Q4 2019 Earnings Call
Good day, everyone and welcome to the Jack in the box Inc. fourth quarter fiscal 2019 earnings Conference call. Today's call is being broadcast live over the Internet a replay of the call will be available on the Jack in the box corporate website starting today.
During the question and answer.
Handset when asking a question please ask over speakerphone.
At this time for opening remarks and introduction.
On the call over to reach a web VP of Investor Relations strategic analysis.
Please go ahead.
Thanks, Jennifer and good morning, everyone. Joining me on the call today, our chairman and CEO Lenny comma.
<unk>, Vice President and CFO Liam.
And our comments this morning for sure no.
Diluted earnings per share.
Earnings per share.
Earnings per share from continuing operations on a GAAP.
On the sale of company operated restaurant.
Structuring charges.
Early termination of interest rate swaps.
<unk>.
Impact of attack.
Any excess tax benefits from share based compensation arrangement.
Adjusted EBITDA represents.
[laughter] discontinued operation.
Interest expense gains or losses on the sale of company.
Impairment and other charges.
Asian amortization origination franchise tenant improvement allowance.
Our comments also include other non-GAAP measures such as restaurant level margin infringement level margin.
The non-GAAP reconciliations are included in yesterday's earnings release.
He said, we will take questions from the opinion.
Please be advised that during the course of art.
Thank you.
We may make forward looking statements.
Expectations for the future, which are based on current information actual results may differ materially from these expectations based on race.
Good day.
In Yesterdays news release, and the cautionary statement in the company's most recent Form 10-K are considered a part of this conference call material risk factor.
Relating to company operation.
Sales and our most recent 10-K.
In other public documents filed with.
These documents are available on the Investor section of our website at Www Dot Jack in the box.
A few calendar.
Morning, Doc and the box.
Barclays. We play conference in New York on Tuesday December .
Our first quarter ends on Sunday January 19th.
We plan to announce results on Wednesday February 19th after market close.
Well in tentatively scheduled to be held 30 am Pacific time on Thursday February 20.
I will turn call over in Philly.
Thank you Rachel and good morning.
Before lands recap some of our fourth quarter highlights guidance coming here.
Back to acknowledge all we accomplished in 2019, how we plan to build them.
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2019 March Jakone boxes returned to being a single branded entity now 94% franchise.
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We exited our transition services agreement to double officially completing our restructuring effort.
That was <unk> lower cost structure.
We completed our strategic alternatives process, leading to our new capital structure form of securitization.
I would gain or target debt to EBITDA ratio.
<unk>.
Since implementing the securitization this July .
Turned over 190 million to shareholders through share repurchases.
By the time and resources devoted implementing these structural changes the team remains focused on driving performance across the system Jakone box restaurant.
2019, we achieved our ninth consecutive year of same store sales growth was the strongest performance.
<unk>.
As we look to 2020 and beyond we went to build on these achievements.
And our focus on the long term growth Jakone box brand same store sales and net new unit.
Same store sales were encouraged by our performance improvement throughout the year, especially as it pertains to product innovation compelling offers an operational execution.
We know there's a lot more room to grow in these areas.
Just this week, we launched compelling new LTL.
Bundles and Adam.
Continue our strategy of using bundles to appeal.
Yes, we launched a white cheddar cheese.
Got it wasn't passes that critical snack bars, such as often loaded we just launched or three dollar many munshi, which featured guest favorites, such as onion rings and currently fraud.
As well as the return of materials.
This promotion provides value to those of you can do and and I don't opportunities supports <unk>.
Breakfast top of mind, we've introduced a new breakfast featuring chicken.
The offer it to $3.
Innovative new breakfast sandwich allows us to capitalize on the growing success of chicken, while remaining relevant in the breakfast daypart.
As we look to future borders we are excited about the addition of a new menu item that we established everyday value that we lost.
Raised the price ceiling or popular to fund I said.
Well, we have compelling menu additions and promotions and get into our restaurant.
A single largest focus for 2020 is improving the guest experience.
I mentioned on previous calls our VP of operations services and field performance aboard Chatom Bikini and his team have really taken a fresh look at our operation.
Having made significant speed improvement other brands.
And his team have already identified mitre equipment adjustments, such as retrofitting, our holding cabinets to preserve temperature and quality longer and other back of house changes such as simplifying the logic to build sandwiches more consistently.
Both of which remained complexity in the restaurant and improved speed of service we get.
We can be gone to test with these changes.
We've already seen speed of service Rubin.
Location.
We remain committed to becoming a minute faster on average 2021.
2019, we tested many other components associated with it being our drive to experience.
That does things such as you're renting elements digital menu boards and designated parking for pickup and delivery.
As we start to see the crossover between the benefits from this though.
Born with the speed enhancements, we've been testing separately, we're getting to a point, where they are starting to converge.
As we've said previously we expect to finalize the elements.
<unk> and begin rolling that program out later this year.
Well, we are committed to low single digit percentage unit growth.
Long term guidance.
We're working to accelerate the unit growth in the coming years were 2020, we expect both our gross and net new units to exceed 2019.
During the final stages every visiting our capital plan well give you more color on any changes in February .
Now we wanted to let you know we're thinking about capital allocation.
[laughter].
Typing return oriented investments in restaurants, mostly related to the guest experience, which I spoke a bit about earlier.
Second we are investing in drivers of same store sales, particularly unit growth such as enhancing our unit growth incentives, which will discuss more in February .
