Q3 2021 Jack in the Box Inc Earnings Call
And the cautionary statement in the company's most recent 10-K are considered a part of today's discussion.
Material risk factors as well as information relating to company operations are detailed in our most recent 10-K 10-Q and other public documents filed with the SEC.
And are also available on the Investor Relations section of our website a.
A few brief housekeeping items before we get started a reminder, that the current year has a 50 <unk> week, which will factor into our upcoming fourth quarter 2021, and its year over year comparison, we will provide more detail on this related to our results and as a reminder, this will not have in effect on the same store.
Sales, but will have impacts on among other things systemwide sales revenues and earnings.
Next and hopefully this is good news, we will be changing our earnings release and call times going forward beginning with Q4 in November.
On the earnings day, we will be putting out our release our earnings release at 830, a M. Eastern time and I am at the same day our conference call will begin at 10.30, a M eastern time in.
In addition, and Jack has historically had a quiet period of 1 month. The prior to the earnings calls that will now change to a 2 week quiet period. So the beginning of November and note that we will now be able to have analyst and investor interaction up to 2 weeks prior to our earnings release and call.
Lastly, I'd like to quickly review our guidance updates included in this afternoon's earnings release.
As a reminder, going forward, we will be providing new annual guidance each year for for items Capex and other investments G&A commodities and labor cost outlook. These annual measures will be introduced at our fourth quarter earnings typically around November and updates to those annual measures and will be pre.
<unk> at our second quarter earnings typically around the May.
In this afternoon's earnings release, we provided the following updates 2021 capex of $40 of $45 million.
Which was previously stated in Investor Day, and does not include other investments, which will be included beginning with our 2022 guidance.
2021, G&A of 71% to $76 million.
This G&A guidance omits, our net coli gains or losses and going forward, we will be providing this in a dollar range rather than a percentage of system sales.
In 2021 commodity outlook is up 4% to 5% compared to 2020.
And 2021 labor cost outlook is up 7% to 8% compared to 2020.
Our 3 to 5 year outlook related to comps unit growth in system wide sales metrics, which all factor into that outlook beginning in 2022 <unk>.
<unk> remains the same as what we provided at our Investor Day in June.
And as we stated then all other outlook measures. We had provided previously for 2021, particularly related to EBITDA are no longer a part of our guidance going forward.
Also this morning for additional visibility, we provided a capex and other investments guidance range for 2022, Tim will speak to this further in his prepared remarks.
And with that detail out of the way, let's get started I will now turn the call over to our Chief Financial Officer, Tim Malini.
Alright, Thanks, Chris and good afternoon, everyone. We are excited to discuss our third quarter results with you today.
Overall, we had a very strong quarter of top line results, helping us in our effort to continue to drive top tier.
Very strong top line results have been at the continue to drive top tier unit economics and store level of returns for our franchisees positioning us for the future growth that Jack has been capable of for decades.
We remain as focused as ever on getting our fundamentals into place to accomplish just that.
Turning to our results.
Overall, our franchisees operators and restaurant managers and generated strong operating results leading to a diluted EPS of $1.79 for.
For the third quarter of.
26, 1% increase from the prior year.
I'll provide some detail in the components of these earnings.
The <unk> sales grew 10, 6% as compared to Q3 in 2020.
As a reminder of system wide sales includes both com and net unit performance.
Some of our sales in Q3 were also benefited by restaurants that were temporarily closed for remodel of a year ago. The contributed to what our results this quarter.
As well as high volumes at our newly opened stores, which helped offset the negative store count.
Our same store sales performance in Q3 was outstanding.
Growing 10, 2%, while lapping of prior year increase of 6.6%.
Breaking down the comp our franchise business increased 10, 3% in the quarter, while our company operated stores were up 9.0%.
The comp this quarter was driven by a balanced mix of both Jack and transaction growth.
This was our second consecutive quarter of traffic gains helped by our strong value platforms and <unk> offerings, while average check growth came from premium menu items and maintained strength in items per of Jack as well and some price increases at the store level.
Shifting to the unit count we opened 4 stores during the quarter and closed 13, most of which included agreements for offsetting locations as we continue to take the needed steps to make our system more efficient.
Keep in mind that in most cases these stores continue to pay both royalty and rent contribution and so the offsetting locations become operational.
As you may have seen in our thank you filing. This afternoon, we stepped in to take over operations of 16 stores in the noncash transaction all of which are located in the state of Oregon.
Our goal is to eventually have the stores back in the hands of franchise operators, but in the meantime is a prime example of our strategy for when necessary take in under resource of stores in markets. We know we can improve and grow.
This process will continue as we get our fundamentals position for growth and is reflected within our 3 to 5 years of unit growth guidance.
We remain very confident in our target of 4% unit growth in 2025 in the meantime continue to develop and prove out the fundamental strength and best in class and unit economics to get us there.
Revenues for the third quarter were nearly $270 million of just over $27 million or 11, 2% from the prior year quarter.
This increase was primarily driven by higher system wide sales led by strong same store sales across the board.
Restaurant level margin remained flat at 25, 4% or $23.4 million, while franchise level margin improved to 43, 3% or $76.9 million.
Sales leverage was offset by increases in wages commodities and packaging delivery fees and maintenance costs in our company operated restaurants, while higher royalties and rent revenues from strong comps contributed towards the increase in our franchise margin.
G&A expenses increased approximately $7.4 million as compared to Q3.2020.
This is due to increases in litigation accrual insurance costs and lower net coli gains.
Excluding that coli gains from.
Excluding that coli gains of $2.6 million in Q3 versus the $3.9 million gain last year G&A increased by $6.1 million and as Chris mentioned, our annual G&A guidance measures and assume a neutral or zero net coli impact.
Our reported effective tax rate as a percentage of earnings from <unk>.
