I'm sure he will change a lot of things or do some things a lot differently with a lot better results than I did, as everybody has, it should be the expectation. I just find it's very exciting from a professional point of view too as being part of this team on a -- an historical basis but being part of this team on a go-forward basis. So both professionally and personally, I'm incredibly excited about it. And I'm going to turn it over to Frank now and few words, and then we'll open it up for questions.
Thanks, Bill, and good morning, everyone. Just a few comments. First off, I want to thank Bill and the board of Cara for the opportunity. For me, this is really kind of the best of both worlds in that, one, it's a bit like coming home and seeing a lot of familiar faces. But secondly, and I think, thanks to what Bill and Ken and the team here have done, this is very much a new company with an incredibly exciting future. Bill touched on it, but let me be clear about one point. This is not a turnaround situation. Our fundamental goal here is to continue the progress that has already begun and to ensure that we are continually improving the guest experience in a profitable way. With the resources and talent of Recipe, we have a -- I think we have a really unique opportunity to shape what a franchise restaurant company looks like in a new digital Internet of Things economy. But we can never ever forget that we have to earn the right to serve our guests every day and to keep the trust that they've given us. And in the months to come I'm going to talk to you a lot more about what that looks like, but I think for now, being day 2, I'm going to lead more with my ears and less with my voice as I tour and meet the great associates of Recipe and the franchisees and the customers that we are here to serve. So thanks again for the opportunity, Bill, and looking forward to joining the team.
Thanks, Frank. And we'll open it up to questions now, again, if there is any?
[Operator Instructions] Your first question comes from George Doumet with Scotiabank.
Some good SRS growth in the quarter. I'd like to maybe get a little bit more granular there, if I may. I think publicly disclosed Ontario's restaurants, CPI number suggests kind of a range of 6%, I think, for the quarter. Is that consistent with what we're seeing in terms of pricing? And what are the banners and maybe some categories where we took the highest level of price in the quarter?
I'm probably not going to answer that directly, George. What I would say is what we did is, we minimized the amount of price that we took. And we explore other options to adjust price. So in terms of geography, the -- in fact, the #1 province for us for the quarter was British Columbia. Ontario and Québec were both strong, but BC led the -- in terms of same-store sales, BC led the market, and it was good to see Alberta again in the positive territory.
Okay. And maybe just staying on Ontario for a bit. How have you seen the to-date -- I know it's early days, but how have you seen the volume response to some of the price that you've taken?
Again, I think there is way too much emphasis put on price. The -- over the years, the restaurant industry, as all the industries, basically there is consistently price increases every year, smarter ones. And I go back to it, we try to minimize the amount of price increase. There's lots of things going on besides price. And I -- yes, it's -- it was a disruptive year with the changes in terms of minimum wage. But we -- there's lots of things that we're doing. I think the results show that we've managed, we've managed through it.
Okay. On -- I believe there were some timing-related issues that pushed some of those new store openings into the quarter. I think from Q4...
Yes. For sure.
The closure rates seem to be a little bit elevated in the quarter. Can you maybe talk about the cadence that you expect to see for the next openings for the remainder of the year?
Yes, I think it's going -- on gross openings, George, it's going to be a pretty solid year. There's going to be lots of gross openings, there's lots in the pipeline. There's lots done already. And yes, you're right, there was some -- I think it was 9 that we carried over from last year into earlier this year. So the gross openings will be there. The amount of stores we close, that's always a bit of a wildcard. And as we've said before, we don't necessary look at that as a negative thing. Yes, would we love to have 0 closures, yes, but when we have 1,300 stores in our base, that's never going to happen. And we look at it as an opportunity to continue to reshape the portfolio and the new stores we're opening obviously, new look, new build, but also most importantly, we're doing good deals. And the stores that we're closing in many cases weren't good deals. And therefore, the total strength of our financial network, whether it be a corporate or a franchise store, improves as we -- when you compare the gross openings to the closings. So not going to give you a net number for the year because of the wildcard nature of the closings, but the gross openings, we think, will be a strong year.
