GRAND RAPIDS — Franchise restaurant operator Meritage Hospitality Group Inc. leveraged new store openings and price increases to deliver record sales for 2022.
The Grand Rapids-based Meritage (OTCQX: MHGU) generated $626 million in sales for the year, an increase of 8.5 percent from the prior year and a record for the company, according to preliminary financial results released this week.
Meritage executives said the revenue from new stores and the higher pricing strategy went toward offsetting high commodity costs and wage inflation that rocked the industry in recent months.
The company reported net earnings of $9.1 million for the year, half of what it reported in 2021. The 2022 fiscal year included one-time charges of $7.6 million stemming from restaurant pre-opening activity, closures and dispositions.
CEO Robert Schermer, Jr. said in a filing that Meritage closed an unspecified number of stores in underperforming markets over the course of 2022.
“During the year, we took advantage of store closures in several sub-optimal trade areas inherited from prior acquisitions,” Schermer said in a statement. “These strategic closures benefit and position the Company for stronger earnings growth going forward, as reflected in the earnings outlook for 2023. Our restaurant operations and real estate development teams continued to execute at the highest standards, including a strong development pipeline for new locations.”
For the fourth quarter, the company generated year-over-year revenue growth of 7.4 percent to $159.4 million, while earnings from operations dipped about 43 percent to $800,000 compared to the same period a year ago.
Meritage, which operates 365 restaurants across a 16-state footprint and employs about 11,000 people, plans to continue pursuing acquisitions in the current year. To that end, executives said they had a signed purchase agreement on a deal that’s expected to close in the second quarter.
In December, Meritage announced that it had acquired a 43-store portfolio of Wendy’s restaurants in the Midwest.
Likewise, the company also is developing new stores that it expects will drive “robust earnings growth” in 2023, particularly as some inflation indicators continue to moderate. Meritage reported that it has a record number of new restaurants in its development pipeline, including Wendy’s stores that leverage the franchisor’s “Global Next Gen” design that incorporates artificial intelligence and cloud technologies, new data management and restaurant analytics tools.
Meritage also continues to deliver on a previously disclosed $100 million plan to build 50 new Taco John’s stores by 2026, with options to develop an additional 150 restaurants. The company expects to open 15 new Taco John’s locations in 2023.
To date, “our recently opened Taco John’s restaurants are delivering very impressive sales for a newly introduced brand,” the company said in a statement, which also noted Meritage was the only publicly traded franchisee for the privately held Taco John’s brand, “providing investors with a unique investment means to participate in the Taco John’s national growth story.”
In providing guidance on the company’s outlook for the 2023 fiscal year, Meritage executives said they expected “transformational growth ahead” for the year. The company is projecting sales growth of 10 percent to 15 percent, which would put annual revenues in the range of $688.6 million to $719.9 million, along with net earnings growth of 75 percent to 100 percent, according to a statement.