Junction with these items, we remain committed to enhancing shareholder value.
Back to repurchased approximately 30% of our outstanding shares over the next five years.
I'll turn the call over the last for more detailed look at the fourth quarter and our expectations fiscal year <unk>.
Thank you Larry and good morning, everyone I'll hit a few highlights from the fourth quarter fiscal year 2019 and move it together.
Good morning.
Operating these yes for the fourth quarter with money bumps or.
As compared to 77 cents last year, 23% increase was driven primarily by lower gene I will share repurchase.
Our system wide comparable sales increased three person the fourth quarter.
Okay Caulfield increase during the half or so.
Check increases of 280 basis points.
<unk> budget increases of 70 basis points franchise comps sales increased 3%.
Completion of our Refranchising initiative last year.
Fourth quarter of 2019 was the first quarter our year over year performance from here is the same one return person company restaurants without any impact probably franchise.
Okay restaurant level margin decreased by 190 basis points to 24.2%.
From 26.1% last year.
This decrease was due primarily to higher labor costs in commodity inflation.
Remember roughly 80% of our company owned locations are in California, typically cities with higher wage increases.
Beating the wage inflation increases in the mid single digits.
Only commodities increased approximately 4% on the core.
Franchise level margin increased by approximately $1 million compared with last years.
Has figures driven primarily by stronger sales performance.
Advertising costs, which are included in yesterday.
Decreased $2.8 million versus 2018.
Well I mean contributions talking about the company in the fourth quarter last year. The company did not make any incremental contributions or.
You know you as a percentage of system sales.
80 basis points, well below our targeted run rate.
After an unfavorable jury verdict <unk> third quarter.
It was reduced in the fourth quarter benefiting.
Fashion approximately six.
Yes.
For full year.
Getting back on our financials from this litigation has now that material.
We also benefited from lower cost for in terms on the corner as well as gains from our company owned wasn't true.
Well, you're seeing it came in at 1.6% system sales, which was lower than our guidance of 1.8% to 2%.
And lower than they are your 2% using weekend.
You know it was lower than 2018, due mainly to lower cost for work and golf in terms of over $5 million gains from our workers.
Gains from our company or life insurance policies of over $3 million lower incentive compensation.
Since implementing the securitization, we have repurchased approximately 2.2 million shares for over $190 million.
Includes 1.4 million shares for approximately $125 million.
So during the fourth quarter of last year, we remain on track returned more than $1 billion to shareholders 2020.
Greener restaurants opened during the quarter, bringing our year to date told them that like team all of which four franchise restaurants.
Thanks, new restaurants pushed into the first quarter fiscal 2020.
Several of these units are since opened and the rest of should come online in the first quarter.
Oh closure rate in fiscal 2000 lighting remains low at approximately half of it.
Nobody in yesterday's press release, we expect to report material weakness in our Form 10-K for fiscal 2019 relating to the general controls.
Me the stress there have been no misstatements identified in our financial statements.
Dr receive a clean or unqualified audit opinion.
Filed later today.
Our collective efforts have already begun and me, but has a material weakness remediating within the fiscal years.
Yeah, we'll move on the guidance for 2020.
Keep in mind or fiscal year timing you won 2020 will be first quarter results the lease accounting standard.
42.
Please refer yesterday's release for more information on how this new standard impacts or financial statements regarding share today reflects the adoption of the standards.
We expect same store sales grow between whatever happened three person for the year driven by a combination of product innovation going offerings and operational improvements.
Got it for restaurant level margins as approximately 25 or so.
This assumes commodity inflation of approximately 4% for the year similar or what we experienced in the fourth quarter of 2019.
Well as high single digit wage inflation.
Got it ends for SDMA as a percentage of revenues is approximately 8% to 8%.
You know each person in the system wide sales.
Expected somewhere between 1.7 and 1.9% in 2020.
Got it was for adjusted EBITDA between 265, and $275 million as compared with 269 million for 2019.
2020, we are expecting higher commodity costs than we experienced in 2019 as well as continued.
Single digit wage inflation.
Also not forecast any benefits from company on life insurance policies or workers comp adjustment.
The which significantly benefited DNA in 2019.
Got it for capital expenditures tenant improvements levels, and approximately $45 million to $55 million on a combined basis.
For 2020.
625 35 rose.
Unit openings, all of which are likely to be franchise restaurants are relatively low forms or raise we expect both gross and net openings to improve versus 2019.
Helped fuel the acceleration of unit count when he spoke in.
We're currently retooling our incentive plans to further support our franchisees as they make investments in the brands.
I am sure more details around this enhanced incentive structure.
We'll go ahead Im sure. However, that we do not expect to spend more capital than total across Capex.
And it improvements and this new incentive or we have previously planned and our long forgotten.
Rather you should really because this was a redirecting dollars previously expected to go towards range on some improvements that will now be used to fuel unit growth.
This concludes our prepared remarks.
Now, let's turn the call over to the operator to open the lines for questions Jennifer.
Thank you to ask a question. Please press star one on mute your phone record your name and I will introduce you to withdraw your question press star to due to time considerations. We ask you. Please limit yourself to one question and one follow up her time. If you do have additional questions you may recall at that time.
Thank you. Our first question is from Brian Bittner with Oppenheimer, Sir Your line is helping.
Thanks. Good morning question on the same store sales guidance for 2020.