Okay. Then just one last one, if I may. There seems to be some, I think, some transitory capacity-related issues that -- at our Food and Processing and Distribution business. When those are behind us, I guess, likely later in the year, do you foresee that segment producing similar levels if not higher levels of EBITDA than the St-Hubert restaurants?
You got me with the last part when you said compared to St-Hubert restaurants. I'm not sure I got your question.
Yes, I mean, the EBITDA contribution, when the issues are behind us, do you expect the EBITDA contribution from Food Processing to be similar to the EBITDA contribution that we're getting from the St-Hubert restaurants?
The -- I won't compare the 2. What I will tell you is that the St-Hubert food -- yes, so you're alluding to the decrease in Q1 for St-Hubert? Yes. Yes.
[indiscernible] just looking into run rate after this stuff is behind us.
Yes. And -- right. For the -- that's all right, I'll adjust it that way. For the full year, we expect that our EBITDA contribution compared -- our dollar amount of contribution from the Food Processing will be higher than a year ago in 2017 on the Food Processing side. So we're -- in other words, we look at that -- Q1 as something that can be recovered and exceeded for the rest of the year.
Your next question comes from Derek Dley with Canaccord Genuity.
All right. Not to harp on the pricing and impact on same-store sales too much, but did you guys also have traffic growth this quarter as well?
You said, Derek, you weren't going to harp on then you asked questions.
[indiscernible]
The -- again, so I'm just of the opinion there's way too much talk about price, minimum wage and we're going to just focus on running our total business, and there's so many components to running a business -- to running this business and to running an '18, '19 brand business. And that's across the country in all different provinces. So we're going to really not comment -- I would -- my comment on traffic would be, it was kind of a wild quarter in terms of weather. I mean, and there are times, as it quite often does, get completely hammered. Other parts were good, other parts were cold. I would -- my comments would be that we are extremely satisfied with what happened with traffic. And yes, you need more sales to pay the higher wage costs that are happening in different parts of the country. We got those sales, but we are also happy with the traffic that we got. I mean, traffic can be a -- it's a function of banner, a function of province, a function of promotion, a function of weather, and it's too hard to put into a written document or a conference call. But internally, what I can say is that we were very pleased with the traffic that we attained in Q1.
Okay. Now how about the -- can you quantify the impact that Easter had, like unfavorable impact that Easter had on St-Hubert?
Probably about 0.5 point, 0.5 of sales, yes, on SRS. Yes.
Yes. Okay. Great. In terms of the Central segment, you guys called out that you got some strong new product launches at grocery, it did lead to a higher level of listing fees. Do you have plans for a similar amount of new product offerings over the course of the year? Or should we expect some of these listing fees to subside as we move throughout the year?
Yes, I would say is -- I hope this is the last time this year we talk about listing fees as a drag on the St-Hubert results. So yes, I think it -- yes, should not like going forward for the rest of the year. And as I said to George, we would look to, for the entire year, to have a higher EBITDA coming -- or contribution, I should say contribution rather than EBITDA, contribution coming from Food Processing than a year ago.
Okay. And then last one for me. Just on -- can you just update us on your store renovation plans for 2018? And as well just any comment on the performance of some of the recent renovations that have been completed. What kind of sales lift have you guys seen at those locations?
Yes. Again, [indiscernible] I would say in terms -- And I probably should have pointed it out when George asked for some specific banner color. Kelsey's has certainly led CARA in terms of renovations, both the number and the results, they've been outstanding. So -- but we're getting -- lots of -- we're very positive with what's going on. We've got a lot to do. So I would say for 2018, Kelsey's is going to continue. A lot of banners are going to continue, but what's really exciting for us is that Swiss Chalet is going to start. And so Swiss Chalet, we've done small renovations and we've done some test ones in prior years. And we have a concept that we -- and a look that we really like, and so we would expect to do probably 20 Swiss Chalets this year in terms of major renovations. Overall, I would say, it's a fluid number in terms of number of renovations, but I would say that we will have a little bit higher renovation count than a year ago for the full year.
