CARA OPERATIONS LIMITED - Management's Discussion and Analysis

CARA OPERATIONS LIMITED - Management's Discussion and Analysis

CARA OPERATIONS LIMITED - Management's Discussion and Analysis

1 CARA OPERATIONS LIMITED Management’s Discussion and Analysis For the 13 and 26 weeks ended June 25, 2017 The following Management’s Discussion and Analysis (“MD&A”) for Cara Operations Limited (“Cara” or the “Company”) provides information concerning the Company’s financial condition and results of operations for the 13 and 26 weeks ended June 25, 2017 (“second quarter”, “Q2”, “the quarter” or “the period”). This MD&A should be read in conjunction with the Company’s unaudited Condensed Consolidated Interim Financial Statements (“interim financial statements”) and accompanying notes as at June 25, 2017, and with the Company’s annual Consolidated Financial Statements for the 52 week period ended December 25, 2016.

The consolidated results from operations for the 13 and 26 weeks ended June 25, 2017 are compared to the 13 and 26 weeks ended June 26, 2016. Cara’s fiscal year ends on the last Sunday in December. As a result, the Company’s fiscal year is usually 52 weeks in duration but includes a 53rd week every five to six years. The Company’s fiscal 2017 will end on December 31, 2017 and will be a 53 week year. Some of the information contained in this MD&A contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” and “Risk and Uncertainties” for a discussion of the uncertainties, risks and assumptions associated with these statements.

Actual results may differ materially from those indicated or underlying forward-looking statements as a result of various factors, including those described in “Risk and Uncertainties” and elsewhere in this MD&A.

This MD&A was prepared as at July 31, 2017. Additional information relating to the Company can be found on SEDAR at www.sedar.com. Basis of Presentation The Interim Financial Statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and all amounts presented are in Canadian dollars unless otherwise indicated. Second Quarter and Year to Date Highlights:
System Sales(1) grew $210.5 million to $660.8 million for the 13 weeks ended June 25, 2017 as compared to 2016, representing an increase of 46.7%. For the 26 weeks ended June 25, 2017, System Sales(1) grew $419.4 million to $1,319.9 million compared to the same period in 2016, representing an increase of 46.6%.

The increase in System Sales is primarily related to the addition of St-Hubert in September 2016, Original Joe’s in November 2016 and the addition of 42 new restaurants that opened in 2016, partially offset by restaurant closures.

Same Restaurant Sales (“SRS”) Growth(1) for the quarter was a decrease of 0.3% compared to the same 13 weeks in 2016. SRS during the quarter was negatively impacted by 0.6% with Easter occurring in the second quarter of 2017 as compared to the first quarter in 2016. Excluding the impact of Easter, SRS for the second quarter was positive 0.3%. SRS for the 26 weeks ended June 25, 2017 was a decrease of 0.5% compared to the same period in 2016. SRS excludes the impact from the Original Joe’s transaction that was completed on November 28, 2016 and the Burger’s Priest investment that was completed on June 1, 2017, and both will be excluded from 2017 SRS reporting.

Operating EBITDA(1) increased to $41.6 million for the 13 weeks ended June 25, 2017 compared to $32.8 million in 2016, an improvement of $8.8 million or 26.8% for the quarter. Year to date, Operating EBITDA was $84.5 million compared to $60.3 million in 2016, an improvement of $24.2 million or 40.1%. The increases have been driven by an increase in contribution dollars in each of the Company’s operating segments, being Corporate restaurants, Franchise restaurants and Central, from the addition of St-Hubert in September 2016 (including food processing and distribution which is part of Central operations), and Original Joe’s in November 2016.

Operating EBITDA Margin on System Sales(1) was 6.3% for the second quarter in 2017 compared to 7.3% in the same quarter in 2016. Year to date, Operating EBITDA Margin on System Sales was 6.4% compared to 6.7% in 2016. The second quarter decrease was driven by: (i) the addition of Original Joe’s that currently operates below our 7%-8% target; (ii) weaker performance in certain Cara corporate restaurants as a result of poor weather impacting our patio season; (iii) negative SRS, and, (iv) second quarter timing differences, in particular, 10 corporate restaurant temporary closures for renovation and seasonally low grocery sales that will

2 correct in the second half of 2017 as the sales for food processing and distribution is lowest in the second quarter. If we normalize second quarter Operating EBITDA(1) for timing differences, Operating EBITDA Margin on System Sales(1) was 7.1%, within our long-term target range.
Earnings before income taxes was $21.6 million for the 13 weeks ended June 25, 2017 compared to $24.9 million in 2016, a decrease of $3.3 million or 13.3% for the quarter. The decrease in the quarter is related to an increase in interest and financing costs and increased depreciation expense (both related to the St-Hubert and Original Joe’s 2016 transactions), non-cash impairment provisions, and restructuring expenses recognized during the quarter related to the Original Joe’s integration and exiting certain leases corresponding to unprofitable corporate sites.

Year to date, Earnings before income taxes was $49.1 million compared to $45.0 million, an improvement of $4.1 million or 9.1%. The increase was mainly attributed to increased contribution dollars from corporate and franchised restaurants from the additions of St-Hubert and Original Joe’s corporate and franchise restaurants, improved contribution from the central segment driven by the addition of St-Hubert’s food processing and distribution business, and overall cost reductions, offset by increased interest expense and depreciation expense (both related to the St-Hubert and Original Joe’s 2016 transactions), and second quarter impairment provisions and restructuring charges.

Management continues to focus on both short-term and long-term strategies to improve SRS through restaurant renovations, greater emphasis on menu innovation, 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, and brand specific digital-social media marketing. Some specific developments include: o In Q1 and Q2 the Company completed the renovation of 29 corporate and franchised restaurants. Restaurant renovations rejuvenate sales long-term and positively contributes to SRS. The Company expects to complete 43 renovations in the second half of the year.

