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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 Recipe Unlimited Corporation 2019 Third 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 Recipe 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 Frank Hennessey, Chief Executive Officer of Recipe Unlimited Corporation. Mr. Hennessey, you may begin your conference.
Thank you, Mariana. Good morning, everyone, and thank you for joining today's conference call. On the call with me today is Ken Grondin, our Chief Financial Officer.The third quarter was disappointing for us at Recipe. It is clear that the industry, in particular, the full-service restaurant industry in Canada is in a challenging environment. Total System Sales for the quarter and for the full year were $869.1 million and $2.6 billion compared to $879.8 million and $2.5 billion in 2018.Same Restaurant Sales declined 3.1% for the quarter and 2.2% year-to-date. In 2019, we have seen softening of guest traffic in most geographies and across most of our brands with the exception of Québec. We are also aware that many in the full-service restaurant industry are reporting similar results.While there may be several causes for this, the slowing economy, more restaurant seats in market, the struggling retail sector, we feel that this environment also offers up opportunities for growth, opportunities I'll speak about a little later on.Recipe continues to generate a strong EBITDA and free cash flow. Operating EBITDA was $49.5 million and $155.5 million for the 13 and 39 weeks ended September 29, 2019, compared to $51.2 million and $151.4 million in 2018, representing a decrease of $1.7 million or 3.3% for the quarter and an improvement of $4.1 million or 2.7% year-to-date.Free cash flow before growth CapEx, dividends and share repurchases under the company's normal course issuer bid for the 13 and 39 weeks ended September 29, 2019, was $36.1 million and $111.6 million, respectively. And at this time, I'm going to turn it over to Ken for a more thorough review of our financial results
Thank you, Frank, and good morning, everyone. My overview will refer to our third quarter financial statements and MD&A issued last night, both of which are available on SEDAR. For the first part of the financial highlights, I will focus on Recipe's consolidated results, and I will finish with a summary of our segmented business performance. Total gross revenue was $309 million and $925.5 million for the 13 and 39 weeks ended September 29, 2019, compared to $310.1 million and $863.7 million in 2018, representing a decrease of $1.1 million or 0.4% for the quarter and an increase of $61.8 million or 7.2% year-to-date. The increase in year-to-date gross revenues was primarily related to the addition of The Keg in February 2018, and increases in retail and catering sales, partially offset by SRS decreases. Operating income was $20.4 million and $84 million for the 13 and 39 weeks ended September 29, 2019, compared to $35.8 million and $100.8 million, representing a decrease of $15.4 million for the quarter and $16.8 million year-to-date. The decrease in the quarter was primarily the result of $5.7 million of asset impairment charges, $5.4 million of higher depreciation and amortization, excluding the impact of IFRS 16, the new lease accounting standard, a $2.3 million increase in the loss on disposal of property, plant and equipment, and a $1.3 million increase in losses on early cancellations of equipment rental contracts.Year-to-date, a $16.8 million decrease in operating income was primarily the result of $11.4 million of higher depreciation and amortization expense, excluding the impact of the new lease accounting standard, an $8.4 million increase in asset impairment charges, a $3.3 million increase in the loss on disposal of property, plant and equipment, and $900,000 increase in losses on early cancellation of equipment rental contracts. The impacts of these changes was partially offset by increased EBITDA from the 2018 addition of The Keg and Marigolds and Onions, plus less franchise, bad debt and franchise assistance.Excluding the net interest related to the new lease accounting standard, net interest expense and other financing charges was $1.6 million compared to $2.4 million in 2018 for the 13 weeks ended September 29, 2019, a decrease of $800,000. Year-to-date, net interest expense and other financing charges were $6.7 million compared to $7.7 million in 2018, a decrease of $1 million. The decrease is due to the full year-to-date interest income from Keg partnership units, partially offset by The Keg interest on long-term debt over the same period.Earnings before income taxes for the 13 weeks ended September 29, 2019, was $11.9 million compared to 34 -- $31.4 million in 2018, a decrease of $19.5 million driven by $1.7 million decrease in operating EBITDA, $5.5 million higher