MTY Food Group Inc

TSX:MTY

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the MTY Food Group Inc. Q2 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions]

Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. And I would like to remind everyone that this conference call is being recorded on Friday, July 8, 2022.

And I would like to turn the call over to Eric Lefebvre, Chief Executive Officer. Please go ahead, sir.

[Eric Lefebvre, Chief Executive Officer]

Good morning, everyone. Thank you for joining us for MTY's second quarter conference call for fiscal 2022. The press release and MD&A, with complete financial statements and related notes, were issued earlier this morning and are available on our website as well as on SEDAR.

During the call, we will be referring to forward-looking statements and to certain numbers that are non-IFRS measures. You can refer to our MD&A for more details. I also remind you that all figures presented on today's call are in Canadian dollars unless otherwise stated.

The much anticipated lifting of government-imposed restrictions in most of the territories in which we operate allowed our network to operate at near-normal capacity. During the second quarter, we gradually regained momentum and reestablished where the baseline is for our business.

All the hard work done by our teammates and franchise partners during the last two years is finally paying off, now that the horizon seems for the most part there.

We are delighted with our strong performance during the second quarter of 2022. There were multiple highlights, including the system sales reaching $1.1 billion, an increase of 18% year-over-year, to $47.6 million in adjusted EBITDA generated during the quarter and the quarterly net income attributable to owners rising sharply to $28.6 million.

Canadian restaurants and, in particular, casual dining and food court restaurants were the most heavily impacted by government imposed restrictions and as such, benefited the most from the gradual lifting of those restrictions.

Globally, sales realized by casual dining concepts grew nearly $95 million or 107% in the second quarter of 2022. Many of our casual dining concepts have reached or surpassed 2019 levels and others are inching closer every month.

In most cases, we see this as an opportunity as we expect our sales to further pick up as our brands restore normal operating hours and as business people and tourists return to urban areas.

The same can be said of our mall and office tower locations, which still lag 2019 materially, but are getting a lot closer now that restrictions have been mostly lifted and traffic gradually returns to pre-pandemic levels.

Digital sales improved 2% year-over-year to $206.9 million or 20% of total sales. The increase in casual dining sales in the second quarter inevitably resulted in a slower digital sales for the segment as customer traded takeout orders for the dining room experience.

Other segments continue to see progression in digital sales, and there is still a lot of room for growth for many of our brands. To add color to the sales metrics just presented, 18 of our top 20 brands realized growth compared to the same quarter last year, averaging 13.7% year-over-year.

These brands account for 84% of total sales and continued to perform well. Of note, our smaller brands grew 47% during the same period, showing the power of our diversified portfolio. Another key data point in the second quarter, the restaurant closing were at their lowest level in the last 16 quarters at 91 locations.

This was achieved despite one Canadian franchise closing 22 non-traditional frozen yogurt locations during the second quarter. Although we aim at closing as few restaurants as possible, and I hope we can do better than that number. This represents a small step in the right direction for MTY.

The opening of new locations, which reached 47 in the second quarter, remains under pressure due to supply chain and construction issues. There are, however, encouraging signs these matters are beginning to subside, particularly in the U.S.

At the end of the quarter, MTY's network had 6,660 locations in operation, of which 89 were corporate and 6,571 were franchise. The geographical split of MTY's location remained stable compared to Q2 2021 at 54% in the U.S., 39% in Canada and 7% international.

Before turning it over to Renée to discuss financial results, I would like to say a word about mergers and acquisitions. MTY finds itself in a great position to take advantage of opportunities that will arise in the future. As mentioned in our previous quarterly calls, the deal flow has become gradually more active, and the valuations seem to be reverting towards their historical values, although they are not there yet.

MTY remains disciplined in its approach and will only transact under the right circumstances. That can sometimes mean letting go of brands we would love to add to our portfolio, but that are selling for a price we are not willing to pay.