Management has reduced the number of planned renovations for the year to focus on completing renovations with higher sales impact.

o The Company has completed improvements to its websites and mobile applications to simplify and enhance order functionality to improve online sales. In Q3 and Q4, the Company will be launching new online applications (APPs) for East Side Mario’s, Swiss Chalet and Montana’s that will provide new and improved options for customers for take-out and delivery sales. o In Q1 and Q2 Cara expanded its on-line aggregator relationships (including Uber-Eats) to over 350 restaurants to enable customers to place delivery and pick-up orders through the channel and application of their choice; the Company will continue to roll out this initiative across its corporate and franchised restaurants and expects to be active in at least 470 restaurants by August 2017 and 600 by the end of Q4.

o The Company continues to build on existing partnerships with key media partners including Facebook and Google and has also built new partnerships and integrations with strategic digital media partners including the Weather Network, TeamSnap and Waze where their subscribers overlap with Cara customers. This is part of the continued goal of enhancing customer specific marketing and marketing effectiveness. o In Q3 and Q4 the Company will be focused on growing active user databases across brands and leveraging a new CRM tool and database management systems to market directly to customers and to effectively maximize life time value of these guests.

o In Q3 the Company will also be using the data gathered from these data analytics tools to identify and provide specific feedback to individual restaurants that have an opportunity to enhance guest experience. o In Q3 the Company is on track to launch a new local store marketing portal that will provide more effective local store marketing tools to help our franchisees and restaurants better connect with guests in their communities.

3 o In Q3 and Q4 Cara will be enhancing its partnership with Scene to more effectively leverage the 8 million plus Scene member database and customer data to drive new and repeat purchases from Scene members.
On June 1, 2017, the Company completed the investment in New & Old Kings and Priests Restaurants Inc.

(operating as “Burger’s Priest”) for cash consideration of $14.7 million. Burger’s Priest owns and operates 14 fast casual restaurants in Ontario and Alberta generating System Sales of approximately $18.7 million and $2.2 million in EBITDA. The Company has a 79.4% ownership interest in the joint venture with the remaining 20.6% owned by a third party who has an earn-out agreement that can grow their ownership interest to 50% if certain earnings targets are met. This strategic partnership represents a growth opportunity for Cara in the fastcasual market. Our Burger’s Priest partner has significant experience and expertise developing and managing fast casual concepts and will operate and grow Burger’s Priest as a standalone business separate from Cara, but they will leverage Cara’s support and central services where it makes sense.

(1) See “Non-IFRS Measures” on page 28 for definitions of System Sales, SRS Growth, Operating EBITDA, Operating EBITDA Margin, and Operating EBITDA Margin on System Sales. See “Reconciliation of Net Earnings to EBITDA” and “Reconciliation of Net Earnings to Adjusted Net Earnings” for a reconciliation of Operating EBITDA and Adjusted Net Earnings.

Subsequent event On July 31, 2017, the Company's Board of Directors declared a dividend of $0.10169 per share of subordinate and multiple voting common stock. Payment of the dividend will be made on September 15, 2017 to shareholders of record at the close of business on August 31, 2017. Subsequent to June 25, 2017, 133,796 shares were purchased for cancellation under the normal course issuer bid (“NCIB”) for its Subordinate Voting Shares that was announced on June 16, 2017.

4 Overview Cara is a full-service restaurant company that franchises and operates iconic restaurant brands.

As at June 25, 2017, Cara had 16 brands and 1,255 restaurants, 83% of which are operated by franchisees. Cara’s restaurant network includes Harvey’s, Swiss Chalet, Kelsey’s, East Side Mario’s, Montana’s, Milestones, Prime Pubs, Casey’s, Bier Markt, Landing, New York Fries, St-Hubert, Original Joe's, State & Main, Elephant & Castle and Burger’s Priest restaurants. Cara’s iconic brands have established Cara as a nationally recognized franchisor of choice. Cara’s restaurants are located across Canada with 55% of Cara’s locations based in Ontario.

Unit count (unaudited) Corporate Franchise Joint Venture Total Corporate Franchise Joint Venture Total Swiss Chalet ... ... 8 206 0 214 9 206 0 215 Harvey’s . . 12 262 0 274 13 258 0 271 Montana’s . . 8 97 0 105 13 90 0 103 East Side Mario’s (1) ... ... 2 73 0 75 2 76 0 78 Kelsey’s ... . 12 57 0 69 13 57 0 70 Casey’s Prime Pubs ... . 5 34 0 39 5 32 0 37 Bier Markt Milestones ... ... 28 24 0 52 29 25 0 54 Landing New York Fries ... ... 17 152 0 169 17 150 0 167 St-Hubert ... . 12 109 0 121 13 110 0 123 Original Joe's ... . 20 17 28 65 20 17 28 65 State & Main ... . 14 4 8 26 12 4 8 24 Elephant & Castle .

10 2 0 12 10 0 0 10 Burger's Priest . 0 0 14 14 0 0 0 0 Total restaurants . .

164 1,041 50 1,255 171 1,030 36 1,237 13% 83% 4% 100% 14% 83% 3% 100% (1) Unit count excludes East Side Mario restaurants located in the United States. As at June 25, 2017 As at December 25, 2016

5 Selected Financial Information The following table summarizes the results of Cara’s operations for the 13 and 26 weeks ended June 25, 2017 and June 26, 2016: (C$ millions unless otherwise stated) June 25, 2017 June 26, 2016 June 25, 2017 June 26, 2016 SystemSales (2)(3) (unaudited ... . 660.8 $ 450.3 $ 1,319.9 $ 900.5 $ Sales ... ... 152.0 $ 70.6 $ 309.0 $ 136.2 $ Franchise revenues ...

26.3 18.4 52.1 37.0 Total gross revenue (1) ... . 178.4 $ 89.0 $ 361.1 $ 173.2 $ Cost of inventories sold ... ... (67.8) (20.1) (138.2) (38.9) Selling, generaland administrative expenses ... . (81.5) (43.5) (161.9) (88.3) Impairment of assets, net of reversals . . (2.4) - (3.6) - Restructuring and other ... ... (2.7) 0.3 (2.7) 0.5 Operating income (1) ... .