depreciation and amortization expense before the lease accounting standard, $6.5 million increase in noncash impairment and onerous contract expenses, an increase in the loss on disposal of assets of $3.5 million after a $1.5 million gain in 2018 from the sale and franchise of State & Main locations, a $2.5 million increase in noncash fair value changes related to the exchangeable Keg partnership units and noncontrolling interest liability and a $600,000 expense related to the new IFRS lease standard.Year-to-date, net earnings before income taxes was $66.7 million expense compared to 89 -- take that back. Year-to-date, net earnings before income taxes was $66.7 million compared to $89.2 million last year, a decrease of $22.5 million. The decrease year-to-date was driven by a $4.1 million increase in operating EBITDA, a $2.9 million increase from the change in noncash fair value adjustments related to the Keg Exchangeable Partnership units and noncontrolling interest liability, offset by $11.4 million higher depreciation and amortization expense before the impact of the IFRS lease standard changes; noncash impairment and onerous contracts expense increases of $8.4 million; higher stock-based compensation expense of $2 million; an increase in loss and disposal of assets of $4.1 million after the $1.5 million gain in 2018 from the sale and franchise of State & Main locations; and a net $1.4 million expense related to the new IFRS lease standard.Adjusted net earnings for the 13 weeks ended September 29, 2019, was $19.5 million compared to $25.3 million in 2018, a decrease of $5.8 million for the quarter. Year-to-date, adjusted net earnings was $60.9 million compared to $70.2 million in 2018, a decrease of $9.3 million.The decrease in the quarter and year-to-date is primarily related to higher depreciation and amortization expense, mostly due to a $3.5 million depreciation credit adjustment booked in Q3 2018. Year-to-date results were also impacted by a higher stock-based compensation and long-term incentive plan costs.As a result, adjusted diluted earnings per share for the 13 and 39 weeks ended September 29, 2019, was $0.31 per share and $0.96 per share, representing a decrease of $0.08 per share in the quarter and $0.14 year-to-date.Now turning to segmented results for the quarter and year-to-date. Total contribution from corporate restaurants is $16.8 million and $55.8 million for the 13 and 39 weeks ended September 29, 2019, compared to $21.6 million and $59 million in 2018, a decrease of $4.8 million or 22.2% for the quarter, and a decrease of $3.2 million or 5.4% year-to-date.The decrease in the quarter and year-to-date is related to the sales decreases and the decrease in corporate contribution rate which was mainly the result of taking back underperforming franchise restaurants that operate below our 10% to 15% target contribution level. Removing these restaurants from the franchise portfolio improves franchise contribution.For the 13 weeks ended September 29, 2019, total contribution from corporate restaurants, as a percentage of corporate sales, was 8.8% compared to 10.8% in 2018. Year-to-date, total contribution from corporate restaurants as a percentage of corporate sales is 9.6% compared to 10.8% for the 39 weeks in 2018.The decreases were primarily related to lower sales and wage rate increases and the take-back of underperforming franchise locations now operating as corporate, partially offset by the addition of The Keg, which operates corporate restaurants within our 10% to 15% target range.Total contribution from franchise restaurants was $26.1 million for the 13 weeks ended September 29, 2019, compared to $25.7 million in 2018, an increase of $400,000 or 1.6% for the quarter. Year-to-date, total contribution from franchise restaurants was $78.5 million for the 39 weeks ended September 29, 2019, compared to $72.8 million in 2018, an increase of $5.7 million or 7.8%.The effective net royalty rate for the 13 and 39 weeks ended September 29, 2019, was 4.4% and 4.4% compared to 4.2% and 4.2% in 2018. The increase was related to the improvement to the quality of sales due to the ongoing practice of opening new franchise restaurants at the standard royalty rate, closing or taking back underperforming previously subsidized locations and from the addition of The Keg, offset by the renovation incentives paid to Swiss Chalet and Harvey's franchisees to support major renovations. There are also 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.Retail and catering segment contribution for the 13 weeks ended September 29, 2019, was $4.4 million compared to $4.5 million in 2018, a decrease of $100,000 or 2.2% for the quarter. Year-to-date contribution from retail and catering for the 39 weeks ended September 29, 2019, was $12.1 million compared to $10.5 million in 2018, an increase of $1.6 million or 15.2%. The increases are primarily