Mergers and acquisitions tend to come in waves, and our patients has generally paid off and resulted in superior returns for our shareholders. We expect history to repeat itself when it comes to our ability to realize transactions, and we hope to produce returns that will reward our shareholders for their patients in the future.

Our available liquidities exceed $300 million. And as before, our capital allocation preference is to invest in great brands we can add to our portfolio.

I will now turn the call over to Renée, who will discuss MTY's financial results in greater detail.

[Renée St-Onge, Chief Financial Officer]

Thank you, Eric, and good morning, everyone. As previously mentioned, MTY delivered a strong financial performance in the second quarter of 2022, which was marked by the removal of most government-imposed restrictions in Canada related to the COVID-19 pandemic, including the removal of vaccine passports and indoor seating capacity limitations.

This has allowed our franchisees and their staff to return their focus back to serving their customers the food they love. Company revenues increased 20% year-over-year to reach $162.5 million in the second quarter, mainly due to a 46% surge in revenue from franchise locations in Canada and a 32% improvement in food processing, distribution and retail revenue north of the border.

The Retail segment revenues increased 23% year-over-year as we launched new products across Canada and continue to aggressively promote and sell our existing product lines, while the distribution and food processing segment revenue increased by 56%, driven largely by the Küto Comptoir à Tartares acquisition as well as the reopening of the network we supply.

Altogether, revenue in Canada grew 42% in the second quarter of 2022, while revenue in the U.S. and International segment declined by 1%. The slight drop in overall revenues in the U.S. was mostly due to the franchise multiple Papa Murphy's corporate locations in the second half of 2021, which was offset by a 6% increase in revenues in the franchising segment.

Adjusted EBITDA improved 10% year-over-year to $47.6 million in the second quarter of 2022. The Canadian franchising segment contributed $5.2 million to the increase in EBITDA with much of this improvement coming from recurring revenue streams as system sales increased 55% year-over-year.

Most of the increase in system sales in Canada was generated by the casual dining segment, which generated growth of 117% as indoor dining became more accessible while the QSR segment generated system sales growth of 46%.

Globally, mall and street locations generated year-over-year growth of 61% and 13%, respectively. Comparable to last quarter, our franchising segment margin saw a slight decrease from 56% to 53%. This continues to be partly due to the Company no longer qualifying for the government wage subsidy as well as an inflation impact on wages and other expenses.

As mentioned by Eric, net income attributable to owners rose sharply to reach $28.6 million or $1.17 per diluted share in the second quarter of 2022 compared to $23 million or $0.93 per diluted share in the same period last year, representing a 24% increase.

Turning to liquidity and capital resources. Cash flow from operations amounted to $30.7 million in the second quarter of 2022 compared to $29.5 million in the second quarter of 2021. Free cash flow totaled $26 million or $1.06 per diluted share in the second quarter of 2022 compared to $27.5 million or $1.11 per diluted share in the same period last year.

The slight drop stemming from higher additions to property, plant and equipment and intangible assets. In terms of capital allocation during the second quarter of 2022, we reimbursed $12.1 million of long-term debt and paid $5.1 million in dividends to shareholders.

We continue to aggressively repay our debt to open up available liquidity for future acquisitions. This is also helping reduce our interest in, which saw a significant decrease for the quarter of over $1 million year-over-year.

At quarter end, long-term debt, mainly in the form of bank facilities and holdbacks on acquisition stood at $348.9 million. We also closed the quarter with a cash position of $56.2 million.

And with that, I'd like to thank you for your time, and we'll now open the line for questions. Operator?

[Operator]

[Operator Instructions] And your first question will be from Monica Lutz at CIBC Capital Markets. Please go ahead.

[Monica Lutz, CIBC Capital Markets]

Just the first one on openings versus closures. Is there any reason to think that the closures will ramp back up after this quarter? And on opening, when do you anticipate you'll be back to more the normal pace of opening without some of the supply chain in construction this year?