23.9 $ 25.7 $ 54.6 $ 46.4 $ Net interest expense and other financing charges ... . (2.7) (0.8) (5.8) (1.4) Share of loss frominvestment in associates and joint ventures . 0.4 - 0.3 - Earnings before income taxes (1) . . 21.6 $ 24.9 $ 49.1 $ 45.0 $ Income taxes - current . . (0.4) (0.3) (3.5) (0.3) Income taxes - deferred . . (3.8) (6.5) 15.7 (12.3) Net earnings (1) ... . 17.4 $ 18.1 $ 61.3 $ 32.4 $ AdjustedNet Earnings (2) ... . 26.4 $ 25.5 $ 52.1 $ 46.6 $ Totalassets ... ... 1,320.8 $ 697.3 $ 1,320.8 $ 697.3 $ Non-current financialliabilities ... . 573.7 $ 124.4 $ 573.7 $ 124.4 $ Earnings per share attributable to common shareholders (in dollars) Basic EPS .

0.29 $ 0.37 $ 1.02 $ 0.66 $ Diluted EPS ... . 0.28 $ 0.34 $ 0.99 $ 0.61 $ Adjusted Basic EPS(2) . . 0.44 $ 0.52 $ 0.87 $ 0.95 $ Adjusted Diluted EPS(2) ... . 0.42 $ 0.48 $ 0.84 $ 0.89 $ For the 13 weeks ended For the 26 weeks ended (1) Figures may not total due to rounding. (2) See “Non-IFRS Measures” on page 28 for definitions of System Sales, Adjusted Net Earnings, Adjusted Basic EPS and Adjusted Diluted EPS. See page 6 for a reconciliation of Net Earnings to Adjusted Net Earnings. (3) Results from East Side Mario restaurants in the United States are excluded from System Sales totals. See “Non-IFRS Measures” on page 28 for definition of System Sales.

6 (C$ millions unless otherwise stated) June 25, 2017 June 26, 2016 June 25, 2017 June 26, 2016 Dividends Declared (in dollars per share) (1) Subordinate VotingShares, Multiple VotingShares and Subscription Receipts . a 0.20 $ 0.10 $ 0.20 $ 0.20 $ a Reconciliation of net earnings to Adjusted Net Earnings (2) a Net earnings ... ... a 17.4 $ 18.1 $ 61.3 $ 32.4 $ Deferred income taxes . . a 3.8 6.5 (15.7) 12.2 Restructuringand other ... . a 2.7 - 2.7 - Transaction costs ... . a 0.1 0.9 0.2 2.0 Impairment charges ... . a 2.4 - 3.6 - Adjusted Net Earnings (1)(2) ... .

a 26.4 $ 25.5 $ 52.1 $ 46.6 $ Reconciliation of net earnings to EBITDA (2) Net earnings ...

17.4 $ 18.1 $ 61.3 $ 32.4 $ Net interest expense and other financingcharges ... ... 2.7 0.8 5.8 1.4 Income taxes ... . 4.2 6.8 (12.2) 12.6 Depreciation of property, plant and equipment . . 10.8 5.5 20.8 10.4 Amortization of other assets ... . 1.6 0.7 3.1 1.9 EBITDA (2) . . 36.7 $ 31.9 $ 78.9 $ 58.7 $ Reconciliation of EBITDA (2) to Operating EBITDA (2) : Losses on early buyout/cancellation of equipment rental contracts ... 0.1 - 0.1 - Restructuringand other ... . 2.7 (0.3) 2.7 (0.5) Transaction costs ... . 0.1 0.9 0.2 2.0 Conversion fees ... ... (0.3) (0.4) (0.5) (0.8) Net gain on disposal of property, plant and equipment ...

(1.1) (0.2) (1.6) (1.1) Impairment of assets ... . 2.4 - 3.6 - Stock based compensation . . 0.8 1.1 1.3 2.2 Change in onerous contract provision ... . (0.2) (0.2) (0.5) (0.3) Proportionate share equity of joint venture results ... . 0.4 - 0.3 - Operating EBITDA(1)(2) . .

41.6 $ 32.8 $ 84.5 $ 60.3 $ % change ... . 26.8% 15.5% 40.1% 13.1% For the 13 weeks ended For the 26 weeks ended (1) Figures may not total due to rounding. (2) See “Non-IFRS Measures” on page 28 for definitions of Adjusted Net Earnings, EBITDA and Operating EBITDA.

7 The following table summarizes Cara’s System Sales Growth, SRS Growth, number of restaurants, Selling, general and administrative expenses, Operating EBITDA, Operating EBITDA Margin, and Operating EBITDA on System Sales. (C$ millions unless otherwise stated) June 25, 2017 June 26, 2016 June 25, 2017 June 26, 2016 a SystemSales (1)(3) (unaudited .

a 660.8 $ 450.3 $ 1,319.9 $ 900.5 $ SystemSales Growth (1)(3) (unaudited . . a 46.7% 3.0% 46.6% 4.0% SRS Growth (2)(3) ...(unaudited ... ... a (0.3%) (2.0%) (0.5%) (0.7%) Number of corporate restaurants (at period end . a. 164 119 164 119 Number of joint venture restaurants (at period end . 50 - 50 - Number of franchised restaurants (at period end . a. 1,041 884 1,041 884 Total number of restaurants (1) (at period end . .

a. 1,255 1,003 1,255 1,003 a. Total gross revenue ... ... a. 178.4 $ 89.0 $ 361.1 $ 173.2 $ Selling, general and administrative expenses ("SG&A . a. 81.5 $ 43.5 $ 161.9 $ 88.3 $ SG&A as a percentage of gross revenue . a. 45.7% 48.9% 44.8% 51.0% a. Operating EBITDA (3) . a. 41.6 $ 32.8 $ 84.5 $ 60.3 $ Operating EBITDA Margin (3) . a. 23.3% 36.9% 23.4% 34.8% Operating EBITDA on SystemSales (3) . . a. 6.3% 7.3% 6.4% 6.7% a For the 13 weeks ended For the 26 weeks ended (1) Results from East Side Mario restaurants in the United States are excluded in the System Sales totals and number of restaurants.