Yes. Can you remind us what that was? Was it 92?
If I remember it, I could remind you, Derek. So it's -- I don't remember the number off the top of my head. It was in the last quarter call, but whatever that was, it will be slightly higher.
Your next question comes from John Zamparo with CIBC.
Just following up on the renovations question. Just to clarify, the 8 major renos you said, Bill, is that corporate or systemwide?
Systemwide, yes.
Okay. Great. Moving back to same restaurant...
In Q1, just -- again, Q1 is normally a slow renovation period because of the winter.
Right. Understood. On the SRS number, is there any commentary you can give on how it trended throughout the quarter?
Yes. Again, with the calendar year, it's hard to. March -- I'll put it this way, March was strong. April which isn't in our quarter is our strongest month of the year so far. And we did -- as Ken said, we had the benefit of the Easter shift. But yes, I would say it got -- so based on April being our strongest year-to-date, even though it's the first month of Q2, I would say our -- generally our sales got stronger as the quarter -- as the -- so far, for the first 4 months, our sales have got stronger as the year's gone along.
Okay. Good to hear. Again coming to Food Processing, on the inventory shortage, has that been addressed? Or should we expect that to somewhat impact Q2 at all?
No. What happened -- so -- is we -- we just -- as we said, we had a record December and sold out a ton of stuff. And then so -- we had to cancel promotions, had to switch promotions and had to switch to stuff that was lower margin and it was a scramble. And it was in the pie line is where it was. The biggest time for pies are Q3, Q4 and Q1. Q2 is less of a bigger quarter because of the warmer weather. And so, we've invested -- are investing this year approximately, I think, it's $4 million for a -- an additional pie line that will increase our capacity by 50%. And so Q2 isn't as bigger factor, because as I said, it's a slower time period. That new line will be coming on midway through Q3, and therefore, we'll get the benefit of it for the second half of Q3 and Q4. So we're saying, we don't -- what happened in Q1 should not repeat in Q2 or Q3 or Q4.
Okay. That's helpful. And last one for me. You mentioned catering sales separately this quarter. What's catering in terms of your priority list? Is it high up there in terms of growing that business? Or is it just something that's nice to have and a decent differentiator?
I'd say, it's a nice to have. It's -- we would look to grow it. It's not our #1 -- I don't think it's going to be Frank's #1 priority is the catering business. But it's something that came along with Pickle Barrel and we like it. And we would love to grow. But it's -- I wouldn't look at it as a major new segment for us to dramatically change our numbers.
Your next question comes from Peter Sklar with BMO Capital Markets.
Ken, I'm looking at the MD&A where you do the buildups to, what you call, operating EBITDA, which, I think, is adjusted EBITDA. And there's a line item in there. One of the reconciling items is income on partnership units, $1 million positive. Is that the partnership units that you own?
Yes, it is, Peter. It's the partnership units that we, through The Keg, own in The Keg royalty income fund.
Okay. And why is it a reconciling item, because on your financial statements, you bring it in below the EBITDA line?
Yes, we're taking it out of operating EBITDA.
Yes. Okay. Bill, I'd be curious to know like what's going on in Alberta with the recovery and the consumer and how your banners are performing?
Alberta has been positive for, I'll call it, 9 months now, I think. Trying to get -- figure it out when exactly it turned last year, but -- so call it roughly 9 months. It's not back to where it was by any means. But I'd rather have it being positive than being negative. The troubled areas for Canada in terms of pressure on sales and drag on sales remains Saskatchewan and Newfoundland.
Okay. And lastly, can you just comment on food commodity costs? Are you experiencing them?
No, it's pretty stable right now.
Your next question comes from Sabahat Khan with RBC Capital Markets.