driven by sales increases from Swiss Chalet branded products at grocery, increases in frozen pot pie sales from the addition of the new pie production line, and the addition of The Keg retail business in February 2018, and Marigolds and Onions catering business in December 2018.Turning to the central operations segment. The central operations segment consists of processing fees, revenues from Recipe and St-Hubert's off-premise business, franchise fees, property and equipment rent and vendor volume rebates reduced by central overhead costs and Keg royalties paid to The Keg Royalty Income Fund.Central segment contribution before the net royalty expense for the 13 weeks ended September 29, 2019, was $5.5 million compared to $3.1 million in 2018, representing an increase of $2.4 million or 77.4% for the quarter. Year-to-date, central segment contribution before the net royalty expense for the 39 weeks ended September 29, 2019, was $19.8 million compared to $17.6 million in 2018, representing an increase of $2.2 million or 12.5%. The $2.4 million central segment increase is primarily the result of effective cost controls and synergies from consolidating certain shared services with acquired brands.Total central segment contribution before the net royalty expense as a percentage of total system sales for the 13 weeks ended September 29, 2019, was 0.6% compared to 0.3% in 2018, an increase of 0.3 percentage points for the quarter. Year-to-date, total central segment contribution before the net royalty expense, as a percentage of total system sales for the 39 weeks ended September 29, 2019, was 0.8% compared to 0.7% in 2018. Under the company's NCIB, the company purchased and canceled 618,947 and 1,322,871 subordinated voting shares for $16.5 million and $35.2 million for the 13 and 39 weeks ended September 29, 2019. Subsequent to September 29, 2019, until November 11, 2019, the company purchased 249,700 Keg Royalty Income Fund units for $4 million. These units are not canceled and will be held by the company as an investment in the royalty fund in addition to the 4.3 million exchangeable fund units held by Keg Restaurants Ltd., a wholly owned subsidiary of Recipe.In addition to NCIB activity, on September 25, 2019, Recipe completed a substantial issuer bid, resulting in the take-up and cancellation of 4,629,629 subordinated voting shares at a price of $27 per share or $125 million in aggregate. The impacts from the reduction in shares on free cash flow per share before growth CapEx dividend and NCIB on a diluted basis is an increase of $0.10 per share from $1.76 to $1.86 per share for the 39 weeks ended September 29, 2019, after taking into effect the net increase in annual interest expense after taxes of $2.7 million.And lastly, yesterday, on November 11, 2019, the company's Board of Directors declared a dividend of $0.1121 per share on subordinated and multiple voting common stock. Payment of the dividend will be made on December 13, 2019, to shareholders of record at the close of business on November 29, 2019.This concludes the financial commentary of the call. I'll now turn the discussion back to Frank.
Thanks, Ken. In an environment such as we are currently in, standing still is not an option.We are taking multiple steps to continue to improve upon our business, including one of our core pillars of Ambience. In the third quarter, we renovated 33 restaurants, and we opened 13 new restaurants. Many of those renovations were for Swiss Chalet. By our own internal measure of freshness, restaurants that had significantly renovated both interior and exterior in less than 8 years, Swiss Chalet is still only at 38%. This is a massive opportunity for us. The renovated Swiss Chalets are delivering significantly more positive results than the nonrenovated locations. In addition, Chalet market, our new salad bar concept, will be expanding to 2 new locations in Barrie and Belleville by the end of this month. The current test restaurants who have implemented Chalet market are showing an average 10% to 13% SRS positive lift on overall sales which is the balance of the brand, and a 20% sales improvement per dining room-only sales. We anticipate a much broader rollout of Chalet market in 2020.Our retail division, as Ken noted, was slightly down in the third quarter. This is wholly due to the timing of a couple of key promotions that have slipped into Q4. We expect that retail will have a strong Q4 and will continue to grow as we continue to develop new products and leverage the strong brand names within our portfolio. Montana's ribs will be available in most grocery market locations in Ontario by the end of this year.The delivery channel continues to grow both internally at Swiss and St-Hubert, but also through our other brands via our aggregator partners. As we activate more of our restaurants, we have also been negotiating lower commission rates