[Eric Lefebvre, Chief Executive Officer]

Yes. Well, I'll start with the openings. And I apologize if the sound is not great. We're in a scramble both with the Rogers outage this morning. And -- so in terms of the openings, I think it's still going to take a quarter or two before it come back.

There's a number of buildings that were supposed to be delivered to us that are late also for landlords. So possession has not been on time. So, we are building stores as we speak, and we anticipate that Q3 is going to be better than Q2 in terms of store openings.

But in terms of hitting full stride, we're not there yet. In terms of closures, we're pretty happy with where we landed in Q2. As mentioned during the call, we had the 22 closures from one partner in movie theaters. So obviously, we don't like to see 22 locations go this way, but it's a one-off and it's something that can't really repeat itself.

So we're pretty satisfied with where we landed. Obviously, it's still too many closures and we'd like all our stores to stay open, but it's a reality of a network the size of ours. So, there are still going to be closures, but we hope to be able to continue to control it as good as we can in the future and hopefully balance closures and openings in the near future.

[Monica Lutz, CIBC Capital Markets]

Okay. Great. That's very helpful. And on operating hours on an aggregate kind of level across the system, either relative to pre-pandemic or your own expectations, are the labor shortages continuing some impact? And are you able to incentivize franchisees to open for additional hours now?

[Eric Lefebvre, Chief Executive Officer]

Yes. Yes, labor shortages continued to have an impact. There's no doubt about it. We have some restaurants that, for example, operated breakfast, lunch and dinner and now have removed, for example, breakfast. So, we still operate with the two lane day parts, but if you lose one day part, for the franchisee and in the current circumstances, I think they find their profitability with the two day parts they have remaining, but as a franchisor because we take a percentage of the top line, obviously, it's not ideal for us.

But we understand that our franchisees' profitability and our franchisees operations seem to be the primary factor here. So, we're still missing some operating hours. We have fewer restaurants now that need to close for their two week. There are still a few exceptions to that, but it doesn't happen as much as it happened a few months ago.

[Monica Lutz, CIBC Capital Markets]

Understood. Okay. Great. And so on inflation, are any of your banners seeing greater resistance to price increases? Or in general, do you view your portfolio being more advantageous because of the skew towards quick service so possibly benefit from a trade down?

[Eric Lefebvre, Chief Executive Officer]

Yes. Well, I don't necessarily believe in trade down. I think people either go to the restaurant that they don't. But as far as inflation is concerned, we do have a few brands that are more value-oriented, that will obviously become more price sensitive.

So, we need to be careful about what we put as far as price increases. And if we do have price increases we need to put through, we need to be careful how we approach them and on what products. So, not all brands are equal, we have some brands that are extremely resilient and will take a lot of price increases and some other brands where it's a little bit more sensitive as we need to be careful if we don't want to cause a massive decline in traffic.

So, it's a fine line we're walking here for all the brands. We need to try to maintain the margins for our franchisees as much as possible, but we also need to maintain traffic. So, it's an art more than a science, and it really needs to be run by brand and whether it's street or mall or office tour will also make a difference in how much price we can put through. So, it's really an art, and we need to go almost store by store to get the right pricing strategy.

[Monica Lutz, CIBC Capital Markets]

Okay. That's great color. And just one last one for me, if I can. So your approach to capital allocation, maybe favored debt repayment a little bit more with interest rates rising due to the floating debt structure?

[Eric Lefebvre, Chief Executive Officer]

Yes. Well, for sure, debt repayment and all the repayments we've done in the past two years are paying off now with interest rates going up, we're saving a lot of money. But that being said, our preference remains to make good accretive acquisitions that we can add to our portfolio. So that's still top priority. That's our preference.

But as mentioned earlier, we need to make sure that we make acquisitions for the right reasons, the number of the right circumstances. So, we're patient. And while we're not doing acquisitions, our preference will go to debt repayments. And build that dry powder and also avoid if we have the waivers of acquisitions avoid going into too much leverage that would become more expensive in terms of interest and debt service costs.