Just a couple of more follow-ups on the same-store sales. You talked a little bit about renovations. I guess, how quickly -- or what's the time line around rolling in new stores and renovations into your comp base? Kind of the -- just your approach to that.
I'll answer it but then tell me if I answered what your question was, Sabahat. So new stores are 24 months. They have to be open for 24 months before they're a comp store. Renovation stores is, we don't count them in the SRS during the closed period because there is -- but when they reopen, we count them in the SRS as what they were versus the 12 months prior. Was that your question? Or...
Yes, that was it. Yes.
Okay.
And then, I guess, on the SRS -- I'm sorry.
No, go ahead.
And then on the SRS, the comp this period, is it correct to assume that includes OJ's? And I guess, is -- the prior year negative 6, it still looks to be the same as the one you guys reported last year. Is it kind of a comparable prior year with OJ's at all?
It does include OJ's. It does include Burger's Priest, it includes Dairyland. The number, that would have been for last year, did not include OJ's.
Okay. And then, I guess, on the new store openings, as you said, you have a lot lined up in terms of gross openings for this year. How are you seeing the interest, I guess, across Canada with the improved economy in Alberta? Are you seeing some increased interest there? Just some commentary on the outlook for where some of your new locations would come from?
I don't -- on the top of my head, I couldn't tell you exactly the geography where they're going to be other than -- but I sit through all the real estate meetings. And so my takeaway on it would be is that it's -- there's no specific part of the country that is being targeted or shunned. It's more or less business as usual across the geographies. So nothing stands out that I would relate.
And then just one last one. And as you mentioned the real estate, how is the overall environment for when you're going in for these lease negotiations for new stores? Are the rental rates more favorable, less favorable over time?
Again, it varies by location and by -- overall is that I'd say we're happy with what's -- our new stores we're very happy that we're able to -- we believe we're getting some very good deals. And on renewals, by and large, we are not seeing any tremendous upward pressure on rents. There's obviously -- everything that goes up over time as we know, as prices go up, as costs go up. But from a percentage point of view, it's very reasonable, very manageable. And certainly, nothing I would call out as a concern to operating our business.
And just if I could squeeze in one last one. Can you maybe provide an update on maybe the digital penetration across some of your banners? And I think, at your IPO, you provided the off-premise metric for Swiss Chalet. Can you maybe provide us what that number might be today and any other ones that are increasing with off-premise?
I don't have it off the top of my head. I would say, compared to the IPO, it is -- for Swiss, it's slightly higher. It is higher. As we've -- over the last year, as you know, we teamed up with [ Blueberry ] SkipTheDishes, just we've got into the aggregator world. And so overall, for our total company, we've seen significant growth in that area that we didn't have before. And that gave a delivery solution to a lot of banners that didn't have a delivery solution but wanted one. And not every banner, for instance, The Keg won't deliver [indiscernible] because it doesn't make any sense for that. So East Side Mario's, we've seen significant growth as 3 -- probably 3 years ago now we've launched an off-premise solution for them. And these are the ones we've just launched this year. So for sure, our numbers are up overall as the company a fairly significant amount between taking off-premise to more banners and the combination of the aggregators. And Swiss on its own would be higher than IPO.
Your next question comes from Elizabeth Johnston with Laurentian Bank.
Could you just go back briefly talking about new openings or net new openings, in terms of closures, I understand that this can change on a quarter-to-quarter basis but there might -- you must have some kind of visibility with respect to where you see restaurants going for the year closing, in particular, if those closures are related to lease terms ending or the site is less desirable? IS there anything else you can add to that?
I would say that directionally, we would hope to have more net openings than a year ago. Let's put it that way.
Okay. And then...
But I'm not going to -- I'm not -- as you know, it's one of my favorite subjects. So I'm not going to quantify it because we end up spending more time on that than anything else. So I would say directionally, more net openings than a year ago. I'll refrain from quantity.