with our partners, which is improving the economics for delivery. Between Swiss Chalet and St-Hubert, we have over 100 years of experience in the full-service restaurant delivery category. We're using that experience to help us reshape our approach to delivery, a channel that we feel we are uniquely capable to capitalize on.Our mobile apps and our internal driver tracking systems put us on a level playing field with all of the current Aggregators in the market. We intend to be the leader in delivery for the full-service restaurant industry. There are 3 key metrics for a successful delivery business: quality, speed, and trust. We are currently working on an initiative that will utilize our unique multi-branded portfolio to greatly improve on those success metrics, be more efficient and generate better returns while not compromising on the service and Ambience of our dine-in business. We'll be providing more details on this initiative in the months ahead.While we did open new restaurants this quarter, significant growth in restaurant count for Recipe will come from accretive acquisitions of size. To maximize the efficiencies of our shared service models, it's important that brands we may acquire have significant system sales. We believe that the current environment may cause further consolidation in the industry and that with our strong balance sheet, we are well positioned to find opportunities to acquire brands of size that complement our current portfolio.And finally, this is our last call before the turn of a decade. At Recipe, we're not just thinking about 2020, but we're also thinking about 2030. We are imagining our world 10 years out and setting out now today to make the investments necessary to ensure that we continue to build profitable brands to last.We are actively reviewing all aspects of our business, including our portfolio of brands, the size and shape of our restaurants, the effective methods of marketing in a social media world, the fast and efficient transformation of data to insights and insights to actions, the most effective use of AI to better anticipate customer demands, and the integrated use of robotics, particularly for the kitchen environment. Our past investment in new digital platforms has provided a solid base from which we are now exponentially building upon.Recipe has the size and generates significant free cash flow to make these investments that will benefit us both today but also set us on a path for success for the future.We have witnessed the ebbs and flow cycles of the restaurant industry before, and we believe that with the strength of our brands and the investments we continue to make in those brands will ensure that we are well positioned to compete aggressively and profitably for years to come.We are not content with status quo, and while the results of this past quarter were indeed disappointing, we are excited for our future. We intend to help shape the future of our industry in this country, and we believe we have the strategies and the team to get it done. And on that note, I'd like to thank you all for attending our call today, and I'll turn it back to the operator to open it up for questions.
[Operator Instructions] Your first question comes from Parth Shah with Laurentian Bank Securities.
Ken and Frank, I'm here on behalf of Elizabeth. I just have a question regarding the renovation incentive expenses for franchisees. Can you provide us more insight on how you view this going ahead into next few quarters and any effect on margins as such?
Well, I mean -- I think the -- as I commented in my prepared remarks about the renovations that we've done this year, I think, this year will be a record year for us in getting renovations done. And that's in large part due to this incentive program that we have in place, particularly at Swiss Chalet. And as I commented that we're seeing much better Same Restaurant Sales, and obviously, returns in those restaurants versus the restaurants that haven't been renovated. I think it's -- renovations are one aspect. I always say this when we talk about this subject, and when you renovate a restaurant, and you get it looking good, you're going to drive more people just naturally in. And it's -- when they come in, and they visit you, are we giving them a better experience? Are we giving them a differentiated experience in our dining rooms versus our delivery channels? And so that's really what that particular brand has been focused on, and we're very encouraged by the early results.
Okay. That's great. And secondly, I'd like to shift gears to -- you spoke about digital sales, and how you're partnering more with third-party Aggregators. So just based on that, could you tell us how the growth was in the segment for this year -- for this quarter? And what kind of steps are you taking to kind of further reduce the commission and various costs associated with this?