[Operator]

Thank you. Next question will be from Michael Glen of Raymond James. Please go ahead.

[Michael Glen, Raymond James]

Maybe just to start on the capital allocation. Can you just run us through any thoughts on how you think about the buyback? You were fairly active in 1Q. It doesn't look like you were active in 2Q. You renewed the NCIB recently. Is there some like what sort of metrics or when do you become active in when do you hold back? Like, I'm just trying to understand the philosophy there a little better.

[Eric Lefebvre, Chief Executive Officer]

Yes. Well, it's a discussion we have at the Board level regularly, and it's really -- again, it really depends on circumstances with interest rates going one way or the other with availability of potential targets going one way or the other. So, we need to balance it with a certain set of metrics and factors we have internally.

It's open discussion. And we decided if we want to invest more in buybacks or if we want to build a treasure chest if we want to try to reduce debt, so we can reduce our interest costs.

And it's -- I mean, there's no set metrics, I'd like to give you a type of one-size-fits-all type of scenario where we buy back or we don't. But it's really a little bit more sensitive than that, and it's based on discussions on a great number of factors that need to be weighted.

[Michael Glen, Raymond James]

Okay. And then in terms of the labor situation, at the MTY level, are you at the right level right now? Do you need to add people? I know it's a competitive labor environment out there. Is MTY corporate having any challenges in terms of retaining staff? And is there competition for your people?

[Eric Lefebvre, Chief Executive Officer]

Yes. Well, yes, it's a competitive environment now, and it's certainly hard to hire great people, it's hard to retain great people. Hopefully, our teammates are MTY because they're passionate about what they do and they like the environment they work in. Yes, it's a tough environment. We did lose a few people here and there as is not unusual. And there's always a few vacant product positions.

In this case, we tend to hire a little bit more and allow some of our departments to go slightly over staff just in case we lose some people because there's a little bit more volatility on the market. But I would say that -- so on average, I think we're fully staffed. And obviously, there's the vacancy here and there, but on average, we're fairing pretty well.

[Michael Glen, Raymond James]

Okay. And then, Eric, you've been CEO is coming up on four years now. And it's safe to say you've had to navigate some pretty unexpected operating conditions. Like, as you look from this point forward, in your opening remarks, you talked about things sort of getting back to something that looks more as a normal operating environment. So what are your priorities and goals for the Company over the next three to five years? What would you like MTY to look like in the next three to five years?

[Eric Lefebvre, Chief Executive Officer]

Yes. Well, the priorities really haven't changed. So if you ask me what the priorities were three years ago before COVID happened. I would have said, well, we want to do good accretive mergers and acquisitions. We want to have good transactions that will benefit our shareholders, and we want to grow organically.

The strategy hasn't changed. The goal hasn't changed. Obviously, how we get there might be slightly different today because certain a certain number of metrics and the parameters have changed and how we can get there. But it's really the same as it was. We want to achieve good returns on investments for our franchisees. We want to achieve organic growth. We want to have good same-store sales. We want to have positive unit counts, and we want to have good mergers and acquisitions.

So the strategy really hasn't changed. And if you ask me about the type of stores we'd like to add and where we want to be playing with the playing field for us. I would say that there are good chains in malls are good change in office towers. There are good chains on the street. There are good chains in non-traditional areas. So again, we're happy to be where we need to be for each chain.

And again, if there's a lot of competition or if there's whatever other sets of factors are thrown at us, if we're best in what we do, then everything is going to go smoothly. And if we're not best, then we need to work a little harder to get there.

[Operator]

Thank you. Next question will be from Vishal Shreedhar at National Bank Financial. Please go ahead.

[Vishal Shreedhar, National Bank Financial]

Just wondering what you're seeing in terms of customer health and trends at your restaurants, even if you could break it down to us by type of concept or geography. There's a lot of macro concerns. So I'm wondering, if you're seeing any of that pressure unfold through the quarter or post quarter?