Could you provide us with how you're thinking about the cadence of comps throughout the year. Obviously your first half faces a lot different comparison than your second half and I've a follow up.
Right honestly as good morning, I'll start with us when the let let me jump in if you like.
So really we're gonna be focused on our long term got it.
Our our annual got us only so we're gonna say is one I have to three or so we're not going to go into.
Lot of details as to what that looks like clearly the compares are little bit easier in the first half of your than they are in the second half a year, but as far as actually giving cadence me on that.
We feel like getting quarter to quarter guidance or kind of giving you a cadence wouldn't take away from long term way or the way, we're trying to look you're running the business.
Okay and on the acceleration in unit growth, both openings and improved closures plenty of this.
The product of Jets.
That's really what happens post re franchising as franchisee still want to grow or is there any changes with the how they're thinking about the unit economics and the opportunity that's actually driving this unit acceleration anymore color on on how this is shoring up appreciate that.
Thanks, Brad I think that it is the natural sort of evolution. When you go through a lot of structural changes and also got a lot of franchisees investing capital by existing units.
But now that that effort is completed some of that capital goes.
We think theres a lot more we can do in so the teams are focused on how to continue to drive or accelerate growth into the future some which last talked about some of the work that's being done.
Hi, Shannon and team around operational simplicity as Walter development group.
On a building sites efficiently I think will also enhance the.
New unit growth rate overtime.
Our next question comes from Gregory Francfort with Bank of America. Your line is open.
Hey, guys. Thanks for the question it seems like there's been a bit more focus on franchise or franchisee relationships recently and I eat up some of your comments on cost pressure and margins being down a bit. This year suggests maybe there's a little bit of more pressure on franchisee cash flow, but that's not clearly not Jack specific that's.
Industry Bobby.
How do you think this plays out and what guidance are you, giving franchisees in terms of.
Just a pricing that might be different or approach to investment equipment that might be different how are you thinking about that going forward. Thanks.
Yeah actually meet with our franchisees just about once a quarter since you have roadshows and engage them on the things that are most important we've actually got a retro coming up.
You're in the next couple of weeks, where this will be the topic of conversation because we think that we as franchise or need to be justice concerned about that as franchisees are obviously, a high percentage of our overall profitability comes from our.
Our company owned stores and so we're all sort of in the same but when it comes to other competitive pressures that are out there as well as the increase in minimum wage that puts some strain on the overall profit margins. So I think the way. We're looking at this is focused not on just the rate but also.
The Penny profit.
So should with whether it'd be the promotions that were running and or.
Pulling labor out of the back of house associated with either reducing time in motion.
Or changing product and procedures in a way that eliminates.
Some labor that's currently required so a lot of work going into this right now like I said, we're going to gauge the operators even more here in the next couple of weeks make sure. We're hearing from them, but I think we are.
Partially aligned and what needs to get done and there's a sense of urgency around doing that.
Make sure that not only were looking at it from an internal lands.
Eyes from the outside.
Taking a look again.
Just sort of keep us all audits in our efforts to make sure that we have the franchisees stay aligned Detroit.
Mr margins as well as same store sales going forward.
And then maybe just just to follow up to that some of your competitors are running 567% average check growth and you guys are clearly always below that is it are you thinking about maybe.
And that as an opportunity to.
To be a little more aggressive and taking pricing up or or is that not factoring in.
I think that's a little dangerous right now if you look throughout the industry transactions are really choppy most of the growth is happening.
It's happening through check and at the same time, we're seeing still extremely competitive.
Offers out in the marketplace in fact, some very recently that enter the marketplace tell us that this price sensitive environment has not gone away I think that long term health Rand.
We've got many years.
Attempting to growth.
Check I don't think that.
Overall healthy way to grow business over the long term you can maybe do that short term.
I would like to see a healthy balance between price.
And other activities that drive transaction.
Getting mix between.
Oh, I don't want to sacrifice some of the momentum that we've seen most recently around transaction growth because I think that's probably the best indication of over all right now.
Thank you. Our next question comes from John Glass with Morgan Stanley . Your line is helping.
Thanks, Thanks first I personally I just confirmed historically you have provided some more color on the current quarter comps. It's been a longstanding practice is that just is it going forward that's not the case and what why choose now to do it is it just new fiscal year, new new policy.
So as Lance I'll take that one I guess it historically, we haven't done it both ways.
I really as you start getting into given guidance over fourth.
Quarter, It really takes the focus.
From a away from what we're trying to do a longer term.
Right.
Knock that down to very.
Short term kind of you how that business is doing so we made it isn't it.
Got it.
And.
And focus on driving the business long term.
Things makes more sense.
Okay, all right just what as you look at completion of 2019.
So many structural changes have been completed now.
Internally, we're focused on the long term I think one of the outcomes.
Putting a lot of those distractions behind us.
Also to make a commitment internally that.
That's you know for the same reasons, why we're going to try to.
The street focused in that direction.
Okay, and then just to clarify your or follow up in your comments on Capex. So you said, it's not going to be different from the ranges you put out your goals over the next couple of years of Capex and T.I., but you're going to change the way you're allocating the money. So specifically you're going to one cent news it in incentives for new development are you actually the lead by example, I know you just finished refranchising, but is it.
More like Capex to Bill company stores, and if you're reallocating that way or you rethinking the way you want to spend on Remodels are you asking franchisees to put more into that as you sort of reallocate your resources to you in development can you just maybe I know you're going to talk more about it but conceptually or philosophically is how do you think about it.