See “Non-IFRS Measures” on page 28 for definition of System Sales. (2) Results from New York Fries located outside of Canada, East Side Mario restaurants in the United States, Casey’s restaurants, Original Joe’s, and Burger’s Priest restaurants are excluded from SRS Growth. See “Non-IFRS Measures” on page 28 for definition of SRS Growth.

(3) See “Non-IFRS Measures” on page 28 for definitions of System Sales, System Sales Growth, SRS Growth, Operating EBITDA, Operating EBITDA Margin, and Operating EBITDA on System Sales. Factors Affecting Our Results of Operations SRS Growth SRS Growth is a metric used in the restaurant industry to compare sales earned in established locations over a certain period of time, such as a fiscal quarter, for the current period and the same period in the previous year. SRS Growth helps explain what portion of sales growth can be attributed to growth in established locations separate from the portion that can be attributed to the opening of net new restaurants.

Cara calculates SRS Growth as the percentage increase or decrease in sales of restaurants open for at least 24 complete months. Cara’s SRS Growth results exclude Original Joe’s as the transaction was completed on November 28, 2016; Burger’s Priest as the transaction was completed on June 1, 2017; Casey’s restaurants as the Company is in the process of winding down its operations; and sales from international operations from 51 New York Fries and 3 East Side Mario’s.

SRS Growth is primarily driven by changes in the number of guest transactions and changes in average transaction dollar size. Cara’s SRS Growth results are principally impacted by both its operations and marketing efforts. Cara’s SRS Growth results are also impacted by external factors, particularly macro-economic developments that affect discretionary consumer spending in Canada. Atypical weather conditions over a prolonged period of time can adversely affect Cara’s business. During the summer months, unseasonably cool or rainy weather can negatively impact the patio business that exists in many of Cara’s sixteen brands.

During the winter months, unusually heavy snowfalls, ice storms, or other extreme weather conditions can reduce guest visits to restaurants and in turn can negatively impacts sales and profitability.

8 SRS for the 13 weeks ended June 25, 2017 was a decrease of 0.3% and was a decrease of 0.5% for the 26 weeks ended June 25, 2017. SRS during the second quarter was negatively impacted by 0.6% with Easter occurring in the second quarter of 2017 as compared to the first quarter in 2016. Excluding the impact of Easter, SRS for the second quarter was positive 0.3%. SRS excludes the impact from the Original Joe’s transaction that was completed on November 28, 2016 and Burger’s Priest that was completed on June 1, 2017 and both will be excluded from 2017 SRS reporting. As Cara is a multibranded company, not all brands will have strong results at the same time which can result in overall variable sales and SRS results.

Management continues to focus on both short-term and long-term strategies to improve SRS through restaurant renovations, greater emphasis on menu innovation, enhanced guest experiences, expanded off-premise sales through new and improved e-commerce applications and brand specific digital-social media marketing as described in the Highlights and Outlook sections of this MD&A. See “Non-IFRS Measures” on page 28 for a description of how Cara calculates SRS growth. SRS Growth for individual brands may be higher or lower than SRS Growth for all restaurants combined, and in some cases, SRS Growth, for individual brands, may be negative.

Competition The Canadian Restaurant Industry has been and continues to be intensely competitive. While guests’ tastes and expectations have evolved over the years, many of the factors impacting their dining decisions remain the same: quality, value, service, and convenience. Cara competes with a range of competitors including large national and regional restaurant chains and local independent restaurant operators. While independent restaurants continue to have a significant share in the restaurant industry, Cara’s management believes larger restaurant operators (like Cara) will continue to offer competitive advantages compared to their independent counterparts.

These advantages include lower food costs through greater purchasing power, the ability to generate sales through more efficient advertising dollars, stronger selection of sites and a long history and expertise in real estate negotiations.

New Restaurant Openings The opening and success of new restaurants is dependent on a number of factors, including: availability of suitable sites; negotiation of acceptable lease terms for new locations; attracting qualified franchisees with suitable financing; availability, training and retention of management and other employees necessary to operate new corporate restaurants; and other factors, some of which are beyond Cara's control. Financial results System Sales System Sales for 13 and 26 weeks ended June 25, 2017 were $660.8 million and $1,319.9 million compared to $450.3 million and $900.5 million for the 13 and 26 weeks ended June 26, 2016, representing an increase of $210.5 million or 46.7% for the quarter and $419.4 million or 46.6% year-to-date.

This increase was primarily the result of new restaurants opened in 2016, the September 2016 addition of St-Hubert including its food processing and distribution sales, and the addition of Original Joe’s in November 2016, which together generated higher sales offsetting restaurant closures and the SRS change during the quarter.

Total gross revenue Total gross revenue represents sales from corporate restaurants, franchise revenues (including royalty fees net of agreed subsidies, new franchise fees, equipment and property rental income and corporate to franchise conversion fees), fees generated from Cara’s off-premise call centre business, new restaurant development revenue, and St-Hubert food processing and distribution revenues from sales to retail grocery customers and to its franchise network. Total gross revenue was $178.4 million and $361.1 million for 13 and 26 weeks ended June 25, 2017 compared to $89.0 and $173.2 million in 2016, representing an increase of $89.4 million or 100.4% for the quarter and $187.9 million or 108.5% year-to-date.

The increase in gross revenues was primarily the result of new restaurant openings in 2016 and 2017, the addition of food processing and distribution revenues from the St-Hubert acquisition in September 2016, and the addition of Original Joe’s in November 2016.

9 Selling, general and administrative expenses SG&A expenses represent direct corporate restaurant costs such as labour, other direct corporate restaurant operating costs (e.g. supplies, utilities, net rent, net marketing, property taxes), overhead costs, franchisee rent assistance and bad debts, central overhead costs, costs related to the food processing and distribution division, lease costs and tenant inducement amortization, losses on early buyout / cancellation of equipment rental agreements and depreciation and amortization on other assets. These expenses are offset by vendor purchase allowances.