<unk> operations before income taxes was 23, 1% for the quarter as compared to 27, 9% in Q3.2020.
This was primarily due to a decrease in the impact of certain non deductible expenses and increase in non taxable gains related to coli policies and release of reserves on certain state tax credits and losses.
When you combine all of these elements net earnings increased to $40 million for the third quarter compared with $32.6 million a year ago.
And adjusted EBITDA was $79 million in the third quarter compared with just under $73 million from the prior year quarter.
Our diluted EPS in Q3 was $1.79 versus $1.42 in the prior year and increase of 26, 1% or <unk> 37 per share.
Breaking down that 37 and increase of it.
Most notably earnings from operations benefited us by <unk> 18.
The lower diluted share count driven by share repurchases benefited us by <unk> <unk>.
I'll provide more detail on share repurchases in a moment.
Net interest expense of <unk> positively impacted us by <unk>, mostly related to our BSI in activity a year ago.
The lower effective tax rate positively impacted us by <unk> 11.
And lastly, other various items impacted EPS.
Up about 1% of positive impacts.
Now shifting to cash.
Top tier economic model remains strong and it continues to generate significant free cash flow throughout.
Year to date, we have generated attractive net cash provided by operating activities of approximately $150 million.
After deducting for Capex, we generated free cash flow of approximately $115 million.
Also year to date, we have spent approximately $35 million in capex, primarily toward lease rate of first with the use those transactions and remodel refresh of the company operated restaurants.
During Q3 and including the first week of Q4, we repurchased approximately 577000 shares for $67 million or approximately $116 per share on average and.
Bringing our total of 2021 year to date repurchases to $132 million.
As of today, there are $68 million remaining under the board authorized stock buyback program.
Additionally, during Q3, we returned $9.8 million of our shareholders in the form of the 44 quarterly and.
Bringing our 2021 year to date total dividend payments to approximately $28 million.
I also wanted to touch briefly on the Capex and other investments guidance range. We provided this morning of $65 million to $75 million for 2022.
As a reminder, beginning with this guide all annual Capex and other investments guidance will include 2 main items that.
And that will be capital expenditures and franchise and tenant improvement allowances and incentives.
To help visibility, we thought providing this guidance earlier than expected as it will typically come at our year end earnings will be helpful. In framing up of focal point of our investment outlook for next year.
I would like to summarize by noting our performance and related to the floor of box financial strategy I talked about at our Investor Day in June.
First driving operational excellence I am, particularly pleased that our ability to deliver strong operational and margin performance, yet again, demonstrating the strength of our proven and free cash flow model in Q3.
The second system wide sales growth.
This will be the key metric to measure our progress against balanced the topline sales plus unit growth performance.
Had an outstanding quarter, driving double digit system wide sales growth and our future upside opportunity within unit growth has me optimistic that we can continue to perform well in this area.
And third funding investments.
And we discussed at Investor Day, we are leaning in where needed which will be necessary in getting our fundamentals will meaningfully improve place for unit development and growth are delivered on a consistent basis.
And look for us to continue to be disciplined yet front footed in this area.
And lastly, returning capital to shareholders, we will continue to manage the balance sheet and our use of cash efficiently whether in the form of dividends and repurchases or incremental business investments all of them.
These through the lens of strengthening franchisee profitability and maximizing shareholder return.
In closing our business continued its strong performance during the third quarter, demonstrating the strength of our economic model in both the company and store level.
We continue to focus on operating efficiently investing wisely and building fundamentals for long term growth.
Thank you again for joining the call today, and now I'll turn it over to Derek.
Thanks, Tim and good afternoon, everyone. Appreciate you joining us today.
Our earnings call today in March 1 full year of reporting our performance and results each quarter as CEO of Jack in the box and.
And what a year, it's been I'm extremely pleased with our accomplishments over the last year.
We built the talented new management team.
Our sales performance has been impressive our digital business has grown we've proven our ability to drive strong earnings as a company and most importantly, we've driven increased profits for our franchisees.
Our relationship with our franchisees continue to strengthen as our alignment with them about the brand's direction solidifies.
And with that said today is a good opportunity for me to reflect on some of my thoughts and priorities in my first year, leading Jack in the box.
And before discussing the quarter specifically there are a few things I'd like to highlight for.
First of <unk>.
And thirdly enjoyed the time spent developing relationships with our franchisees and I truly feel that the partnership between our franchisees and our new management team is off to an outstanding start.
Our strategic foundation of serving our people and franchisees well is really beginning to take hold.
And although we still have opportunities our entire team is energized by the re engaging with our franchisees.
And treating them as partners and strategy.
Recently, we attended the National franchise Association of and in Nashville, and.
It was a great opportunity to connect the franchisees in person and meet their families.
And this month, we have the opportunity to bring the Jack family back together again in our upcoming franchise the business meeting.
We have the opportunity to celebrate our 70 <unk> anniversary.
You heard directly from our franchisees at our Investor Day last month, and hopefully you got a sense for their excitement.
And the alignment of the positive energy and.
And store level of returns combined with the excitement around our new store prototypes.
<unk> marketing, our digital and loyalty innovation.
Half of our franchisees and operators and management team is ready as ever to execute on our growth potential.
And I am impressed every day by our energy and culture, both of the brand and as an organization.
We know what we are here at Jack unexpected and out of the box and I love that the funding of enthusiasm from our marketing communications and brand identity. The entity externally is exactly the same as what I observed from our talented teams internally.
The teams are scrappy, where of challenger brand of Streetfighter and a boxing match if you will.
This persistence and determined determination and make us unique and it truly energizes me and my team.
And lastly.
I am thrilled that the team we are building and the way we are aligned on the need to take a step back.
And think about our fundamentals for growth.
We are attacking the elements of the business that need to be improved for us to meet our growth potential.
We realize the importance of mending of broken franchisee relationship and immediately went to work on repairing and.