Okay. I appreciate it. And just turning over to same-store sales growth. Is there any way you could -- to determine -- in terms of the traffic that you're happy with, is it more of a factor of regions doing well? Or is it particular brands that are driving it? Is it one of those things or a combination?
It's both, Elizabeth. It's -- some brands are doing better on traffic than others, some regions are doing better. Again, when you get to 19 brands, it's really hard to without spending 4 hours on it, which I don't want to do to go through it. So that's why I said, we're pleased. And sure, do we have any banners that we're saying we need to do some stuff to drive some traffic? Absolutely, when you have 19 brands. And do we have some brands where we're saying we're blown away by the traffic that we're getting? Absolutely, that as well. So it's a range. And I would say, the -- certainly, the positives are, again, British Columbia, Alberta, Ontario, Québec, all had really nice quarters.
And with respect to the drag you're seeing from Saskatchewan, is that largely related to the weaker economic environment as a result of synergies? Is it related to the increased taxes or the tax that passed to restaurants a year ago? Or something...
Yes, absolutely. It's the first one, but really, the second one was huge. It was almost instantaneous when they put that in, they dropped. In fact, it wasn't almost instantaneous. It was instantaneous.
But we've now lapped that, is that right?
I think we're just about to. We might have -- yes, it was right -- it was in the spring of last year. I forget exactly when it was.
Okay. Great. And just a follow-up question in terms of Food Processing. Your commentary with respect to EBITDA contribution for the year, is that something you think you can make up through mix? Or is it really your expectation that you make up for the EBITDA with the additional line that comes on in the Q3 period?
Well, the -- I'll probably answer it a different way. I would say, our sales in the Food Processing were slightly higher than a year ago with greatly decreased sales on a significant category being pies. And so pies are -- again, are less important in Q2. We've also built some inventory a little bit over Q1. The new line coming on. So certainly for the back half, pies will not be an issue for being able to fill -- fulfill the demand and then drive sales. So when you look at the fact that our sales were higher in Q1, we're getting higher sales from a lot of other categories. And part of -- and a big part of that obviously is the launch of the Swiss Chalet last year through St-Hubert. So I would expect for the rest of the year is that we continue to see increased sales. We have an opportunity to see greater increased sales than Q1 as we don't have the pie sales issue, and that will then also take care of itself in terms of the margin mix.
Okay. And so longer term, with respect to that business again, is the greater opportunity here from just driving more sales in the top? Or is it also coming from margin improvement depending on your capacity utilization or a bit of both?
Mostly from the top line. The -- they -- I don't know that -- the margin improvement would really come from leveraging a higher top line sales. And taking the -- and having those fixed costs obviously over a higher top line, and therefore, getting an improvement. I don't -- and we -- I don't -- wouldn't say that there is much of an opportunity on the variable cost side for margin improvement.
Okay. Great. And just one more for me just in terms of the restaurant on assistance. I know you already mentioned the numbers in your prepared remarks. But I noticed an uptick from quarter-to-quarter, at least in the Q4 number in of restaurants on temporary assistance. Is there any other commentary you can provide on what led to that increase?
Yes. Elizabeth, this is Ken. We actually had 1 less restaurant on temporary assistance from year-end. We came down 1.
Right. But I'm thinking of the 78 number?
You got this. We have 1 less on contractual assistance and 1 less on temporary assistance.
There are no further questions at this time. I will now turn the call back over to the presenters.
You have a question from George Doumet with Scotiabank.
Frank, and congrats on the new role. I know it's early days, probably very early days. But there's been obviously a focus at CARA on the renovations and technology among other areas. Just wondering, if you're comfortable with the focus there and maybe the level of investment there? And maybe do you foresee any other specific areas that you feel you'd like to invest in the future with the company?