Direct corporate restaurant labour costs and other direct corporate restaurant operating and overhead costs are impacted by the number of restaurants, provincial minimum wage increases and the Company’s ability to manage input costs through its various cost monitoring programs. Central overhead costs are impacted by general inflation, market conditions for attracting and retaining key personnel and management’s ability to control discretionary costs. Food processing and distribution costs are impacted by minimum wage increases, union contract negotiations, volume of sales and the Company’s ability to manage controllable costs related to the promotion, manufacture and distribution of products.

Franchisee rent assistance and bad debts are impacted by franchisee sales and overall franchisee profitability. Vendor purchase allowances are impacted by the volume of purchases, inflation and fluctuations in the price of negotiated products and services. Losses on early buyout/cancellation of equipment rental contracts, recognition of lease cost and tenant inducements, and depreciation and amortization represent non-cash expenses generally related to historical transactions where corporate restaurants were converted to franchise.

SG&A expenses for 13 and 26 weeks ended June 25, 2017 were $81.5 million and $161.9 million compared to $43.5 million and $88.3 million in 2016, representing an increase of $38.0 million or 87.4% for the quarter and $73.6 million or 83.4% year to date. The increase is primarily related to the addition of the St-Hubert food processing and distribution, increased direct restaurant labour and other direct restaurant costs from the increase in number of corporate restaurants. These increases were offset by variable wage savings at corporate restaurants and other overhead cost reductions. For the 13 weeks ended June 25, 2017, SG&A expenses as a percentage of gross revenue decreased from 48.9% in 2016 to 45.7% in 2017, a decrease of 3.2 percentage points.

Year to date, SG&A expenses as a percentage of gross revenue decreased from 51.0% in 2016 to 44.8% in 2017, a decrease of 6.2 percentage points.

Net interest expense and other financing charges Finance costs are derived from Cara’s financing activities which include the Existing Credit Facility and amortization of financing fees. Net interest expense and other financing charges were $2.7 million and $5.8 million for the 13 and 26 weeks ended June 25, 2017 compared to $0.8 million and $1.4 million in 2016, an increase of $1.9 million and $4.4 million, respectively. The increase is due to the additional borrowings made for the St-Hubert and Original Joe’s transactions. Earnings before income taxes Earnings before income taxes were $21.6 million and $49.1 million for 13 and 26 weeks ended June 25, 2017 compared to $24.9 million and $45.0 million in 2016, representing a decrease of $3.3 million or 13.3% for the quarter and an improvement of $4.1 million or 9.1% year to date.

The second quarter decrease in Earnings before income taxes was related to an higher interest and financing costs of $1.9 million related to additional debt from the St-Hubert, Original Joe’s and Burger’s Priest transactions; increases in depreciation; a $2.4 million non-cash impairment provision, and a $2.7 million restructuring charge recorded in the second quarter for expected Boston office staff severance and closure costs to consolidate the Original Joe’s business; expected lease exit costs related to three onerous leases. These costs were partially offset by higher contribution dollars from additional corporate and franchise restaurants from the St-Hubert and Original Joe’s transactions, improved contribution dollars from the central segment driven by the addition of St-Hubert’s food processing and distribution business and overall cost reductions.

The year to date increase was mainly attributed to additional corporate and franchise restaurants from the St-Hubert and Original Joe’s transactions, improved contribution from the central segment driven by the addition of St-Hubert’s food processing and distribution business and overall cost reductions, offset by an increase in interest and financing costs of $4.3 million; increases in depreciation; a $3.6 million non-cash impairment provision, and a $2.7 million restructuring charge as described above.

10 Income taxes Cara’s earnings are subject to both federal and provincial income taxes.

Cara has income tax losses available to offset taxable earnings and at present does not pay significant cash income taxes on its operational earnings. The Company recorded a current income tax expense of $0.4 million and $3.5 million for the 13 and 26 weeks ended June 25, 2017, compared to $0.3 million and $0.3 million in 2016, representing an income tax expense increase of $0.1 million for the quarter and $3.2 million year to date. The current income tax expense is primarily related to St-Hubert earnings resulting in taxes payable that are not sheltered by Cara’s tax losses. The Company recorded a net deferred income tax expense of $3.8 million and recovery of $15.7 million for the 13 and 26 weeks ended June 25, 2017, compared to an expense of $6.5 million and $12.3 million in 2016, respectively, representing a deferred income tax expense change of $2.7 million for the quarter and $28.0 million year to date.

The change is due to the Company recognizing in the first quarter a deferred tax asset of $24.4 million in respect of additional non-capital losses available to offset future income tax payable on operating profits.

Net earnings Net earnings were $17.4 million and $61.3 million for the 13 and 26 weeks ended June 25, 2017 compared to $18.1 million and $32.4 million in 2016, representing a decrease of $0.7 million or 3.9% for the quarter and an increase of $28.9 million or 89.2% year to date. The decrease in the second quarter was related to higher interest and financing charges of $1.9 million, higher depreciation, a non-cash impairment provision of $2.4 million, and restructuring costs of $2.7 million, partially offset by increased contribution dollars from additional corporate and franchise restaurants from the 2016 St-Hubert and Original Joe’s transactions, improved contribution dollars from the central segment driven by the addition of St-Hubert food processing and distribution business and overall cost reductions.

Year to date, the increase is primarily related to the $28.0 million change in deferred income taxes described above, additional corporate and franchise restaurants from the 2016 St-Hubert and Original Joe’s transactions, improved contribution from the central segment driven by the addition of St-Hubert food processing and distribution business and overall cost reductions, partially offset by increased interest and financing charges of $4.3 million, higher depreciation, a noncash impairment provision of $3.6 million, and restructuring costs of $2.7 million.