We realize the importance of unit economics, and providing such strong returns debt franchisees can't wait to build more restaurants.
We realize the importance of the clear brand position and are focused long term strategy.
And most importantly, communicating this clearly both internally and externally.
We realized in this kind of lean in on investments innovation and the listening to our guests more.
We are committed to investing aggressively in store improvements and new store build.
Innovating via digital operations and menu.
And we're building out a much stronger more robust data and analytics team to ensure we never take our eye off the ball and putting the feedback and insights from our guests before our own.
And lastly, I am determined to make sure it's clear that Jack in the box is anything but just another burger player.
Whether it be in existing market or territory and new market that we may be entering for the first time.
The uniqueness of our brand our menu our day part value and premium offerings and most notably the uniqueness of our overall guest experience is something we can never let our sales our most importantly, our existing and potential guests lose focus on.
I can't express enough, how pleased I am with the progress we've made on all of these fronts. We couldnt have made so much progress in such little time without extend the outstanding leadership.
The team energized and committed to a new path forward.
And a group of franchisees willing and ready to roll up their sleeves and help us get better.
All in all to say I am excited about the opportunity to lead this brand is of tremendous understatement.
And while we're just getting started and there is tremendous amount of work still to do I am encouraged by what we've accomplished thus far in our journey of getting our fundamentals in a position to expand.
And we're extremely optimistic that the time of truly come for this brand and reach its full growth potential.
Our next step is to.
Executing on the show me story related to unit growth and proven.
Something I am fully committed to achieving.
Now turning to a few quick thoughts in the quarter itself.
Overall, we had a very strong quarter of top line results, which only helps our effort to continue to drive top tier unit economics and store level of returns for our franchisees.
Our double digit same store sales performance is certainly a credit to Ryan Ostrom and his marketing team, which and what I would consider their first full quarter executing as a team delivered very strong sales via a nice mix of traffic and ticket.
I am excited about what this team can continue to accomplish and not just for our existing guests of the market.
But in introducing the Jack brand experience to unfamiliar markets and.
And new potential guests.
In addition to the breakfast day part late night performed well yet just again.
The trend we have seen in the business as things have started to reopen and people have started to get out and about more of like usual.
Late night of the tremendously exciting opportunity for our business in area, where we can truly differentiate and established category leadership.
And as a compelling way to prove out our not just another burger player philosophy and.
And it's something we will continue to dedicate energy and focus on going forward.
On the promotional front.
Popcorn chicken offering was the definite highlight.
Only offset by the fact that it almost performed 2 well.
As a former operator drove me crazy that we weren't able to continue with the product that our customers were clearly craving.
But.
I was pleased the CR team responded we made a very nice pivot to our biscuit sandwich platform.
Which also performed well and maintained our topline momentum.
This was yet another reminder of how well equipped we are to continue to activate against the innovation of platforms around chicken.
Expect more of this in the future.
We saw particular strength in our dine in and Carryout businesses as things continue to open all highlighted by the reemergence of traffic gains.
And as Tim noted marked our second consecutive quarter of positive transactions and.
It may not sound like a lot, but considering the trends of the behaviors and much of the industry's reliance on ticket to create sales growth.
I'm pleased to see this be more of a balance.
This is not only something we are very capable of comps and consistently due to our ability to provide both value and premium premium offerings to guests who want it.
But it is also certainly the most sustainable way for us to grow sales and compete.
Before we wrap up and take your questions.
I'd like to introduce a new way for us the best summarize engaged quarterly performance against our long term strategy.
Was presented at Investor Day.
So expect each quarter for me to review our performance against our 4 pillar strategy.
First building brand loyalty.
Highlighted by the launch of our Jack Pac rewards program during quarter 3.
Something simple the op and op into simple to earn and simple to redeem.
In addition to the experienced in the uniqueness, we offer our already existing loyal fan base.
And the loyalty program hopes to take this important pillar to the next level.
This was also a strong boost to our digital ordering experience as a whole where.
And where we see of better guest experience higher frequency a stronger food add on.
And by the visibility and interaction with our unique menu.
Digital remains a strong opportunity for us and maximize and guest satisfaction as well as creating sticky frequent customer behavior.
We have grown our digital database, 30%, thus far in 2021 alone.
And are excited of soon hit the Mark of a 10% sales coming from digital channels.
Next driving operational excellence.
Tony Darden, who joined us for our Investor Day, Q&A is up and running and.
It's been a significant portion of his time training in our local restaurants recently.
And I'm very excited about what is the leadership can bring to the table.
And encouraged by the way he fully understands the uniqueness of our brand experience.
And as already dialed in and focused on how we maintain it.
At the same time.
Thinking about how we create simplification where needed at the booth service and profitability.
Because of arrival is also timely.
Much like the remainder of the industry.
We continue to be pressured by labor and hiring.
Which is impact of the store hours and service levels.
I am pleased with the way we are managing through this but certainly keeping a close eye on ensuring our consistent execution and service levels remain the strongest possible considering the headwinds.
Third growing restaurant profits as.
And as I stated in Investor Day. This is an obsession for our management team.
Which is why it will now be of transparent annual disclosure going forward.
Unit economics are key to our unit growth potential no question about it.
And it's a big part of.
Of the job that I have that excites me, which is seeing our franchisees generate strong returns.
Building fundamentals to support and sustain these 4 wall economics and get to a place where franchisees grow organically within our system is certainly our goal and we are on our way.
Lastly, and on that note, our fourth and final pillar is expanding Jack reach.
Which is undoubtedly something everyone on this call of shares as a priority and our focus toward our future.
We have now completed.
Signed development agreements for 64 restaurants, thus far in 2021.
We announced at Investor Day, our plan to reach 4% unit growth in 2025, and our aspirational goal of operating in 40 states by the year of 2013.