Well, again, being day 2, I think this is very early observation, but it's really quite incredible what has been done. I mean, as people who could maybe follow it along at Imvescor tended to focus on 4 key pillars of quality, service, value and ambience. But I would say that today, if you are just doing those things, you may or may not be successful. And I think what Bill and Ken and the team have done here, is the back end efficiencies and the ability to measure the business and to kind of surgically zero in on where the opportunities are, is really quite remarkable. I'm incredibly impressed by what I've seen so far. So I think we have to take all of that and recognize that it's coming down to a singular operator or franchisee to actually run a restaurant and spend time with the guests, and how we can do that in a seamless way and they get some focused on the right things. But the level of investment and the expertise sitting in this office, again, day 2, but incredibly impressed.
Your next question comes from Elizabeth Johnston with Laurentian Bank.
I wanted to bring up the topic of M&A, as you said, come up on -- in the previous section. How should we think about the strategy for Cara with respect to future acquisitions? Should we expect any change at all hand? And what is your outlook for looking at other markets i.e., the U.S. or maybe international?
Yes. Elizabeth, it's Bill. I think -- yes, we didn't talk to it, if you're right, on the call. It's in the materials, the release. Our adjusted EBITDA is, after all the M&A that we have done, is -- it's still phenomenal. We generate tons of cash. We -- our uses of cash will be -- we'll continue with NCIB. I think every year, we'll look at dividends, we just increased it. But acquisition remains on the list for sure and at the top. And so currently, we'll still look at Canada that may change down the road. We do have The Keg as some stores in the States. Original Joe's has some stores in the States. So -- but we'll continue to go and look for M&A, and it's something I think that I would see Frank and I and Ken doing mutually together. Ken and I have been doing it in the past. And I would say it's probably something that the 3 of us continue to do depending on who gets the phone call. So...
Your next question comes from John Zamparo with CIBC.
Congratulations, Frank. Maybe you could talk about some of the top priorities for you for the next year. You mentioned guest experience being a key focus. Maybe you could talk about some of the evolutions we might see on that front. And how do you think about guest experience when it comes to off-premise as well?
Well, I can tell you that kind of the 3 headlines of focus for me is: first, I think it's the continual evolution of the consumer proposition. And again, that's going to be spending time with the teams and the marketing teams but also the operations teams. You always want to make sure -- I think we're all strong believers that brands need to continually evolve and to make sure that they're meeting the needs of the consumer. And that applies in the restaurant as well as in the off-premise. And off-premise has some different challenges to it. And I think that there's always room that you can improve on things like order accuracy, et cetera. The other 2 things are pretty key though. Franchisee engagement is a pretty critical factor. If you ever want to get anything done, having a high degree of engaged franchisees is -- it's critical in that area. So we're going to be looking at that. And then the final thing, I think, is, as a lot of these -- the M&A activity has taken place and a lot of these brands have come together is working on -- really working on talent acquisition and development. And key to that, I believe -- and Bill and I have had a lot of discussions about this, is what is the culture. So we have a new company, new name, Recipe. And what are those -- not to play out the pun, but what is -- what are those secret ingredients that make this organization stand out that's going to attract talent, how are we developing that, but also attract franchisees. And again go back to those comments, we were talking about back-end efficiencies and all the leverage that a company of this size can bring. I mean, that's incredible value that goes out to our current franchisees and any potential new ones. So I think that's it, consumer proposition, franchisee engagement and talent acquisition and development.
Your next question comes from Sabahat Khan with RBC Capital Markets.
Just on the commentary around franchisee engagement. I guess, do you, I guess, Frank, or does the company have a view on your franchisee base with regards to do you want to continue to add new ones or do you -- in terms of singles and doubles? Or do you have a preference for working with maybe larger groups? And to that, can you maybe comment on, I guess, how many of your new openings in any given year, if we talk on a gross basis, are coming from existing franchisees?