Oh this is lance I'll start with that let let me jump in if you'd like to thing.
First of all as we've noted as you alluded to we're gonna give.
Little more guidance around is in February .
Our planning in this area, but what I would tell you is worst case, we're not going to us.
Anymore than we've already said we were going to.
All the capital categories.
With that said, we have made some changes expectations remodels.
And our turnaround and deploying some of those dollars and some more unit growth most likely him before.
Program.
But really allow us to support the franchisees and they invest in their business.
Our next question comes from Chris I'll call with Stifel. Your line is open.
Hi, Thanks, it's actually a alec on for Chris.
Just a question on how do you anticipate your value strategy performing given the margin pressure. So next year, you seen any sort of similar add on or attach rates.
Any noticeable shift in the makeup of an order thanks.
Thanks, Alex if we are still seeing that.
Value bundles, and the add ons out there.
As is driving the type of behavior from the consumer that we'd like.
We oftentimes see that.
Our snacks insights that we promote.
Our souls more as an add on and they are no one car item, but they do allow the consumer that's looking for values.
Quantity of food at a reasonable price.
We also had some snacks inside out there that or one dollar add ons like our donut hole.
The old allow the operators to bolster their average check.
Suggestive selling them.
Value bundles or away from.
In a very competitive marketplace that often has a card.
Sandwiches and other items that are very discounted losses to be in that marketplace be competitive offer value, but do it in a way that's not really deteriorating.
Sure Jeff.
So overall, we think this is right.
Any profit associated with these types of offers and the upsells that.
Typically a company these offers.
We definitely believe in the strategy.
Continues.
Hi, this way throughout the year.
Okay. Great. Thanks, that's a that's helpful. And then last question is you guided to pretty precise food cost inflation, but given a large portion your basket as floating what kind of gives you the confidence and the outlook.
So this is lance I'll.
So that's what I guess, we put a range than a little bit we would expect to be.
You know kind of a little bit yourself before.
But I think we know based on today's figures, what we think it looks like.
Something went drastically up or down.
Right.
Got it but.
Based on our basket and where our spend is going.
Well the.
Around 4% is the right kind of commodity inflation number.
Okay, great. Thanks appreciate it.
Our next question is from Dennis.
<unk>.
Great. Thanks for the question. Let me just wondering if you could talk or lags a bit more about a the thoughts around 2020 comp guidance, especially if it would just some of the drivers that you outlined you know any incremental detail I guess on on the innovation on the value bundles, you know maybe be operations and the speed of service when we start to see some of those benefits coming through and impacting sales.
I'll see if that happens this year or anything more maybe on the permanent value item. Lenny then you'll know too.
I guess just last two all that you know just curious how important the trends in the momentum that you've seen in recent quarters. They had sales trends being customer feedback franchisee feedback how important all of that has been in interim shaping the 20 guidance. Thanks.
Thank you Dennis I think the first thing.
So to answer your last question first what's what's shaping what we're doing is essentially two things and that is.
What the consumer is requesting and secondly, what's happening in the competitive environment. So everything that you'll hear me talking about 2020 is really associated with that because ultimately we want to have a healthy brand. We're gonna have to focus on those things more than anything else.
As far as the drivers of same store sales I think you've got one particular part of the 2020 light up it looks a lot like 2019, and that's having competitive lpos in the marketplace in the form of.
Varied daypart focuses.
Oh, you bundle and add ons snacks inside so you'll see that as a continuation of what you saw in 2019.
You'll see 2020, I think that as a new area of focus and ramped up focus.
We will be essentially two things one is restoration of some of the everyday value that we lost.
As we implement new product line early next calendar year.
And then in addition to that.
We have.
Looked at the operational improvements that we need to make really two sides of a coin. The one side is focused on making the operations simpler for our franchisees in their crews.
And the other side of the Kuwait is.
Driving performance through better execution and so we.
Communicating all the changes to our standards some of the new training elements.
Early in the year, and we would expect to see those things helping to drive.
To better execution in restaurants.
Throughout the year.
Thank you.
Our next question comes from Catherine <unk> with Goldman Sachs. Your line is open.
Great. Thank you with regard to your that next year guide and Sam for same store sales growth.
You know how much of that it have you guys reflected the and giving yourself a benefit for new product innovation and you have how are you thinking about you know if that's the case how are you thinking about measuring that potential impact are you looking at test markets. It extrapolating results.
Anything on that and then I've a follow up.
Yes, so as we look at the.
A line of products and initiatives. This year, we have looked at either in 2019.
Tests and sort of extrapolated, how we believe it systems should perform for product perspective, we also looked at somebody operational improvements that we've achieved in the past and how those were able to drive performance as well me extrapolated that or.
Recently, we expect to see this year so.
Definitely the approach that you sort of assumed as you approach.
Okay.
And that's what gives us confidence that.
You know the year should shape up pretty well.
Okay, Great and then on the commodity Guy in town with so much floating here, yeah, 4% for the year.
With what you're seeing right now should we expect kind of a crescendo or a building had wasn't that then eases throughout the year, you know any any cadence and that probably would be helpful.
[noise].
This is lance so if you look at where the fourth quarter was the fourth quarter was.
4% up range. So unfortunately, I don't think is gonna be a bill this already kind of built its in our business right now.