We will get there by learning from our past to improved fundamentals.
Solidifying our unique brand position to potential guests and the strong fashion and most importantly, providing of franchise the opportunity like no other in <unk>.
In closing.
Personally never been more energized in my entire career than I am about this team that we have built.
The franchisees and operators I'm fortunate enough to partner with.
And this brand and that and it's 70 year history has never been in a better position to grow and bring his unique experience to all who want it.
And with that we.
We are happy to take your questions.
Thank you speakers participants we will now begin the question and answer session to ask the question over the phone unique pressed the starkey followed by the number 1 from your telephone keypad 2.
To withdraw your request please press the pound key.
Once again Thats star 1 to ask the question for the pound key to withdraw your request.
Last week, we asked all of the participants to limit themselves to 1 question for each term. Thank you.
Speakers. Our first question is from the line of Brian Bittner of Oppenheimer. Your line is now open.
Thanks, Good afternoon, Darin and Tim I appreciate the color on the 22 Capex and other investments says.
And now it's been a topical discussion in the investment community.
When we when we think about the 2022, capex and other of $65 million to $75 million how much of.
Of this is tenant allowance and incentives and how much of this is core capex kind of as it relates to the.
The 2021 guidance of $40 million to $45 million.
Okay.
Yes, I think the way the best way to look at that is we gave guidance relative to 2021 at $40 to 45 of call. It core capex.
And thats exclusive of tenant improvement allowances and incentives.
With 2022 being 65 to 75 inclusive of those items and then on Investor Day. We also gave a range of unit growth over the 5 year long term span of going from 1% up to 3% on of long term CAGR. So basically what that is suggesting is that theres strength, there's a process and the timeline of building.
And the pipeline, which you would anticipate a sizable or a radical increase in corporate store capex in 2022.
Contributing to that that 65 to 75.
So I think it's the company capex will be relatively consistent with prior years.
And as we rollout next year this new franchise tenant improvement allowance and incentive program and Youll see that slowly start to ramp up as well.
Okay. Thank you.
Next question is from the line of Lauren Silberman of Credit Suisse. Your line is now open.
Thanks, So much and my question is on average check I think it's up about 25% on of tier basis can you expand in the net dynamics and continue to drive that check higher and how youre thinking about the sustainability into next year and then.
And you've talked about making gains with the higher income consumer throughout the pandemic. So to what extent are those gains contributing to the average check growth and does that give you added confidence in the.
The ability to retain the Jack.
Thank you.
Average number of items per check has been holding steady from comparative growth that we saw early in the pandemic. So we're seeing pretty consistent and steady between it for 2 to $4.3 items per check.
And our core premium items, such as sourdough, Jack and Buttery, Jack continue to help sales or value items, such as tacos and jumbo Jack support growth.
And we've seen good movements of back to normal lower levels of checks under $5 and continued improvement for the check over $5.
And so what we're seeing now with the overall performance from the standpoint of.
Higher income demographic, because we're holding on to that customer and we're seeing less churn.
So we are holding on to those new customers that we've acquired since COVID-19.
Although rising somewhat the churn.
Really pleasantly surprised by is that.
We're still net positive for these new customers.
The other thing that we find interesting is frequency of these new in the lower frequent guests.
We're seeing it grow and then our high frequency guests.
We're holding steady on.
Thank you.
Next question is from the line of Greg Frankfurt Guggenheim Partners. Your line is now open.
Hey, with the risk of the Crystal and me for this but the just a clarification of what the guidance implies for fourth quarter G&A specifically.
There's a lot of moving pieces and that'll be helpful. And then and then my question is.
There was a lot of concern that limited service would lose share back the full service as the economy opened up of SaaS casual players that doesn't seem to be happening in the U S. Do this earning season.
And what are your thoughts Darren and I'm just.
Why why trends in <unk> and maintained where they are in 2 year basis, even as the rest of the economies come back and where that share may be coming from thanks.
I'll take the first piece of that so.
The relative to our guidance on G&A and so we're providing in 2021 full year of fiscal year, G&A and a range of $71 million to $76 million.
And thats the net excluding net coli gains and losses in that forecast and just the note we have shifted how we provided guidance.
Year to date were $46 million, so that'll give you some context for Q4.
We are shifting how we provided guidance from a percent of.
System wide sales to the US dollar range to help you kind of hone in a little bit more precision there. So hopefully what we provided.
Kind of gets you there.
And then to the SEC.
And second part of the question I think you kind of referenced more industry wide as far as the shift of consumers back to higher income.
Or not higher income more casual or upscale restaurants in.
I think theres been a fundamental shift overall and behavior and that is with digital and our business continues to grow from a digital standpoint.
I definitely have seen I think we've created some behaviors by bringing some customers back as I mentioned in our new customers and are in frequent customers.
We're seeing their frequency go up which is hopefully we've introduced them to the new flavors and new experiences at Jack that keep them wanting to come back and trade.
And some other former dining dollars.
As of <unk>.
The the <unk>.
Flavors and the quality that we have given them and so that's part of our overall crave strategy here at Jack in the box is to drive guest.
Guests to our restaurants that have craveable products that want them.
And I keep them coming back and so I think thats the part of it between digital and just making the right.
The product introductions through innovation and value.
Okay and just the fault.
All of the note on the year to date G&A of $46 million number year day to include the gains core gains of net of $9 million. So excluding those 54 million.
Leading into that 71, the 76 million for fiscal year guidance.
Thanks.
Next question is from the line of Jared Garber of Goldman Sachs. Your line is now open.
Great. Thanks for thanks for the question.
Wanted to flip back of the unit growth side, Darrin and I. Appreciate you guys, giving us some of the color on the on the development pipeline and the 60 units or the 60 agreements that you signed can you help frame for us and they get a couple of things with respect the unit growth I guess whats the timeframe that we should be thinking about the 60 units opening is that something that we should expect to see the units at least opened in 2000.