[Eric Lefebvre, Chief Executive Officer]

Yes. Well, in terms of consumer health and volume, I would say that so far, so good. There's a lot of talks about different economic parameters, is there a recession coming or whatever. Right now, it looks like discretionary income is still there.

Customers are still coming to our restaurants during the quarter. And after the quarter, the traffic is going well. The trends are favorable to us. And we're not seeing a slowdown caused by any economic factors at the moment. If anything, we're struggling to cope with demand more than we're struggling to attract customers.

[Vishal Shreedhar, National Bank Financial]

Okay. And with respect to near-term growth drivers with network locations down and, obviously, it's difficult for investors to understand the acquisition outlook and when that will manifest. What would you point to as the key near-term growth drivers for MTY?

[Eric Lefebvre, Chief Executive Officer]

Well, there's still room for us to grow existing stores back to 2019 levels. So you look at our malls, for example, we're still down compared to pre-pandemic levels. So, there's room for us to go back to normal levels, and even casual dining, we have a few concepts that are -- concepts that we can play over 2019, but we do have a few concepts also where we have opportunities and thinking of our concepts that are in California, where the recovery has been a little bit slower, so just that is going to generate growth by itself.

And then again, it's up to us to be best-in-class and to attract customers, we can generate organic growth. M&A is unpredictable. We know eventually, we're going to have good transactions. We're going to be able to bring to the finish line, but there's no guarantee as to when that's going to happen.

So in the meantime, we need to focus on our existing network and our existing franchisees. We need to make them as profitable as possible. We need to make our existing franchisees want to have a second or a third or a fourth store and give them a reason to invest the reinvest their profits into more MTY outlets. And then the rest of this is going to come natural.

[Vishal Shreedhar, National Bank Financial]

Okay. And you've highlighted same-store sales growth as a key priority for management. When does MTY look to reinstate that metric for investors to view?

[Eric Lefebvre, Chief Executive Officer]

Yes. We want to be careful. We do calculate it internally. The metric is still extremely misleading because of the deposits and where we had to shut down and reopen and then halfway in between where we have some restrictions, but not full restrictions.

So to present same-store sales, now would still be misleading. We have an opportunity to present it in Q3 because it's going to be, for the most part, comparable, but then we'd have to stop again for Q4 and Q1 because of restrictions that were re-imposed last year.

So most likely, same-store sales would probably come back in Q2 of 2023, assuming there will be no more shutdowns or other sanitary measures impose on us.

[Operator]

Thank you. [Operator Instructions] And your next question will be from Derek Lessard at TD. Please go ahead.

[Derek Lessard, TD]

Congrats on a good quarter. I just maybe wanted to drill down a little bit more on the inflation topic, particularly -- and consumer behavior, particularly, as it relates to your bigger banners like Cold Stone Creamery or Papa Murphy's. Just wondering if you've seen maybe more pressure on Cold Stone given the -- maybe some of the higher price points that might be in that banner?

[Eric Lefebvre, Chief Executive Officer]

Yes. Well, in terms of Cold Stone, I think it's a brand that's relatively resilient. One, the price increases haven't been as bad on Cold Stone as they've been on other brands.

The base products for Cold Stone are going up like the rest of products, but we've had a pretty good run and the price increases have not been to the level of other brands. But given the premium nature of Cold Stone, we believe that it's going to be brand that will show some good resilience.

And in the end, the price is only one factor in the experience. And if we want to increase prices, we need to understand that expectation of customers will go up accordingly.

Higher prices will command higher expectations, and it's up to us to deliver a really good experience and to rebalance the value equation. If we offer a really good experience to our customers, the perception of value will be there and the customers will be happy to pay a little bit more, but to get that superior experience.

So this is how we approach price increases. We understand that any time we increase prices, we increased our responsibility. And if we deliver an even better experience, we believe customers will continue to come back.