Adjusted net earnings Adjusted net earnings were $26.4 million and $52.1 million for the 13 and 26 weeks ended June 25, 2017 compared to $25.5 million and $46.6 million in 2016, representing an increase of $0.9 million or 3.5% for the quarter and an increase of $5.5 million or 11.8% year to date.

The increases for the quarter and year to date are related to the increased contribution dollars from additional corporate and franchise restaurants related to the 2016 St-Hubert and Original Joe’s transactions, improved contribution from the central segment driven by the addition of St-Hubert food processing and distribution business and overall cost reductions, partially offset by weaker performance in certain Cara corporate restaurants as a result of poor weather impacting our patio season, negative SRS, 10 corporate restaurant temporary closures for renovation, increased interest and financing charges, and higher depreciation.

Adjusted EPS Adjusted EPS for the 13 and 26 weeks ended June 25, 2017 was $0.44 and $0.87, compared to $0.52 and $0.95 in 2016, respectively. Adjusted diluted EPS was $0.42 in the quarter compared to $0.48 in 2016, and $0.84 year to date compared to $0.89 in 2016. The decreases in the second quarter and year to date are primarily related to changes in Adjusted net earnings and the increased number of subordinate voting shares outstanding as a result of the 2016 subscription receipt offering to support the St-Hubert transaction. If we reflect the second quarter timing differences, in particular, 10 corporate restaurant temporary closures for renovation and seasonally low grocery sales that will correct in the second half of 2017, the second quarter Adjusted EPS was $0.52, comparable to 2016, and Adjusted diluted EPS was $0.50, an improvement compared to $0.48 in the second quarter of 2016.

11 Restaurant Count Cara’s restaurant network consists of company-owned corporate locations and franchised locations. As at the end of June 25, 2017, there were 1,255 restaurants. The following table presents the changes in Cara’s restaurant unit count: Unit count (unaudited) Corporate Franchised Joint Venture Total Corporate Franchised Total Beginning of period(1) ... 171 1,030 36 1,237 119 891 1,010 Acquisitions (2) - 14 14 - New openings . 4 21 - 25 3 12 15 Closures ( 4) (16) - (20) (5) (7) (12) Casey's closures . .

(1) - (1) - (10) (10) Corporate buy backs (3) . 2 (2 - 4 (4) - Restaurants re-franchised (4) ( 9) 9 ( 2) 2 - End of period ...

164 1,041 50 1,255 119 884 1,003 (1) Unit count excludes East Side Marios restaurants located in the United States. (2) Investment in Burger's Priest made on June 1, 2017. (3) Corporate buy backs represent previously franchised restaurants acquired by the Company to operate corporately. (4) Restaurants re-franchised represent corporate restaurants re-franchised to be operated by a franchisee. For the 26 week periodended June 25, 2017 June 26, 2016

12 Segment Performance Cara divides its operations into the following four business segments: corporate restaurants, franchise restaurants, food processing and distribution, and central operations. The Corporate restaurant segment includes the operations of the company-owned restaurants which generate revenues from the direct sale of prepared food and beverages to consumers. For operating segment purposes, corporate operating income includes the Company’s proportionate share of revenues and expenses from 36 joint venture restaurants. Franchised restaurants represent the operations of its franchised restaurant network operating under the Company’s several brand names from which the Company earns royalties calculated at an agreed upon percentage of franchise restaurant sales.

Cara provides financial assistance to certain franchisees and the franchise royalty income reported is net of any assistance being provided.

Food processing and distribution represent sales of St-Hubert and Cara branded and other private label products produced and shipped from the Company’s manufacturing plant and distribution centers to retail grocery customers and to its network of St-Hubert restaurants. Central operations includes sales from call centre services which earn fees from off-premise phone, mobile and web orders processed for corporate and franchised restaurants; and income generated from the lease of buildings and certain equipment to franchisees as well as the collection of new franchise and franchise renewal fees.

Central operations also include corporate (non-restaurant) expenses which include head office people and non-people overhead expenses, finance and IT support, occupancy costs, and general and administrative support services offset by vendor purchase allowances. The Company has determined that the allocation of corporate (non-restaurant) revenues and expenses which include finance and IT support, occupancy costs, and general and administrative support services would not reflect how the Company manages the business and has not allocated these revenues and expenses to a specific segment. The CEO and CFO are the chief operating decision makers and they regularly review the operations and performance by segment.

The CEO and CFO review operating income as a key measure of performance for each segment and to make decisions about the allocation of resources. The accounting policies of the reportable operating segments are the same as those described in the Company’s summary of significant accounting policies. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Operating EBITDA Operating EBITDA was $41.6 million and $84.5 million for the 13 and 26 weeks ended June 25, 2017 compared to $32.8 million and $60.3 million in 2016, representing an increase of $8.8 million or 26.8% for the quarter and $24.2 million or 40.1% year to date. The year to date increases were driven by increased contribution dollars in all of the Company’s operating segments, being corporate restaurants, franchise restaurants, and central operations, the addition of St-Hubert in September 2016 resulting in a new segment for food processing and distribution, and the addition of Original Joe’s in November 2016.

Contribution dollar increases from the Corporate restaurant segment for the 13 and 26 weeks ended June 25 ,2017 were primarily driven by additional sales from the addition of 13 St-Hubert corporate restaurants in September 2016, the addition of 42 Original Joe’s corporate restaurants and 36 joint venture restaurants in November 2016, partially offset by the impact from 10 temporary closures of 7 Milestones restaurants under renovation, 2 Landing restaurants under renovation, and a Bier Markt restaurant closed for expansion and renovation. Overall contribution dollars from the Franchise segment has increased from the addition of St-Hubert and Original Joe’s, but was offset by increased temporary franchise assistance to western Canada restaurants.

The Food Processing and Distribution segment contribution is the result of the September 2016 St-Hubert acquisition. However, second quarter Food Processing and Distribution sales are the lowest of all 4 quarters resulting in lower contribution than other quarters. Central segment improvements are primarily a result of central costs growing slower than System Sales and related vendor rebates.