In 'twenty, 2 and then can you comment a little bit further on the pace.
For the.
And what Youre seeing on the closure side and how we should be thinking about the net kind of the net growth in <unk>.
'twenty 2 I know, you've given us sort of about 1.3.
That guidance, but wanted to get a better sense of what youre seeing maybe on the ground with that with franchisees.
Sure.
Far as the potential development agreements. So is there more to start to create a lead indicator for future growth.
And that is not designed to say by next year all of those will open those are spread out over time.
And so we haven't provided guidance yet on what our opening goal will be for the next year, but what I can tell you is debt.
With the improvement in our economics.
Year to date were up about $90000 and just overall unit economics. The franchise. These are aligned there showing the desire to grow.
And I anticipate another good quarter with with more development agreements coming so they're expressing it through showing their interest in developing and that time to build that pipeline as you all know is natural.
We've already been building it and we've already seen an increase in the sites coming in but it takes a good 18 to 24 months to really start to see that come to fruition.
I anticipate we will see the start of that next year.
But but all of those 60 or not and in 1 year.
We will also be announcing development agreements.
As they occur.
I think the other thing that you had mentioned in about closures and I think this is a good 1 to make sure. We address very clearly we don't anticipate outpacing our historical averages we've seen.
As we've mentioned on prior calls the discussion around <unk>.
Anticipating closures to increase this year as we work through opening up communication lines with franchisees.
And what you can't see is and I think Tim described in his in his.
The description of the call is that a lot of these have offsets where were getting royalty and revenue until future units opened.
And that's part of the overall discussion as we think about portfolio optimization and what is the right thing to do for the franchisee and what is the right thing to do for the brand for the long term, but that doesn't mean, we can just close the unit and not expect that we lose the royalty and <unk> revenue from rent. So we're working hand in hand with franchisees to make.
Good decisions for the future of this brand.
And just the follow up on that so again all of the <unk>.
13 units of that closed in Q3.
7 of those included those future offsetting in locations that Aaron mentioned, we continue to see economics from until those offsetting locations open and in the remainder of those 13 closures are relative to <unk>.
Agreement expirations on the franchisee side so.
I think we're again leaning in security in the portfolio and allowing some of these.
Locations that are either older or where the market has moved away from them to move in to.
Locations in markets with our new prototypes of that could contribute greater royalties to us upon opening.
Thanks, I appreciate the color on the the offsetting unit growth and and also the franchise economics.
Appreciate that thanks.
Next question is from the line of Dennis Geiger of UBS. Your line is now open.
Thanks for the question Darren I wanted to follow up on a couple of of the earlier sales questions. Maybe just wondering if you could talk a bit more about kind of maintaining and and then growing some of the sales volume that you've seen even is.
Behaviors, perhaps shifts a bit going forward really strong topline performance in the quarter. Obviously, so just how youre thinking about kind of some of the brand specific drivers that you touched on earlier going and looking forward whats most impactful with its new items digital of the operation just kind of contextualize in that and then the other.
The pes thinking about sort of the macro drivers potential pandemic impacts anything based on what you've seen to date that you can kind of share there on.
As it relates to the go forward. Thank you.
Yes sure.
What I've seen since being here as we have mentioned this before and we took a lot of time and effort to listen to our guests through segmentation work and really dial in to what it is that they want from Jack in the box.
And then the strategy that we've implemented has continued to resonate with our guests and that strategy around.
<unk>.
Our promotional lineup with innovation and when we.
We've seen sustained check growth during Q3 more than other <unk>.
It comes down to our strategy and 1 of the promotional strategy of mentioned related to innovation and what we're promoting.
Our up sales for <unk>.
Promoted popcorn chicken, but we are in up sell of popcorn chicken that did extremely well.
And then we had the pivot to our Cheddar biscuit that also had chicken that was in up sell so our upsell strategy is working with craveable items and guests 1.
And then are add ons are $3 to $4 of add ons and with mini munchies or Mac and cheese bites, the Rus fries and the chocolate croissant bites.
And those are helping our overall check average is increase.
And then lastly, as with the new and infrequent customer, we're seeing a huge transports and the shift to premium items.
So that's a part of what's working as our menu strategy, our overall strategy of listening to our guests and giving them. The offers they want.
And then lastly, what I would add to that and as our day parts, we're seeing growth across all day parts in the specifically of late night, we continue to know that that's a huge opportunity for us to take share.
If we can continue to service it well.
And the last part I would mentioned of the digital our digital.
Continues to grow we were behind when we started we're now starting to catch up we've seen digital growth of close to 8% of sales.
We've got a strong team that's behind it.
Working on the right digital initiatives to continue to grow our unique.
User base that we can communicate and do 1 to 1 marketing with so we're doing all of the right things that give me confidence that we'll continue to find ways and levers to build this business over time.
And I can tell you.
There's just a lot of exciting things happening here with the way we are building the tools to prepare us for your ongoing growth.
Thanks very much.
Next question is from the line of John Glass of Morgan Stanley Your line's now opened.
Hi, Thanks, I wanted to ask about.
The traffic sort of over a longer term, even though it's turned positive and if you look kind of 2 and 3 year basis, its still down significantly over the last couple of years I understand that the hard metric now because the shifting in ordering patterns. So when you look at your traffic do you think 1 are you losing like the lower end consumer I should push the brand up and maybe.
The good thing from a margin and profitability standpoint, or do you feel like you have to address like of value piece now in the business and in.
And maybe if you just look at the traffic by day part where have you lost the most traffic counts and maybe where if they picked up just so we better understand the dynamic and traffic. Thanks.
So I think naturally throughout the pandemic and I don't think its just the unique thing to Jack in the box we saw the.