So what I would expect us to start off before so we don't see.
A lot of variation throughout the year, but as I said earlier reserve the right. It would just let me.
He starts being things Oh, I guess, what we're expecting or no.
Our next question comes from David Tarantino with Robert W. Baird. Your line is open.
Hi, Good morning, I guess first I think theres, maybe some concern about the.
The pullback in disclosure on the quarter today comps and I understand sort of the philosophy around that but I was wondering Lenny if you could talk qualitatively about how you're feeling about the business as you enter this year and and the and I know several have asked about this but just your overall degree of confidence and being able to.
This thing that type of comp momentum is seen in recent quarters as you move through the year and then I have a follow up.
Certainly should understand that consternation around.
Quarter to date comps and it's sort of exemplifies.
Absolutely why we need to make a change I think the marketplaces hyper focused on what happens on a week by week basis credit card data According to date.
Reviews and.
It is taking the eye off of some of the things that we and other players in the industry need to do over the long term that will positively impact the consumer and maybe operations more efficient.
When we look at lined up for 2020.
As I stated to the previous.
Person.
We've we've looked at the tests from prior years.
I've looked at some of the equities that we've lost the need to regain and we've also looked at operating operational improvements.
Got it historically driven comps.
Well the layer those things and it gives us confidence.
The year is.
And planned well and so as we look at all things that we need to do going forward. My concern is a leader the organizations that I see way too much energy being put into.
The week by week Rollovers based on last year's coupon drop.
Compared to the date of this year's coupon drop or what holiday.
Didn't roll over in the exact week as the prior year and what I need people focused on is.
But develop great new innovative products and go to market and felt like Hell out of and increase our sales and increase our profit.
Not wasting time with the stuff that quite frankly isn't going to make the business successful over the long term. So I've got to get folks focus there and that's the reason why we've sort of drawn a line the sand that we're going to focus on the annual numbers versus a quarter to date.
That makes sense. Thank you and then my follow ups about the operational improvements that you're you're undertaking.
And I think you mentioned a goal of of improving speed of service by one minutes. So could you provide some context on what that might mean from a sales perspective or any way to think about that in terms of the benefit other than just the customer experience being better.
We haven't shared.
In the past.
Numbers associated with for example speed of service improvements, so I'm going to stay away from what I will say is this we are one of the slower players in the industry.
And we need to make significant improvements.
The overall throughput.
Try to business and we do see comparison of our best restaurants, a top Cortile for example, as compared to the other.
Three four tiles and there's a significant difference.
Its action grows.
Sales growth.
And overall customer satisfaction, so we can't extrapolate what the improvement.
Overall comp and Weve built in some cushion we're not we're not expecting every restaurant to perform like top quartile restaurants do.
We've done this time around this little different and the way we booked in the past is our operation services team is actually.
Study each component that they would like to change and how many seconds improvements that will lead to a in the business.
And so as we put that together, we can we can already see.
Here's the.
The improvements will happen and we began the test.
Doesn't last couple of weeks those changes in a handful of restaurants and we are seeing the immediate change in their speed of service. So kind of proof positive that some signs that went into this.
Actually working out so we'll test that over the next couple of weeks just to make sure that didnt leave any operational disruption werent <unk> negative consumer impact.
But barring that we will then begin to layer those changes out to the rest of the fields, so feeling pretty good about.
How its designed and how its testing so far.
It's just really matter of being diligent.
Don't make any mistakes as we move forward.
Our next question comes from Bob Derrington Wolf with Telsey Advisory Group. Your line is open.
Yeah. Thank you.
Okay.
His line just disappeared.
The next question comes from Alex Slagle with Jefferies. Your line is open.
Thanks, That's why if you could provide some commentary on how you plan to respond increased competitive activity during the breakfast day part.
Next year and he can remind us what percentage of sales during that period first breakfast sales said they come outside the morning day part.
So we're very.
We've got our eye on not only what's going on at breakfast Daypart, but quite frankly late night, so certain product categories.
That seems to be trending and so I don't I won't say that we're looking at Russia any different.
Then the way we're looking at all the other sort of competitive activity.
There's a certain competitors, but I think would have more direct impact on us and others, we want to balance our approach and not just throw everything at breakfast out of fear, but at the same time will likely have breakfast promotions.
Marketplace.
Being advertised.
We make sure that our breakfast offering.
Remains relevant in top of mind, you know for Jack in the box. We are one of the few players that actually has.
You can contribution from all five dayparts.
Some of that's because we sell everything on the menu 24, seven which is.
Please.
Differentiator for our brands.
But I think also in some of the prep the food, particularly at breakfast.
Or you know cracking fresh eggs, and making credit breakfast sandwiches and other items.
For the consumers so we're feeling pretty bullish about our ability to compete in that space.
It's definitely going to.
I have the promotional offers.
Just the advertising.
Ladies and make sure we stay dopamine.
That's helpful. I, just wanted to clarify on the high single digit wage inflation outlook. It what's driving the increase there I guess I expect it more the same inflation in 20, not necessarily a step up.
So it's a uptick in fairness is gonna be fairly similar so it won't be a significant step up first of all but it's being driven by the fact that we have 8%.
In California, so when you're when you're looking at system kind of number versus company remember were more heavily weighted franchisees are I'm not sure us where that number across the whole system and think about impacts.
That said when you got.