So, Cold Stone terms of inflation was okay, not bad, and then it's up to us to deliver the experience, and I believe we are delivering a great experience for Cold Stone.

There's just a lot going on for that brand, and it's so proud of everything we're doing. There's a lot of PR that was done. There's a lot of good appearances we had with this brand. And I think it's a brand that's firing on all cylinders and that will cope a little bit better inflation.

You asked me also about Papa Murphy's, that's a brand that's a little bit more sensitive when it comes to pricing. Obviously, the pizza sector is suffering from a decline in traffic in general. And we're not the only ones that are feeling the tension.

And if you look at our competitors, a lot of them are going extremely deep in the value category where they share their prices by material amounts. And we're not necessarily prepared to play in that game where the prices become so low that the franchisees don't make money with every unit they sell. So, a little bit more sensitive when it comes Papa Murphy's.

We've also had some issues in terms of supply chain that caused us to have some dough problems in Q1 and Q4 last year, Q1 this year. So inflation is not the only factor here. The entire supply chain disruption is causing some problems for the brand.

And it's up to us to find solutions for all these things. So the dough problem is behind us now. And inflation is still very real for the brand, and we need to find a way to provide value to our customers without discounting our prices too deep. So the team is working, doing a great job at coming up with solutions, coming up with new products that we can sell, that we can add to our lineup,

Sometimes it's just a little add-on, like dips are being launched now for dough. And we believe the dips are going to be a really hot product where customers will simply add one or two items to their basket. So, there's a few ways that we can add to our sales and add to our franchisee profitability and cope with inflation and avoid playing with this extreme value equation.

[Derek Lessard, TD]

That's very good color and very helpful. Thanks Eric. And one final one for me. Obviously, if you take your balance sheet is really healthy and you look locked and loaded for potential M&A. You did mention that the market is opening up on that front. But I'm just curious, right now, what's the major impediment to pulling the trigger on any transactions at this moment?

[Eric Lefebvre, Chief Executive Officer]

Yes. Well, these processes take time. So we need to -- we can't rush into these things. We need to do it properly. So, I mean, it's nothing unusual. The deal flow came back and I started seeing the deal flow come back maybe six to nine months ago, the deal flow started to go back to a more normal place. The valuation was still high.

And then you start some processes and you start some to work on some businesses. And unfortunately, sometimes you're not a buyer or sometimes they pull out of the market if they can't find the price. And then you start over with the different companies.

So these processes take time. There's never a guarantee we're going to be able to cross the finish line with any of them. So, I think it's just a matter of time. We need to be patient and disciplined and eventually, it's going to work out.

But there's no one single factor that I would call out saying, well, if we can solve that, acquisitions will start flowing. It's just a matter of being patient and being systematic in our approach and good things will happen.

[Derek Lessard, TD]

Okay. And what's -- I guess, what's the difference between today's environment versus when you were I guess, completing more deals on the regular, let's say, two, three years or even pre-COVID? Is there a major difference between the two markets environmentally?

[Eric Lefebvre, Chief Executive Officer]

Yes, I think the major difference is that before we always had a pipeline of transactions that we were working on at any given point in time. So, we were -- we always had, I don't know, four or five, six transactions we were working on and some of them pan out, some of them don't, and we replace them, and we always have the same number of transactions we're working on.

What happened during COVID is that our pipeline dried out completely. So, we had to restart the pipeline, restart processes and start over. So, we need to rebuild that pipeline. And again, these transactions take time to happen.

So -- it's not something you can do in one month or two. It's -- sometimes it's six months, nine months or it's a year. So you need to be patient and rebuild the pipeline and bring the number of transactions you're working on to a certain level where you're always going to have something. So, I think now we're seeing the deal flow being better, and we have a certain number of transactions that we hope we can make.