Check that was under $5 start to decline and so we've been very sensitive to finding ways to balance premium and value and this quarter. We saw we saw continued improvement in that less than $5 check which is exactly what we wanted to have.
And we wanted to balance between promoting items with Upsells that would drive people into our restaurants, but also balancing the value of consumer and I think we did a nice job of that in this quarter and the numbers reflect it.
And then the last part I would say about that as.
All day part of all of our day parts have been positive and so I think that speaks to the strength of Jack in the box with our strategy and positioning of having all menu items available all day every day.
And we continue to see that contribute to our success.
Thank you.
Next question is from the line of credit so call of Stifel. Your line's now opened.
Thanks. Good afternoon. This is actually Alec of strata on for Chris.
I was hoping you could speak a bit more about the 2022 Capex investments at your Investor Day, I believe you mentioned Remodels will be the majority of focus in over the next few years.
And maybe help outline how much of that core spend will be on remodels and roughly how many of those 400 of 450 locations are company owned or maybe expected to be completed in 2002.
Yes, so high level, we're putting the finishing touches on our incentive program for the franchise system. So thats kind of rollout in 2022. So I think it just if youre able to compare our guidance again on 2021 core capex guidance of 40 to 45.
And versus 2020 twos combination of Capex and other investments which include these franchise the ti allowances and incentives that guidance of being 65 to 75, you can see the instrumentality there and the majority of that is again going to be more so on this remodel refresh program that we anticipate.
The rollout in 2000.22022.
And I kind of leave it there I think I think that gives you a pretty good look at what our sort of funding expectations are for that new remodel refresh program.
Got it thank you.
Next question is from the line of Jeff Bernstein of Barclays. Your line's now opened.
Great. Thank you very much.
Big picture question on the cost outlook.
And up from both the commodity and of labor cost standpoint.
Michael the only 1 quarter remaining.
Boosted both inflation guidance for this fiscal year. So I'm wondering first and foremost the Hebei just share with us what the implied fourth quarter is for each of those just sort of get a sense, where we are now and maybe whether or not you think directionally, what's a reasonable expectation for fiscal 'twenty key in.
In terms of inflation, obviously, not giving specific numbers yet the weather that feels reasonable for the out year, just based on what youre seeing from both commodity and labor and when.
Other or not you feel like you have the pricing power the franchisees in the pricing kind of offset it I'm not sure whether you would share.
And what kind of the average of the range of pricing is can the system or for the franchisees.
And it's kind of a prior.
Prior to the question and just to clarify you Didnt mentioned EBITDA from fiscal 'twenty..1 I know you had given guidance before but now with 1 fiscal quarter remaining just wondering whether you're where you stand on providing an update in fiscal 'twenty, 1 EBITDA guidance. Thank you.
Yeah, I'll start with pricing, what I'm seeing from our <unk>.
Pricing strategy and looking forward is we're being consistent with what the industry is with food away from home and what we're seeing from an inflationary standpoint, So I think thats a good way to think about how we manage pricing going forward or.
Last quarter, I should say not going forward, but we anticipate.
Offsetting some of the increases through price and maintaining and kind of industry norms and.
And then I'll, let Tim kind of answer your question related to some of the wage inflation and commodity costs.
So all of this.
So in Q3, we had the commodity inflation of 5.7% and that was an increase from Q2, which was $1.7 and as you'll recall in Q1, we are right around the same level of 1.6 so of those 3 figures in our combined with our guidance for 2021 of the outlook of 4% to 5% and she kind of give you of.
Good range backing into what Q for us.
Relative to 2022, it's hard to say, we are keeping an eye and Thats, obviously theres continued pressure in supply chain pipelines.
And a multitude of variables that are driving that labor being 1 of those as well. So it's early for us to.
The gifts.
Guidance on 2020, right now, but we will look to provide that in November to this group and the last thing I'd add is the benefit of Jack in the box because we're not just in and burgers are 1 protein we of the benefit of the supply chain structure that enables us.
To focus on.
Different product lines.
That have different.
<unk>.
Causes of price pressures and so we can pivot in and out of different promotions to really focus on how to run our business effectively and profitably.
The share of those same metrics for the labor in terms of the for 3 quarters of the year relative to full year guidance.
Yes, sure. So Q3 labor inflation was 8% and that was an increase from prior quarter of 6.3%, which was an increase from the Q1 inflation of 4%. So again marrying that against our labor of 2020 guidance of 7% and 8%.
You can get into the key for us in that 7% and 8% as the Inc.
The increase from our previous guidance of 5 to 6 as we saw in.
The last.
Several weeks the.
Labor pressure continues and so we'll be keeping an eye in that and again in November we will provide 2022 outlook on that as well.
Next question is from the line of Brian Mullan of Deutsche Bank. Your line is now open.
Hey, Thank you Tim in your prepared remarks, you referenced taking over 16 stores and I think it was Oregon and the non cash transaction.
Can you maybe just elaborate a bit on the the circumstances there why that was non cash and if you'd be willing to give some sense of the average unit volumes and margins in all of those stores is it safe to assume those are coming into the company owned base lower in the current average.
It's about a 10 or 11% increase in size of that store base. So any color would be helpful. Thank you.
Yes, I would say high level of this this fall is really nicely and see what we communicated at Investor day, as far as leaning in and acquiring or taking possession of markets or locations that we feel are either are valuable and attractive but have an operator in place that either doesn't out of the 5.
The resources to grow or the interest in and extent of expanding in running of market. So.
It just happened to come fairly quickly after our Investor day, So the 16 restaurants.
We find very appealing.
We think we can bring operational efficiencies and resources to improve the 4 wall EBITDA, there as well as drive growth in that market.
And and again in 'twenty.
And.
As in line with our long term strategy. So I think we won't provide.
Color as far as originality, and and specific to Oregon, but.
Again, it's the market that we think has a lot of potential.
Thank you.
We had strong and I'll just add that we have.