Seven ish or 8% just doing a straight math on what minimum wage looks like for California that is going to drive significant.
Wage inflation. In addition to that you've got an economy, where you've got very low unemployment, which which simply compounds that issue.
For others and these chairs and on these calls.
So I don't know that I expect a big step up.
More of a smaller stuff officer is one.
That's it for some of our restaurants are in California.
A lot of wage inflation.
Jennifer if Bob is back you can you.
And as our next question.
Yes, absolutely. Our next question comes from Bob Derrington was definitely Advisory group. Your line is open.
Yeah. Thank you Lenny I figured my question must not have been one you liked so unfortunately.
Paul Josh.
To take another shot at it you know you've spent a lot of time and effort and you've talked about the drive-thru enhancements and it sounds like something that's going to have a up certainly a positive benefit on the business can you give us some kind of color around what you've seen in test and kind of Oh, some thoughts about the quarterly cadence.
So that as you look at this year and the potential rollout of that and then I've got a quick follow them.
Last part of the question as far as the cadence of that I'm going to stay away from only because I want.
Shannon's team to be able to complete the speed side of the equation and be able to.
Merge that with the other components.
Overall experience, we think are necessary, but what I will say is that as we start to see proof positive we won't we won't wait to get those things out into the field, but we did last year is essentially.
Yes, a couple of things one we needed to make sure that the digital equipment, particularly the digital menu boards that we tested we'd actually hold up.
Both hot and cold or extreme weather.
We also had some new branding elements that we put out there to make sure that.
For fuel perspective.
Those were good.
We will take.
What pieces of that test from 2019, we think.
It's the most and at our most economical to move forward with things that we know we can get a return on we will bring those together.
The back of house improvements that lead to overall faster speed of service.
Then when those two things come together will start to start to roll I think what's what's important and this is probably the biggest learning.
2019 is that we we don't want to just try to impact the consumer with bells and whistles without handling some of the basics are improving some of the basics are drive-thrus service.
Isn't desperate need.
Improvement is moving faster on behalf together.
So when we launched the other branding elements I think the consumer should feel like they're getting more of their needs met when they go through Jack in a box.
Drive-thrus. So that's what we're trying to achieve I think we're getting closer.
Throughout the year as the components coming together, we'll be able to say more on the quarterly calls should.
Should we expect that there'll be a number of stores that come out of production during the conversion of this process.
Oh this is lance.
You know Wouldnt expect a lot to come quote on quote out of production if I'm understanding what you mean.
Changes we made.
We would actually do if I'm reading your question.
That said.
I think we're going to be focused on rolling out.
Oh, that's the test they're going to generate return as when he said I don't see a lot of backtracking, if that's what you're asking.
But what are what I've come up here and let you tell me if that's what you're asking to make sure that I understand the question here.
I apologize what I'm curious about is will you need to close some stores for a period of time, while this conversion goes on.
I don't I don't suspect that we would have to close restaurants to achieve.
Chief.
We if we do it.
It's something that hours not days.
We have to do you know some digital component for example, and review the.
You asked system.
And bring them online.
Minor disruptions with those types of things, but it shouldn't be anything material.
Thank you for that and as it relates to the up your same store sales guidance certainly breakfast as an important daypart for Jack in the box you know do you anticipate you know a change within the the cadence of that piece of the business as you focus on other pieces as you we potentially see new competition.
Much of the marketplace.
One thing about the breakfast day part for us.
As positive as it's probably the time of day, where our drive through before the best.
The fastest overall speeds service at breakfast as the most habitual purchase.
Yeah, We also had a really great lineup.
You know fresh breakfast items that we sell so we would say there were one of the stronger competitors in that space.
And although we're not just going to rollover and give our business to the competition.
What I would say is that history has sort of taught us that is one of the harder dayparts for someone to take a significant piece that when it comes to Jack.
Our next question comes from John Tower with Wells Fargo. Your line is open.
Great. Thanks, a couple if I may 1st I understand the preference not to give quarter to date commentary going forward, but I think it's important for your shareholder base to understand that you're not assuming a hockey stick ramp in comps to hit your comp guidance for the.
For the full year, so is it safe to say at a minimum you're running within your comp guidance currently.
Well I appreciate your effort, but we're gonna give annual guidance, we certainly would.
One to deviate from that given what we've just said several times real goal, so I'm very comfortable saying and I think you're hearing and least voice no bearing in mind as we're confident or full year wanting to have to the three year number.
So it's kind of following up on that but yeah. We don't have access to the data, but alternative data sources pointed to a sharp slowdown in fiscal third quarter in the fourth quarter and frankly my understanding is it's much weaker quarter to date I'm. Just curious if you have any thoughts that you could share on how this data clearly in the third and fourth quarter was wrong.
Yeah, I was a tied to perhaps a higher cash tender mix of your business versus what these alternative data sources might be.
That's a that's a good questions on this is one that we're certainly aware is out there.
From a from a perception standpoint, we don't see the credit card data first hand.
I can tell you and I don't know what all our competitor mixes are we think we're probably a little bit higher patched tender or than some of our competitors are but I have to be honest.
And assumption, we're making not based on.
I mean, knowing what their past versus credit mixes.
Our next question comes from Andrew Charles with Cowen and company. Your line is open.
Thank you [laughter] linear you talked about evaluating coming back in 2020 to repair the erosion in everyday value perception.