There's no guarantee that we can cross the finish line. There's no guarantee we can find the right value in this transaction. But at least we're rebuilding our pipeline, and it takes time to do that. So eventually transactions will happen, but we can't guarantee when and what it's going to be.

[Operator]

Thank you. Next question will be from Nick Corcoran at Acumen. Please go ahead.

[Nick Corcoran, Acumen]

Just the first question, you mentioned that there's been a recovery in California that's been a bit slower. I'm just wondering what you're seeing on the West Coast and maybe how close the West Coast is to operating the kind of pre-pandemic levels?

[Eric Lefebvre, Chief Executive Officer]

Yes. I think we're inching towards normal circumstances. What we're seeing is still and probably a little bit more on the West Coast and other places, people are less going back to the office.

And I think tourism, especially when it comes to California tourism and an extremely important factor in terms of generating traffic for restaurants. And tourism, I think it's starting to come back. I don't have the exact metrics or measures. But I think we're getting back to a level that's going to be closer to normal.

So hopefully, this year, there are no major fires or other things that impede our ability to go back to normal and California recovers. But it's been a little bit longer for this territory specifically, and we're talking to some of our peers. And although it doesn't help us, they're all feeling the same pinch and specifically with California.

So, we know we're going in the right direction. We know sales are coming back gradually. We have to be a little bit more patient for that territory. Unfortunately, it's a strain on our franchisees because financially, it's now almost 2.5 years of difficult economic environment for them.

So hopefully, we're going to get back to normal very soon. And then, California will be an important territory for us for future growth again.

[Nick Corcoran, Acumen]

That's good color. And then maybe switching gears. I know real estate has been a bit of a headwind in just finding the right locations. Is the market still tight? And are there any signs that there might be a potential relaxing and you're able to find location that you put on and being able to find even 6 or 12 months ago?

[Eric Lefebvre, Chief Executive Officer]

Yes. Yes. Real estate is -- it's a competitive market. There's new types of outlets that are coming up that are not necessarily restaurants that are taking spaces that traditionally would have gone to restaurants. So, the market remains tight. It's not -- it's not crazy. I think we can manage the real estate. Obviously, as I mentioned before, some of our landlords, they have sites that they want to build, but they've taken two years to build a new site, it's taken three years. So possession was supposed to happen last year, it hasn't happened yet.

Possession is delayed. So construction, there's a ripple effect on -- if you have a delay at the onset on one thing, then it has ripple effect that becomes exponential at some point. Permitting is taking longer inspections of buildings are taking longer. So everything takes a few weeks more. So, we're getting to a point where we can build stores now, but we need everybody to pick that up. And then real estate, I think, will become a little bit more available as all these projects get built. But for now, it's a tech market, but it's not something we haven't seen before. And we just need to cope with the market.

[Nick Corcoran, Acumen]

Great. And the last question for me. I just think about the retail products, can you maybe give some color on what you're seeing in your portfolio and how it's performing and where you might be able to expand it going forward?

[Eric Lefebvre, Chief Executive Officer]

Yes. That's -- we're extremely proud of where we are with retail. It's a good success story. We built it from almost nothing in 2018 to what it is now. And it's a tough market, and I see our team every day, they're scrambling.

They're struggling with price increases and difficulties with shipments and availability of product and everything. But all in all, we have a really good product line. We have a few champion products that are driving a lot of the EBITDA we're generating with the department. We have some really good innovation also.

And now we can, I think, expand geographically. We have some products that are available in other geographies. And it's a matter for us to find suppliers that are able to deliver the volume. So more than anything now, we're limited by the volume we can produce more than by our ability to get listings.

So, we need to help our suppliers help us. But all in all, it's a good product line. We can expand that product line. We have great brands, great ideas. And it's certainly a good growth segment for us for the future.

[Operator]

Thank you. At this time, we have no further questions. Ladies and gentlemen, this does conclude today's conference. Thank you for attending. We do ask that you please disconnect your lines. Have yourselves a good weekend.