Strong performance across all geographies.
And the handful that we didn't know where we had these ops concerns like Portland in St. Louis.
Sure.
Next question is from the line of Andrew Charles from Cowen and Company. Your line is now open.
Great. Thanks, guys on the <unk> call each of the Leonard.
And that you'll be looking at same store sales in the back half of the years on the 3 year basis and trending probably in line of trend in line with where you were in <unk> in the.
The business accelerated nicely yearly beat that and <unk> had very impressive same store sales performance.
As we go from here.
And that's still the right lens that you guys will be looking into the business to kind of gauge the underlying health of sales kind of on a 3 year basis from <unk> levels.
Yes, yes, I would say that it's fair to look at 3 year stack or even in 2 year stacks and you can as you look at how our quarters have progressed in Q1, we had a 2 year stack of 14, 2%.
Q2 that increase of 16, 4% and now Q3 and that increased a little bit of 16, 8%. So we think that thats.
Fairly consistent in and healthy way to look at our forecasting and we want.
The reiterate.
Annual guidance, but.
We think that trend is the.
The strong 1 for us.
Thank you.
Next question is from the line of David Tarantino of Robert W. Baird. Your line is now open.
Hi, Good afternoon. My question is on the investments that you are leaning in to I think you mentioned your plans are.
And now is a good time to lean in and and we see that in the Capex and other investment line for next year, but 1 first to clarify Tim.
Is it your expectation over the 3 to 5 year horizon that that continues to move higher.
As you sort of ramp up the development engine and I, just wanted to sort of Directionally and understand how youre thinking about the capital side and then day.
And I was hoping you could comment on weather and investment.
Part of the investment includes G&A and and what your outlook is for.
And for that over the kind of 3 to 5 year horizon.
Yes, So I think as you look at the nature of the variance. So your Capex and then you have these other investments which are effectively the franchise remodel and refresh program and so on raw Capex, we have sort of what I'll call as our continued.
The core operational Capex year.
Year to date, we're currently at $35 million as an example of half of that being the purchases of.
Sale leaseback assets.
But excluding that and we expect that that sort of core Capex would continue and then in line with what we communicated as a company store growth trajectory and as Darren mentioned, a few minutes ago. There is sort of the gestation period involved and that once we identify sites and it takes 18 or so months to get those units opened and in the ground and that day.
It will take time to build up so I wouldn't imagine and as we communicated at Investor day, as well any immediate and meaningful.
Increases in company Capex spending relative to the company stores now on the other investment side with the tenant improvement and franchise remodel refresh program, that's something that we're looking to rollout and operationalize in FY 2022, and will be made available to the franchise system.
And we immediately at that point in time, while that is more accessible and more immediate if there is still a ramp of time involved with that as well so while the funds would be in the program accessible to the franchise system. The franchisees still need to line up their contractors and in the programs and projects et cetera, and timeline and so it's.
Not.
It's not going to be.
A dramatic immediate increase but.
We will over the next 4 to 5 years see.
1 of the 4% or so growth in capital.
And.
And so youll see a 10 point of the parallel strategy of of the business is growing some of our capital investment is growing that continues to create a really nice.
The flywheel effect to the business and Thats the intent here.
Our free cash flow.
Great and we will continue to be great and allows us to do and we need to do from a capital allocation standpoint.
And Darren on the G&A outlook are you.
Planning to lean in and there are.
I guess, what sort of what your thoughts on that line.
Yes, I think we're obviously not providing guidance there, but what I would tell you as I've said in past calls in.
With all of the investments, we're making in and G&A.
These are all items that we think generate a return in and of themselves whether it's in cost savings or in revenue topline. So I don't see a substantial change, but we will definitely provide guidance in November.
The 2022.
Great. Thank you.
Next question is from the line of Jon Tower of Wells Fargo. Your line is now open.
Great. Thanks for taking the question I guess this is for Brian I'm curious going back to the commentary earlier about seeing higher frequency of higher income customers are you communicating differently with this group than you have in the past or have you found better ways to reach them then perhaps of the company.
And was doing previously clearly digital of the New Avenue. So maybe thats. The primary difference between now and what you've done previously.
And on top of that.
Aside from saying of higher check from from this group are you seeing them use your brand differently say across day parts of our ordering channels relative to your core customers.
So John.
I know that Ryan would nail that question, but he is actually not in the room.
We're in the right, let's take that 1.
I'll take some of the and what I would say is yes.
And Ryan rolled out at the Investor day, the creative strategy and what I would tell you.
We are doing things to become more and more culturally relevant on social and digital just some examples of hearing from our guests the the <unk>.
<unk> and we do adjacent Guru and being more consistent in how we communicate the brand doing some fun things like the middle of <unk> mill, and the Burger Rocco or the Tictoc hack, where we did things with.
And taking products that we already have in store in.
And what you saw with people doing the hack on Tic Toc, where they're folding up of tortilla with a churro Cheesecake Karma Army and Im telling you to the outstanding product. So a lot of it is the way that we're thinking about the business and engaging our consumers and communicating to our consumers and then giving them offers that are compelling.
<unk>.
Digital is definitely reaching our guests and we're definitely seeing some trends there with the different types of consumers and then as I mentioned earlier from a frequency standpoint, these new and lower frequent guests continue to increase their frequency and so.
And the way we are communicating the clarity we have around our customers and the offers were making that are more 1 to 1 type offers.
We're seeing it resonate.
Got it and.
Are they coming at different times, maybe day and more breakfast.
And <unk> using <unk>.
Delivery channels more so than in your core GAAP.
This 1.
It's an interesting dilemma, because clearly of breakfast and late night are significant contributors of transaction improvement in this quarter and that just mix.
Common sense, considering rolling over the pandemic.
The good news is that the that's who we are at Jack as were all items all day everyday and so.