Just curious is the plan for this to be a limited time offer or something more longer term and if it is in fact, something that's fine that's an LTL what would you need to see before making it a longer term item.
I think we've seen enough and test to know that it'll be a long term item.
The promotional period will behave a lot like a limited time offer.
Being on hair.
But having the social and digital support as well, but we are planning for that item to stick around.
That's helpful. Okay, Great and then Lance you called out plans returned over a billion dollars to cash to shareholders by 2022.
At least in the script didn't make any reference to the other aspects of 2022 guidance. So I just wanted to confirm or our targeted toward targets for I think it's what im pleased to be about low single digit annual system sales growth and $30 million adjusted EBITDA in 2022, those two elements still intact.
Oh, we have not made other changes to long term got it.
Cold, though we expect it to.
I will tell you is as we referenced a couple of times there.
Okay.
Additional guidance given.
Okay, I mean goals.
Oh plans, but no changes to the correct.
Yes.
Our next question comes from Jeff Farmer Gordon Haskett. Your line is open.
Thanks, again have actually true to follow up question. So the first one just goes back to that longer term even dog guidance. So.
Right now you're sitting at about 270 million on the the middle of the EBITDA guidance range.
Pointing to 300 million.
By the end of 2020 too. So that's about a 30 million dollar bridge and EBITDA over just a two year period. So you touched on or briefly that there may be more to come sooner than later quarters, but can you at least share some of the larger components of the expected.
Bridge of that $30 million of EBITDA from where you have guided you enough slide 22, where you expected to be in.
Slide 22, which is $300 million.
Yes, I'll start with them and so we haven't given a lot.
Retail.
Looking back at the.
Got it.
Yes.
I see that so I don't want to go into a lot of them. So think what you should expect though and again hopefully what's your here.
Both Lenny and myself.
Your confidence in what we're doing.
Helpful. On this obviously got it.
Big driver if any.
Things are going to have it's going to take us from.
The current guidance you Jeremy.
In years.
You know in addition to that we have kind of noted that we're going to be bigger focus on units. So I won't go a lot of detail.
As you would imagine most.
Financial Engineering stuff is done at this point, so we're going to be focusing operationally.
Moving.
In the Boston it even though.
Okay, and then just one more follow up and this goes back to sort of what the promotional calendar looks like in the fiscal fourth quarter.
Well I do think you pivoted somewhat down to the the 399, a really big chicken sandwich combo, if I'm correctly phrasing not.
I think there was a three nonunion combo in the fiscal fourth quarter. There was a lot more for 99 colombo's into fiscal third quarter. So in terms of thinking about.
The consumer response or the potential out on purchases for <unk> for any of these promotions what was there something different about the fiscal fourth quarter versus the fiscal third quarter or is there something we should be aware of in terms of held the consumer response to.
Some of these bundled value promotions versus D. A response to other bundled value promotions or the ones that resonates a little bit better and drive traffic and add ons and if you don't have those in play then did you do see tropic pull down a little bit on your guys.
So we wouldn't say that there's a.
Yes from quarter to quarter.
Really be chicken sandwich is something that we ran in the past.
Only change this time around.
This was something that we did do sort of create Instagram will offer we loud up sell up to four Patty and it pretty incredible how many people actually order patterns.
The pictures of this giant really be chicken sandwich, so that was kind of fun, but no I'd say the way that we'd gone about it.
Third orders look very similar in <unk>.
We'll continue with bundle that look a lot like that were generally in that were 99.
Rage, but there are certain certain products, particularly when you sell.
Let me start out.
Lower retail and then you look to build that up with Uh huh.
Our next question comes from Lauren Lieberman with Credit Suisse. Your line is open.
Thanks for that question I wanted to ask about the enterprise strategy spokes accelerating growth going forward, So where do you see the greatest opportunity is is it new markets are existing markets and then any color on more payback periods have been trending on some of the new classes.
First new unit growth I'd say is Scott.
Infill opportunities here in the next couple of years to be able to drive.
For growth.
Turning to without expansion into new market or or completely filling out markets that are under penetrated but as we get beyond the next couple of years, we'd really like to see.
More development into newer markets were completely new market as well and I didnt catch the second half of your.
Questionable broken up on the side.
Sorry, if you're going to provide any color on where the payback periods have been trending then you classes.
Florida plants, we have it going into that.
What I can.
Are you with a high degree of confidence in their stores have been opening pretty strong.
But as far as payback period indoors.
Interest to another.
We haven't given that level.
Okay, and then just on neared tech spending are you comfortable at the level of tech spending they stand some competitors up the investments on their digital ecosystems and then just what are your main focus areas as it relates to technology, that's called 20.
We've actually seen a pretty mixed bag out there, we see some and brand really focused on hospitality.
True.
And some other tech investments might be associated with.
Loyalty or customer relationship management, but.
They're not going high tech and to drive through.
Not very high tech even in the dining room, but they are driving some of the high.
Industry and then we've seen the exact opposite some other big players.
Our investing a lot intact.
Oh, yeah acquisitions.
The things they want to do as well as it currently going into their restaurants. The way we look at it is the QSR business.
In general is going to need healthy ddos attack likely through.
Apps that allowed to consumers who do your menu.
We're ahead and pick up.
Hey.
And they're going to need continues a relationship management over time.
I am too.
Incentives and other communication.
Aged in the brand because that that is.
Likely the level of investment.
Going to garner the return over the long term we are looking at other technology, but at this time, we don't think.
