Why MTY Stock Tanked 14% After its Q4 Earnings Event

Here’s why MTY stock dived by more than 14% after its Q4 earnings report came out.

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MTY Food Group (TSX:MTY), the Canadian franchisor of fast-food and casual dining restaurants, unveiled its fourth-quarter and fiscal year 2023 financial results on February 15. Despite posting some record-breaking numbers, including annual sales surpassing the $1 billion mark for the first time in the company’s history, the results failed to impress investors. As a result, MTY stock tanked by over 14% after its earnings announcement.

Before discussing whether MTY stock is a good buy on this dip, let’s take a closer look at some key highlights from its latest earnings report to find out what possibly went wrong.

MTY Food’s key achievements in its fiscal year 2023

MTY Food’s fiscal year 2023 (ended in November) was marked by several notable achievements, with system sales soaring to an all-time high of $5.6 billion, reflecting a solid 33% YoY (year-over-year) jump.

The company’s strategy of leveraging strategic acquisitions and organic growth paid off well. This strategy contributed to a robust adjusted annual EBITDA (earnings before interest, taxes, depreciation, and amortization) of $270.7 million, a solid 49% growth from the previous year.

Then what went wrong?

On the negative side, its adjusted EBITDA margin last fiscal year contracted to 23.2% from 25.4% a year ago. While its total yearly sales of $1.17 billion reflected a 63.2% YoY increase, MTY’s adjusted annual earnings of $4.25 per share missed Street analysts’ estimates of $4.33 per share.

Moreover, in the November 2023 quarter, the company’s sales growth rate slowed significantly to 15.7% YoY from 73.8% in the previous quarter. Its November 2023 quarter adjusted earnings of $0.67 per share more than doubled from its earnings of $0.30 per share in the November 2022 quarter. But MTY’s latest quarterly earnings figure also missed analysts’ expectations of $0.94 per share by a big margin.

To add pessimism, the Saint Laurent-headquartered firm’s same-store sales for the last quarter declined by 0.9% YoY, hinting at some underlying challenges due primarily to the tough consumer spending environment affecting the sales of higher-priced brands within MTY’s portfolio.

These negative factors could be the primary reasons why MTY Food’s earnings report failed to impress investors despite some record-setting financial figures, which led to a selloff in its share prices. After sliding by more than 14% on February 15, MTY stock now trades at $50.25 per share with a market cap of $1.2 billion. At this market price, the stock also offers a 2.2% annualized dividend yield.

Is MTY stock a buy on the dip?

In the latest earnings report, MTY’s management has outlined some key strategic initiatives that could help it protect its profit margin. For example, the company plans to focus on strengthening operational efficiency and maximizing synergies across its vast portfolio of brands by consolidating business units and implementing cost-cutting measures in 2024.

Clearly, a recent slowdown in MTY’s sales and earnings growth badly hurt investors’ sentiments. Despite its dismal fourth-quarter results, however, we can’t ignore the fact that the company’s annual profits just reached their highest levels.

Even as ongoing macroeconomic challenges might continue to affect its financial growth in the short term, the company’s strategic focus on operational efficiency could further strengthen its long-term fundamentals, making MTY stock attractive to buy on the dip now and hold for the long run.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has positions in and recommends MTY Food Group. The Motley Fool has a disclosure policy. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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