Yes. We -- again, listen, it's -- we have a sizable business with Aggregators in this country. The fact that our average order size, because most of our business is full-service restaurants, versus the other guys, the QSR guys who have a lower check average and therefore, just a lower number makes us a bit more attractive to Aggregators, when they're making a delivery. So we've been firm, and we think fair in our negotiations with them, but we are seeing rates come down and to a level that we feel that it's a profitable channel for us. I -- we talk about Aggregators and delivery and all those aspects, and in some cases, in the industry, there's still a lot of hand-wringing going on, on this whole issue. And the fact is, is that the consumer values the channel, they value the convenience that they have, and we just have to get even better at it and make sure that regardless of where people are dining with us, that they're having a great experience that makes them want to either come back in to the restaurants or order again from us. So we're going to continue to do that. We utilize all the major Aggregators, we probably anticipate continuing to do that and like I said, the economics are getting better.
Okay. And just with respect to the new menu launches that you spoke about at Swiss Chalet regarding Chalet market, and last quarter you also spoke about menu changes at Kelsey's and Montana's. So could you give us some more color and perhaps the customer response, and what the franchisees are saying about this? Perhaps, something more about the traffic?
Yes. Listen, we've been doing -- when we do new menus, we do it for a couple of reasons, one is obviously for customers making sure that we're finding things that they like and they enjoy, but it's also about making sure our menus are sized right so that we can execute properly and efficiently, and getting products -- and get products to them. We also made changes, we talked about delivery just a second ago, we also made changes to our menu lineup for delivery. So we don't always offer the full menu on delivery because it just doesn't hold us up as well. But when we're looking at making menu changes, we're looking at making sure that we have the right mix of products that can generate profitable returns for our partners or franchisees, while still giving great value for our guests. At the end of the day, if we don't deliver great quality food and great service, nothing else really matters. So that's -- our menus are designed all around our 4 pillars to make sure that we're continuing to do that.
Okay. Just one last one from my side for Ken. The impairment charge that you saw this quarter, was it the same that you saw last quarter as well for the corporate asset carrying values?
Yes. The impairments we're taking are -- there's 2 categories of impairments. One is on corporate restaurant assets, where we test every quarter whether the cash flows of those restaurants can support the balance sheet values. So -- and to be conservative, we take those positions every quarter. It's noncash, but again, it's -- we do that test every quarter. The second impairment charge that we take is now under the IFRS 16, the new leasing standard. We have to test the sublease receivables we have on our franchisee leases. So where we have systems provided to franchisees related to providing rent -- help on the rent. And in those cases, we might have to write down some of those sublease receivables and that becomes an impairment under today's accounting standards, where before it would be an onerous contract, but that impairment tends to be a bigger number than it would have been under the old accounting approach. So again, we test that every quarter and take a very conservative position on it. And again, it's noncash but it's an exercise go through every quarter.
Your next question comes from the line of George Doumet with Scotiabank.
I just want to spend some time on the corporate margins, it's pretty weak read there. I think they are down 200 basis points year-over-year. Can you maybe give us a sense of how much of that 200 basis points was the underperforming restaurants we took in? And is there a time line to potentially close these or refranchise them?
George, it's Ken. So the big impact from those corporate restaurants, what were franchise restaurants that we've taken back, these are franchise restaurants that were underperforming, in some cases, they were negative contribution. So we've taken them back. We're testing whether we will -- are we better to operator or close. And if we operate it, means we're losing less money than just paying the rent. But at the same time, we're evaluating our portfolio consistently or continuously are to see whether we can exit those locations through negotiations with the landlords.
And George, I'll add one other thing to that is that when we do take some of these restaurants back, success or failure of all these restaurants depends on the person that's running them. And sometimes we may just not have the right person operating them. And so we may take them back, and to Ken's point, we evaluate them, are we going to stay there, or what's the status? In some cases, we just need to clean them up and set them right. And we have seen success in doing that. So it does depend, and sometimes, there is a bit of a time lag between the time you take it back and the time that you can actually start generating better results as you improve your service in the particular market, and people recognize it.
And George, what you'll see that in the math is our -- the corporate restaurant contribution before other costs isn't off that much year-over-year, which means their gross margins' not bad. It's really the other cost, which means those restaurants we've taken back do not have enough sales and gross margin to support their overheads, in particular, their rent.
Okay. So it'll be fair to assume that around 100 or 100 plus of those 200 basis points is -- are those corporate stores.
Yes.