13 The following table presents the financial performance of Cara’s business segments: (C$ thousands unless otherwise stated) Corporate Franchised Central Total Corporate Franchised Central Total System Sales (unaudited . . 103,447 $ 504,738 $ 52,607 $ 660,792 $ 68,432 $ 381,902 $ - $ 450,334 $ Corporate Results Sales ... 103,447 $ - $ 2,873 $ 106,320 $ 68,432 $ - $ 2,164 $ 70,596 $ Cost of inventories sold and cost of labour ( 65,795 ( 65,795) (41,511 ( 41,511) Restaurant contribution before other costs . 37,652 - 2,873 40,525 26,921 2,164 29,085 Restaurant contribution before other costs .

36.4% 39.3% Other operating costs ( 27,225 ( 27,225) (18,011 ( 18,011) Total Contribution . 10,427 - 2,873 13,300 8,910 - 2,164 11,074 Franchise Results Franchise royalty income - 22,447 - 22,447 - 17,291 - 17,291 Franchise royalty income as a % of franchise sales - 4.4 - 4.5% - - New franchise fees, rent revenue and equipment rent - 3,355 3,355 - - 689 689 Franchise rent assistance and bad debt ( 2,585) - (2,585) - (1,913) - (1,913) Contribution from franchise restaurants - 19,862 3,355 23,217 - 15,378 689 16,067 Food processing and distribution Net food processing and distribution contribution - 585 585 - Central Net central contribution - 4,488 4,488 - - 5,665 5,665 Operating EBITDA (1) .

10,427 $ 19,862 $ 11,301 $ 41,590 $ 8,910 $ 15,378 $ 8,518 $ 32,806 $ Contribution as a % of corporate sales . 10.1 - 13.0 - Contribution as a % of franchise sales - 3.9 - 4.0% - - Contribution as a % of total System sales - 1.7% 6.3 - 1.9% 7.3% June 25, 2017 June 26, 2016 For the 13 week period ended

14 (C$ thousands unless otherwise stated) Corporate Franchised Central Total Corporate Franchised Central Total System Sales (unaudited . . 202,127 $ 1,005,548 $ 112,235 $ 1,319,910 $ 131,637 $ 768,901 $ - $ 900,538 $ Corporate Results Sales ... 202,127 $ - $ 5,971 $ 208,098 $ 131,637 $ - $ 4,538 $ 136,175 $ Cost of inventories sold and cost of labour ( 128,133 ( 128,133) (82,081 ( 82,081) Restaurant contribution before other costs . 73,994 - 5,971 79,965 49,556 4,538 54,094 Restaurant contribution before other costs . 36.6% 37.6% Other operating costs ( 55,577 ( 55,577) (35,554 ( 35,554) Total Contribution .

18,417 - 5,971 24,388 14,002 - 4,538 18,540 Franchise Results Franchise royalty income - 44,629 - 44,629 - 34,868 - 34,868 Franchise royalty income as a % of franchise sales - 4.4 - 4.5% - - New franchise fees, rent revenue and equipment rent - 6,358 6,358 - - 1,349 1,349 Franchise rent assistance and bad debt ( 4,324) - (4,324) - (3,774) - (3,774) Contribution from franchise restaurants - 40,305 6,358 46,663 - 31,094 1,349 32,443 Food processing and distribution Net food processing and distribution contribution - 5,286 5,286 - Central Net central contribution - 8,152 8,152 - - 9,360 9,360 Operating EBITDA (1) .

18,417 $ 40,305 $ 25,767 $ 84,489 $ 14,002 $ 31,094 $ 15,247 $ 60,343 $ Contribution as a % of corporate sales . 9.1 - 10.6 - Contribution as a % of franchise sales - 4.0 - 4.0% - - Contribution as a % of total System sales - 2.0% 6.4 - 1.7% 6.7% June 25, 2017 June 26, 2016 For the 26 week period ended (1) See “Non-IFRS Measures” on page 28 for definitions of Operating EBITDA and page 6 for a reconciliation of Net Earnings to Operating EBITDA.

15 Corporate As at June 25, 2017, the corporate segment restaurant count consisted of 164 restaurants compared to 119 at June 26, 2016, an increase of 45 locations. The increase is related to 55 restaurants acquired in 2016 related to the addition of StHubert and Original Joe’s, 8 new restaurant openings, 8 corporate buybacks, offset by 6 closures, excluding the impact of 1 Casey’s closure, and 19 restaurants re-franchised during 2016 and 2017. The corporate restaurant segment includes the proportionate results from 36 joint venture restaurants from the Original Joe’s transaction. Sales Sales represent food and beverage sales from Cara’s corporate restaurants.

Corporate restaurant sales are impacted by SRS Growth and the change in number of corporate restaurants. Sales were $103.4 million and $202.1 million for the 13 and 26 weeks ended June 25, 2017 compared to $68.4 million and $131.6 million in 2016, an increase of $35.0 million or 51.2% for the quarter and $70.5 million or 53.6% year-to-date. The increase was primarily related to the increase in number of corporate restaurants from the addition St-Hubert and Original Joe’s, the addition of 4 new corporate restaurants in 2017, partially offset by 10 temporary restaurant closures for the renovation of 7 Milestones restaurants, 2 Landing restaurants and a Bier Markt restaurant, 9 corporate restaurants sold to franchisees, and the SRS decrease.

Cost of inventories sold and cost of labour Cost of inventories sold represents the net cost of food, beverage and other inventories sold at Cara’s corporate restaurants. Cost of inventories sold and cost of labour is impacted by the number of corporate restaurants, fluctuations in the volume of inventories sold, food prices, provincial minimum wage increases, and Cara’s ability to manage input costs at the restaurant level. Cara manages input costs through various cost monitoring programs and through the negotiation of favourable contracts on behalf of its corporate and franchise restaurant network.