It's Bill, Saba. The -- we are totally open to larger groups and to franchisees that own a large number of restaurants and multiple different banners in the geographic area. And if it's a good franchisee and they run a great business, why wouldn't we want to partner with them. So -- and that's -- and just as 4.5 years ago, when Ken and I first started, and there was 5 brands, just prior to the Prime acquisition, you weren't allowed to have even another Cara, we could only have 1 Cara brand. And so we opened that up and then we said you can Prime and then we're going to have people that have State & Main and Montana's, East Side Mario's now. It's -- so we pick the franchisees we like that's -- or other good franchisees and let them grow their business as they're capable of. Individual single ones, sure, still that doesn't mean that we still want to do a lots of those and we will. In terms of the percent of new stores being with existing franchisees, I think probably 50% is on the -- directionally, isn't a bad number. That's currently happening.
All right. And then, I guess, just looking at your brands and the views on M&A that you mentioned earlier, are you open to -- I guess, as you look out at the landscape doing a lot of tuck-in type acquisitions? One of your other restaurant sector peers has a large amount of smaller brands. Or I think, at this point, given your scale, would you more -- or would you prefer doing larger scale acquisitions that maybe move the needle like -- or I guess, as you guys go into the U.S., does that open up larger?
We're not going to talk about the U.S. right now, because we're not ready to go there. And that doesn't mean we'll never go there. But certainly, it's not a top-of-the-conversation thing. In terms of the smaller brands, I'd just say, take a look at our history. So we bought the Landing that was 3 stores. And we invested in Burger's Priest. And there was -- and it was 8 store when we invested. And at year-end of the scale, St-Hubert and The Keg, both doing in that $600 million range of sales when we -- and we did it. So there's certainly one thing that -- and -- is -- I guess, our -- one of our methods of operation has been we'll talk to anybody. And it's not really the size that matters, it's the fit. And we've always kept the talent. We have to like them, they have to like us, life's too short to be. And we'll be agile, we'll be flexible. We don't have a cookie cutter. Sometimes we buy 100%, sometimes we don't, really depending upon what the -- and the partner wants to do. And sometimes those small companies grow into big companies. Having said that, we do like big companies too. And The Keg and St-Hubert are there. So it's a completely wide-open landscape from our perspective and we ultimately do talk to all kinds of different people. But right now, we are limiting it to Canada.
And then just one last one for me. As you look out to driving top line growth, is there a view still that you'd rather acquire than start a new chain from scratch? Because you do have obviously a large store base across Canada and you're closing stores occasionally. Would you ever see an option of maybe trying to start a new brand? Or is the preference for M&A?
Yes. I think that's -- I'm going to go back to Frank's one of his 3 areas of focus on talent acquisition and development. We haven't started our own, because we haven't had extra people lying around doing nothing. And everybody has been engaged fully in their brand. And every acquisition we've done, we've kept the talent, and like I said, we like that. Having said that, so I think as -- and we have not -- as I said, we've kicked a whole pile of boxes, we have not had enough focus on talent acquisition and development, I'll be totally upfront. And that just falls on me and I'm not taking any blame for, I'm not taking any credit for it. I was just saying that's just the fact of life and you've got all these things that are happening and we've grown our business and we think we've done a great job. But I'm 100% supportive of -- and agree, and Frank and I have had a long conversations on that, and I'd love to hear how he talks to it. So maybe in the future, as we get better at talent acquisition and development, especially the development part, there will be room and we'll have the people to start our own brands. And I think, down the road, I don't know when that is, if we can stay, we can develop our own brands. That would be a -- and again, as Frank said, we have to be careful with all these puns on our new name, Recipe, but for sure, that would be a great addition to our recipe if we develop people that can develop new brands.
There are no further questions at this time. I will now turn the call back over to Bill Gregson and Frank Hennessey for closing remarks.
Okay. Thanks, everyone, for joining the call. [indiscernible] to parts, Frank will lead the call, next call. I might just listen to it just to -- for fun. But it'll be the Ken and Frank show next time. And he'll have more than 2 days to -- under his belt then and to prepare and so -- but thanks, everyone, for your time today, and we look forward to speaking again. Enjoy the weekend. Take care.
This concludes today's conference call. You may now disconnect.