Okay. Great. Okay, on the topic, the corporate stores, the cost of food and labor are up quite a bit as well. I know you guys called out Alberta on the minimum wage side, but is it more food inflation? Is it harder to hire good quality folks? Any color you can share there? And would you expect to have recovery in that area at all in the near term?
Well, I mean, yes, I think, you've seen in Alberta that they're coming on that anniversary now of the minimum wage increase. I think, labor is -- I think, the industry, in general, has reported and that's just -- I don't think it's just restaurant industry, it's retail across the board, labor continues to be challenged. As far as just the -- we have low unemployment rate so, obviously, some rates increase on the labor side. We have pretty good metrics and systems in place to be able to manage labor more effectively. Part of that goes back to my earlier comments about making sure that our menus are right sized so that we can execute more efficiently. And I just think that just as we go forward, that we're going to continue to look at ways of how can we use better equipment, maybe it's more automation to be more efficient to help those gross margins overall and actually to help sales because we're going to execute better.
Okay. And just one last one, if I may. I'm shifting gears to the SRS. It seems like we're running a little bit lower in terms of growth than last quarter. Is that just a result of more competition? I'm just wondering maybe, can we win that battle there without necessarily increasing discounting or promotional activity at all because it seems to be kind of a trend that we're seeing more and more in the industry?
Well, I commented on this in the last call that we're not going to have this kind of race to the bottom on deep discounting, and we have partners out there, and it needs to be profitable. We think -- yes, we're not -- listen, no one is doing cartwheels around here on the Same Restaurant Sales that we have, but we still generated close to $50 million in operating EBITDA. We think we have good plans in place. We continue to invest, we're renovating our restaurants, we're putting new menus out there, we're focusing on the quality of our food. We're putting tons of training in place for our frontline staffs in a way that is engaging and interesting. So we're doing the opposite of what we've seen others do. Instead of just kind of race to the bottom on deep discounting, we're investing back in on the things we think that matter. And that's what we believe is going to win in the long run.
Your next question comes from the line of Sabahat Khan with RBC Capital Markets.
I know you don't get into a lot of specifics about banners, but are you able to provide any color on just overall trends that you're seeing maybe across banners or the trends that you saw more regional focused? Just trying to understand if there is any banners. I know you mentioned Chalet earlier. I guess anything specific you're focusing on to turn around specific operations?
I think there's-- yes, because it's a matter that, obviously, with all the brands we have, we could spend a couple of days going through it but, I think, generally what we've seen, and listen, we're not alone out there, right? We're more aware of what other full-service restaurant companies are reporting. As we look at it, it just seems to be kind of a general softening, I guess, in traffic across the board. I mean our particular share of full-service restaurants in the country, we sort of act a bit like an index because we're across the country, and our check average range spans quite a spectrum as you look at our different brands. So it depends on particular markets, like I said, Québec continues to do okay, and St-Hubert's still very strong and sort of winning in that market. And we have pockets where things are fine and trending all in the right way. We just -- again, we think this is a bit softening in the overall economy, and I think it's just that people are shifting and adjusting to sort of a new world out there and how the Aggregator business, and how that whole delivery thing is going to play in, I think, the industry is still trying to figure that out. For us, we feel pretty good about where our plans are. I think, one other aspect that I would say is that when I talked about doing a thorough review, I think it's more imperative than ever that we work to be as agile as possible. We need to be able to not just react quickly to what's going on in the markets, but we need to get ahead of it as well, so that we kind of win in the long run.
Okay. And I guess based on the shift in consumer preferences, are you seeing any trends by type of banner? Like, are your Keg's doing better or worse than something like a Harvey's? Is there any of those trends across your platform?
No. There's nothing I can say that there's like a shift in the channel. I mean, I think, premium in a -- generally, in a softening economy, you'll see premium -- you'll see spending go down on the premium side, typically you do find that picks up on the lower check average brands and the QSR brands. We're -- we theoretically have a decent hedge with our portfolio. I think maybe seeing it more on the alcohol side of things, there seems to be kind of a I think a shift within alcohol, it may be more from beer to cocktails and things like that, but we're not seeing any real significant macro shifts.