We've definitely seen the day part change I think that's going to change the breakfast day part change that's going to change in the mine of consumers for a long time consumers are behaving differently when they come for breakfast.
And with the difference in the way that they work.
And so we definitely see that trend continuing the say the late night trend continuing workers are just working differently as a whole so day.
And they decided to work late at night versus getting up early in the morning, Jack in the box of there for them and it doesn't matter of if they want.
Of breakfast item and lots of our breakfast item in the middle of the night, we'll find a way to get what they want.
Thank you.
Next question is from the line of Eric <unk> with Keybanc capital markets. Your line is now.
Hey, Thanks for the question and Teekay.
And how much you might be leaving on the table of the bulk of that can be staffing issues and I would imagine the late night hours with the kicking in.
The hard to staff, so and then where you can quantify how much of the drag that and might be.
<unk> average staffing level today versus maybe 3 months ago.
So I don't think we will provide specifics, but like everyone in the industry.
I would love to be making sure we could service and keep our stores.
<unk>.
Staff at all levels of the day.
And because we would take these results and even improve them even more than what they already are.
But the industry as a whole as you know are challenged by the US where we've where we've spent the majority of our time is if we know that we can staff late night or.
For hours when our business is there and the demand is there we want to make sure. We're staffing it. So we're getting smarter about the way we support our franchisees and staffing at the right time when their businesses there by location versus if we have the shutdown of certain hour or 2 so that we can make sure its staff.
<unk>.
The bus do it at the right times versus just when it's convenient.
And so we spent a lot of time on.
Coaching and working with franchisees on the right times to remain open and make sure. They are staffed appropriately and then also.
Supporting them through tools for marketing and for.
Marketing and marketing too high.
Higher and maintaining the current staff that they have.
Thanks.
Next question is from the line of Jake Bartlett of true and Securities. Your line is now open.
Thanks for taking the question and I just had of 1 when you start with the follow up from that last question I think of in the script you mentioned that staffing was.
Impacting sales as well as service. So maybe just if you can kind of quantify how much it might be impacting and whether we should that should be 1 material driver of sales going forward. The staffing issue improves and then the second question I had was just about your your stance on marketing in 2020.
In 2 or maybe in the fourth quarter, but as you emerge from Covid whether.
And there is going to be any sort of more waiting on premium items now that you have this kind of new.
Cohort in consumer debt.
And it can spend a little bit more do you expect your approach to the value and premium products and the innovation to change going forward.
Yes.
And I think I answered the first question related to how we think about.
Sales impacted by both labor and operating hours.
And we're always looking at making sure our restaurants are staffed whether it's during this time or not so we will continue to focus on staffing them appropriately but.
In providing our franchisee of the tools to do it the right way.
As far as the question about premium like I said, as we listen to our guests and understand the better it and no different ways to reach them that Jack in the box necessarily hasnt been in the past.
We can do both premium and value and.
We're making sure that we balance that equation and.
And we've proven it with the results that we have here and seen.
And many different <unk>.
<unk> sizes.
The form.
Got it thanks a lot.
Next question is from the line of Jeff Farmer of Gordon Haskett Your line's now opened.
Thank you I just wanted to clarify and earlier point and you guys made so if I understood. This correctly you are not providing an update on 2020.1 same store sales and EBITDA guidance. This late in the year because moving forward in 2022 of those are items that you will not be providing guidance for <unk> is that the correct way to think about it.
Yes, that's correct. So on a go forward basis, the annual guidance, we will be providing our capex G&A commodity and labor costs and loss of the beginnings in annual for.
Franchise for while EBITDA update.
But outside of that we're relying on the 3 to 5 year long term guidance that we provided at Investor day, Okay. Thank you.
Next question is from the line of Alex Slagle with Jefferies. Your line's now opened.
Okay, Thanks and.
Darren you talked about providing more regular discussions around the progress against the 4 pillars and I know franchisee profitability for key focus and.
I'm wondering if youll be able to provide sort of in more regular metrics around franchisee profitability as we're sort of going forward in terms of any sort of updates at this point.
Yes.
Typically we get that data.
The quarter behind but we plan on every January fiscal year, providing an update to being very transparent with the data that we're receiving on how we're performing about improving 4 wall economics.
Got it thanks.
Last question is from the line of Nick searching of Wedbush Securities. Your line is now open.
Thanks, Paul just a question of clarification.
On the labor guidance and does that include hourly.
Wage growth.
Our lead <unk> growth as well or is that just the the wage inflation of portion.
That's just the wage inflation portion of it so it doesn't occur.
Account for.
There are restrictions, which you'd see more so in our financial results.
Okay and.
In terms of just company owned unit growth obviously debt.
Something that somebody from a more problem going forward.
Does that Capex and it just seems like the Capex guidance implies just the base.
Slight increase in the development well not necessarily.
The big low back in 2002.
Yes, and it's fair I mean, and keep in mind and we're an asset light model right. So the majority of our units are franchise and we'll be looking to we just announced year to date, we have 60 for unit commitments or awards rather.
For the franchise system. So we'll be looking to expand Jack reach primarily 3 of the franchise system, but at the same time as we alluded to in our strategy on Investor Day.
To help seed some of that growth in and pushed the pace we will.
Opportunistically look to deploy company capital through Capex to open company units, but again from a unit count growth point of view of that will be a smaller fraction of our overall growth.
Alright, thank you.
Thank you participants I will now hand, the call over to Chief Executive Officer, Darrin Harris for final remarks.
Thank you all and.
Again for joining us today and I'm excited to meet many of you on the road in the coming weeks and months.
And we look forward to speaking with you in late November to discuss to discuss our fourth quarter and full year 2021 results.
So thank you again for your time today and look forward to speaking soon.
Okay.
And that concludes today's conference. Thank you all for joining you.
You may now disconnect.
Okay.
[music].