Cost of inventories sold and cost of labour combined was $65.8 million and $128.1 million for the 13 and 26 weeks ended June 25, 2017 compared to $41.5 million and $82.1 million in 2016, an increase of $24.3 million or 58.6% for the quarter and $46.0 million or 56.0% year-to-date. The increase was primarily due to the addition of 45 corporate restaurants, primarily from the St-Hubert and Original Joe’s transactions. Cost of inventories sold and cost of labour as a percentage of sales have increased from 60.7% to 63.6% for the 13 weeks ended June 25, 2017, an increase of 2.9 percentage points primarily due to St-Hubert and Original Joe’s that operate at higher rates than Cara, the temporary closures related to the 10 renovations, weaker performance in certain Cara corporate restaurants as a result of poor weather impacting our patio season, and negative SRS.

For the 26 weeks ended June 25, 2017, cost of inventories sold and cost of labour as a percentage of sales have increased from 62.4% to 63.4%, an increase of 1.0 percentage points. With the addition of St-Hubert and Original Joe’s, which operate at slightly higher cost of inventories sold and higher cost of labour than other Cara brands, there are opportunities for improvement as these brands benefit from the total Company’s purchasing power and labour management tools.

Contribution from Corporate segment Total contribution from corporate restaurants was $10.4 million and $18.4 million for the 13 and 26 weeks ended June 25, 2017 compared to $8.9 million and $14.0 million in 2016, an increase of $1.5 million for the quarter and $4.4 million year to date. The increases are primarily driven by the increase in number of corporate restaurants, including the addition of St-Hubert and Original Joe’s, partially offset by lower contribution from the 10 restaurants temporarily closed for renovation during the period, weaker performance in certain Cara corporate restaurants as a result of poor weather impacting our patio season, and negative SRS.

The renovation impact from these 10 restaurants was a $1.9 million reduction to Operating EBITDA contribution compared to the same 13 week period in the second quarter 2016. For the 13 and 26 weeks ended June 25, 2017, total contribution from corporate restaurants as a percentage of corporate sales was 10.1% and 9.1% compared to 13.0% and 10.6% for the 13 and 26 weeks ended June 26, 2016. The reductions were primarily from lower percentage contribution rates from the St-Hubert corporate restaurants that operate at lower contribution levels than other Cara brand corporate restaurants, lower contribution from the 10 restaurants temporarily closed for renovation representing approximately 1.7% for the quarter, and poor weather impacting our patio season that negatively impacted many restaurants.

16 Franchise As at June 25, 2017, the franchise restaurant segment consisted of 1,041 restaurants compared to 884 at June 26, 2016, an increase of 157 locations. The increase is related to 44 new restaurant openings in 2016 and 2017, the addition of 131 restaurants from the St-Hubert and the Original Joe’s transactions, 19 restaurants re-franchised, partially offset by 25 closures, excluding the impact of 4 Casey’s closures, and 8 corporate buybacks. The franchise segment includes the proportionate share of royalties earned from the joint venture restaurants from the Original Joe’s transaction.

Franchise segment System Sales were $504.7 million and $1,005.5 million during the 13 and 26 weeks ended June 25, 2017 compared to $381.9 million and $768.9 million in 2016, an increase of $122.8 million or 32.2% for the quarter and $236.6 million or 30.8% year to date. The increase was primarily attributed to the new restaurant openings in 2016 and 2017, sales of 9 corporate restaurants to franchisees, the addition of St-Hubert and Original Joe’s, partially offset by the SRS decrease and restaurant closures.

Franchise revenues Franchise revenues represent royalty fees charged to franchisees as a percentage of restaurant sales net of contractual subsidies and temporary assistance to certain franchisees. The primary factors impacting franchise revenues are SRS Growth and net new restaurant activity, as well as the rate of royalty fees (net of contractual subsidies and temporary assistance) paid to Cara by its franchisees. In certain circumstances, the royalty rate paid to Cara can be less than Cara’s standard 5.0% royalty rate due to different contractual rates charged for certain brands (e.g. St-Hubert’s standard royalty rate is 4%) and contractual subsidies primarily associated with prior year’s conversion transactions or agreements to temporarily assist certain franchisees.

With the majority of contractual subsidies scheduled to end at prescribed dates and the reduction in the number of restaurants requiring temporary assistance, management believes the effective royalty recovery rate will gradually increase over time closer to 5.0% for franchisees (excluding St-Hubert at 4%).

Franchise revenues were $22.4 million and $44.6 million for the 13 and 26 weeks ended June 25, 2017 compared to $17.3 million and $34.9 million in 2016, an increase of $5.1 million or 29.5% for the quarter and $9.7 million or 27.8% yearto-date. The increase was primarily attributed to the addition of St-Hubert and Original Joe’s. Contribution from franchise segment Total contribution from franchise restaurants was $19.9 million and $40.3 million for the 13 and 26 weeks ended June 25, 2017 compared to $15.4 million and $31.1 million in 2016, an increase of $4.5 million or 29.2% for the quarter and $9.2 million or 29.6% year-to-date.

The increase was related to increased royalty income as a result of the franchise sales increase and the addition of St-Hubert and Original Joe’s, net of the SRS decrease. The effective net royalty rate for the 13 weeks ended June 25, 2017 was 3.9% compared to 4.0% for the 13 weeks in 2016. The decrease in effective net royalty rate was largely related to increases in bad debt provisions in relation to supporting franchisees primarily in western Canadian locations. For the 26 weeks ended June 25, 2017, the effective net royalty rate was 4.0% compared to 4.0% in 2016. Cara’s standard royalty rate is 5.0%.

There are brands acquired since 2014 which charge different standard royalty rates, in particular St-Hubert which charges 4% as its standard royalty. As at June 25, 2017, a total of 142 restaurants were paying Cara a royalty below the standard rate as compared to 148 restaurants at December 25, 2016. 89 out of the 142 restaurants paying below the standard royalty are related to previously agreed upon conversion agreements, an improvement of 2 restaurants compared to 91 as at December 25, 2016. 53 out of the 142 restaurants paying less than the standard royalty were related to temporary assistance provided to certain other restaurants, a decrease of 4 restaurants compared to 57 as at December 25, 2016.

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