Okay. And then just a quick one on the Aggregators, I guess, as you build up that business, did any of that have an impact on, I guess, your corporate margins, or are you hearing anything from the franchisees? Or are you generally finding the aggregator business to be generally a lift for your overall results?
Yes. I mean, personally, I don't think there's any sort of margin erosion in those channels, a, because of our size, we were able to kind of negotiate decent rates, and also, we have an ability to charge a little bit more in those channels just due to the fact there's a convenience factor that people are able to -- are willing to pay for. Again, we have a -- the advantage we have, I made it -- pointed that out in the comments and said, we've got 2 massive chains here that are full-service restaurant chains, that have been doing delivery for over a long period of time so there's a lot of lessons that we've already learned and can share with the Montana's and the Kelsey's of the world that, frankly, our competitors don't have that experience in. So we're putting those in play. But, yes, that channel is -- it is, from a profitability point of view, is very close to par to our other channels.
Okay. And then just the last one on capital allocation, a bit 2-parter. Just first, you continue to buy back some shares. I guess what are your plans are on that front? And also, if you can remind us the leverage that you're comfortable with. And second, you talked about potential M&A, and how are you thinking about prioritizing between return of capital and acquisitions? And is it something you plan on being more opportunistic about? Or do you have some targets in mind that you could execute on over the foreseeable future?
Sabahat, it's Ken. I'll take that 4-part question. First, yes, we've been active on buying back shares, obviously, with a substantial issuer bid, normal course issuer bid and even buying the Keg units. We saw those as good use of capital, opportunistic, and those are decisions our Board makes on a periodic basis. And same time, we're very careful and comfortable -- careful in managing our leverage. At the end of the quarter, we're 2.4x. We've always really been under 3x. We bounced up to almost 3x for The Keg transaction and came down to 2x after that. So at around 2x is kind of a comfortable stable level for us because it leaves us a lot of room for opportunistic or targeted M&A, which is still a strategy of this business, as Frank said, growth for us is -- a unit growth is going to come through acquisitions of size, which we always want to be ready for when the right ones are available.
Your next question comes from the line of Peter Sklar with BMO Capital Markets.
Frank, I really don't have good a understanding of how the economics work with the Aggregators. Can you just elaborate a little bit more how the model works? Like you pay a commission, but it sounds like you have different menu pricing, plus I would think that there'd be some upfront costs in terms of integrating it into their app. And if you don't want to give specific numbers that you experienced, due to business confidentiality, maybe you could just talk in generalities what kind of rates the industry pays?
Yes. So I'll try to delicately answer that. I think what people have reported like independents will, you can get -- seeing commission rates as high as 30%, right? And in the early days of the Aggregator business, I mean these guys were basically not allowing companies to charge anything more for delivery than they were in dining rooms. And so that's where you saw this kind of massive uproar from the industry going, well, hell, it's 30 points, and I can't charge anything more, and how am I ever going to make any money of that? So that world though is changing for these guys. There's more competition now in the aggregator business. In Canada, there is really the 3 big ones would be, obviously, Skip the Dishes, Uber and DoorDash, are the 3 major players. And it's -- for those guys, it's more of a competition for that last kilometer. That's really what they're chasing. There's been a lot and a lot of comments made about, well, data, data, data.In some cases, some of these guys don't necessarily care if the information flows through their device or our device. At Recipe, we have an advantage because we have our own mobile apps. So that the delivery can flow through those guys. We -- in integrating into our own back office systems, which is really something that's still ongoing for us, which will improve on the whole service piece. Again, due to our size, we're able to negotiate things that are different than what others may experience. So we -- we've been working on this and started off in the early days on some of the negotiations, and we continue to negotiate to get better rates. We feel generally comfortable with a couple of them. There's maybe one that we need to continue to work with to lower their fees, so that people can make money, including the Aggregators. They are providing a service, but everyone needs to make money in it. And we feel we're much better off today than maybe when this whole business got started a couple of years ago. Even though I will say that Recipe, even prior to me, Bill did a great job negotiating rates in the early days, but as more people are coming in, those rates are coming down.
And do you think centralized kitchens are going to be part of your solution going forward?