That plays for us to invest.
We'll see how those sort of technologies and consumer acceptance of it emerges over time before we commit to.
Overall, you're looking at it can be used oriented.
Our next.
<unk>.
Our next question comes from Matt Difrisco with Guggenheim Securities. Your line is open.
Thank you I just had a couple of follow ups, a with respect to delivery can you give us some color on what you're seeing as far as the growth about some other brands have mentioned that and Ah, it's starting to settle into a little bit more of a steady state of growth rather than them a hyper growth initially.
And then also just in the context of all the questions about the comp Wonder if you could just sort of comment on the volatility I know a in prior quarters a lot of you guys as well as your peers have said the consumer volatility was maybe a little bit more than historically normal are you seeing that similar type of volatility as well as that somewhat factoring into.
Moving away from some of the more near term guidance.
That's why it's so I'll start with these all that let me jump in.
Oh, you're on your delivery question I'll start with that one we have continued growth we have over 90%.
Covered.
Every providers.
We do continue to see some growth in that area and a couple of and I don't want to doors.
But.
We do have.
Some additional delivery coming online it's a couple of providers grow unit count meeting is.
Sort of providers.
Yes.
To deliver on their platforms and used to so we.
We are seeing continued continued.
Oh volatility standpoint on my part of that went over to linear.
<unk> leasing and copper volatility you know and consumer volatility is associated with what we see in the competitive space. We've been asked often times.
Do we see the same.
Hyper competitive marketplace out there, where there's a lot of value and discounting.
The market and we sort of maintain that.
It continues.
And even in some quarters, we've seen it ramp up even after everyone thought it was sort of waiting so they did you get component of volatility right now.
Likely associated with some of <unk>.
<unk>.
Performance that you see from various competitors, where they're seeing some transaction decline.
And trying to have a healthy.
It was healthy trends.
I think over time, and that's leading to.
Pretty pretty big swings quarter by quarter, and what we're seeing in the marketplace from a promotion.
Being editors come out with.
Sandwiches that are high quality and very high food cost that are significantly discounted a there can't be a lot of penny profit associated with that but those things certainly drove.
Transactions and and sales and so bill what we would consider to be a hyper competitive marketplace. Our biggest caution both internally and then also with our other stakeholders like our franchisees is to just stay very attuned to what's going on in the marketplace.
Because no one in the marketplace is slowing down there very aggressively trying to intrude.
On various day parts as well as a product categories with very aggressive offers I'd say more than anything that's what drives volatility.
Okay, and then just a follow up on I think you said one minute faster typically when other brands have talked about speeding up service.
Duncan comes to mind simplification, usually means menu simplification.
Are there going to be some S.K., you rationalizations or has that been already reviewed and that's not really an alternative I know in the past some people have been.
Observant that you guys have a larger menu than your peers and that might be a reason for some of the slow down as well or slower times as well.
Yeah, we definitely will rationalize some of the skews, particularly when we look at.
Losses Red carriers cheese is you know things that don't necessarily.
I have.
Hey positive impact on the consumer consumer doesn't necessarily recognize all these things that we've built into these products. We can still have great variety in our menu without having the ingredient count.
To get there so we'll see some skew rationalization, but also what we're seeing is that just procedurally as we brought some folks in from the outside and they look at the way we're running operation. Although we are close to a cook to order type.
Entity some of the ways that we cook our products formulate our product hold our products are proteins. For example, we're kind of kind of going about it the hardware.
And with some some tweaks both to equipment a procedure, we can make it a lot easier you know on our crews and those are the things I was referring to earlier now that we're all are already testing at a handful of restaurants and seeing positive results. So feel really good about this effort is probably the one thing I'm most bullish about.
Going forward, because I think that bringing in this outside perspective has been it's necessary and it's also been refreshing to the operators.
I think we have time for one more question.
Last question comes from Peter Silly with B T. G. Your line is open.
Great. Thanks money I think you'll to considering other items for 2020, and maybe what's trending so give us your thoughts on.
Oh plant based on the menu and 2020 is that something you guys are considering have tested it.
Just some thoughts around that.
We are certainly open to plant based and it may or may not come in the form of a hamburger. We are testing some things are currently and where formulating various ideas, but Jack in a box is not just the Burger player. We've got a lot of variety on the menu and there are some guy.
Great product categories.
Yes that are very high mix and it may make more sense for us to go to the marketplace.
With plant based version of those product line.
This is doing what everybody else is doing in the Burger side. So.
I'm just.
Hey that were totally open to it we think it's important I do think plant based.
I will be here to stay.
But for Jack in a box because we really look at these craveable snacks insights just as importantly, as you know are all card or combos sandwiches.
We want to explore plant based across multiple.
Categories and or items versus just a hamburger.
Got it okay.
Just a follow up on.
<unk>.
I know said not not step up I'm. Just curious just is the inflation you're expecting on next year or high single digit is that all from.
Or is that.
Clued any incremental labor hours, you may be out into the store service.
I think its lance I'll take that one so so the lions share of its certainly it's got to come from the mandated minimum wage increases.
The heavy concentration in California.
And then you'll also see.
Probably continued pressures.
For me as I've already said.
Axle labor.
Restaurants.
We don't see any material changes there.
Thank you all.
[laughter].
Oh any fees and we'll talk to you in anyway.
This concludes today's conference. Thank you for your attendance you may disconnect your lines.