I think that -- go back to my comments about quality and speed and trust, I think, we have a number of opportunities in front of us. We have a number of learnings in front of us. And I'll just let it stay at that for this point of time, but we think again that because of our multi-branded portfolio that we can integrate better operationally to service the delivery market.
Okay. And then just my last question on a different topic. Can you explain like the thinking behind buying these Keg royalty units?
I'll let Ken address that.
Peter, it's really another angle on buying back our own shares. We -- through the Keg Restaurants Ltd. company, we've got a 27% -- over 27% retained interest in the royalty fund. So targeting at a certain price point, we feel acquiring those units was a positive transaction accretive, which is why we bought them at the Recipe level. And it was opportunistic and a way of feeding our royalty back to ourselves.
Your next question comes from John Zamparo with CIBC.
I also wanted to ask about The Keg units in the open market purchase. So appreciate the commentary so far. Should we think about it as if the price gets attractive enough, you'd continue buying, and you'd potentially looking at collapsing the structure as well?
Yes, John. It's Ken. I think -- I wouldn't jump as far as to say collapsing the structure, but I think, we're opportunistic on the buy and like NCIB, we could be opportunistic again, if the price came down.
Okay. Great. Sticking with the Keg, but at the OpCo, their Same Restaurant Sales figures out this morning, I think it was minus 3.6%. So not -- certainly not where you like it and a pretty notable deceleration from the past. Is there any more color you can provide there?
I think it's a good indicator of what you see in the economy overall, I mean, obviously, The Keg still does big numbers, the service is still impeccable there. We don't have any, again, there's no great panic or anything with that, but I think is it is an indicator of where you see maybe a bit of a pullback in spending that we're seeing kind of across the board in the industry. So again, July was sort of a strange month in the industry. Restaurants Canada even came out and made a special commentary on it. I don't think anyone really has a good answer for what happened in the month of July in the industry but certainly didn't act normally. But David and the team at The Keg, they got things well in hand, and we're comfortable that they'll be turning that around.
Okay, that's helpful. Maybe move to overall Same Restaurant Sales, you referenced the unemployment rate in the press release as a headwind on SRS. So should we interpret that as it -- like that's a constraining factor that reduces your operational hours or your potential service levels?
It's certainly a factor. I mean it's -- and again, depends on the market in particular, but generally, we're seeing that across the board, meaning in the back of house, where we're seeing kind of, obviously, there is the minimum wage aspect of the increases. But further than that, it's just that low unemployment just makes it more expensive to bring people in and to keep them. So yes, it has -- all these things have effects on pressures on margins, and that's why when we see -- when we're doing things on menus and all other aspects I've talked about, is to try to deliver greater value and engineer the menus without trying -- without taking pure inflation. Because we don't believe that taking pure inflation in this market is the right thing to do. This is more about making sure that we are keeping our traffic and moving traffic in a positive direction.
Okay. And then last one for me on the unit count. Does the lack of domestic unit growth opportunities make you think more about expanding your international footprint? And I know it's pretty minimal right now, it's mostly 2 brands. But is that something that's potentially on the table?
Yes. In fact, I think you've seen just -- when I referenced international, it's outside North America and I think we already are a little bit more on the front foot, on being more aggressive on international development, obviously, leading with New York Fries. Before, I think we were a little bit more passive, just kind of waiting for people to find us. And we actually have a dedicated team now that's going out and exploring that. Yes, we watch the U.S. There's no question about it. It's interesting in the -- in many of the markets down there, they're facing very similar issues to Canada as far as -- in some cases in the U.S., many of the states are going to $15, and they were coming from a much lower base than what's happening in Canada. So it's really a shock for the restaurant industry in the U.S., and they're also paying for some labor shortage as well. So we're paying attention, and again, we just like we're very well positioned because of the strength of the balance sheet to be opportunistic and be patient, while we were making the investments to make our own core business better.
There are no further questions. I will now turn the call back over to the presenters.
Good. Well, I'd like to thank everyone for coming out this morning, and we will speak to you in 2020. Thank you, everyone.
This concludes today's conference call. Thank you for participating. You may now disconnect.