Q4 2021 Jack in the Box Inc Earnings Call

Speaker 1: visibility, we provided a company-owned store funding outlook for 2022 and 2023, as well as, due to the unique operating environment expected to continue next year, a one-time restaurant level margin outlook for 2022. Tim will speak to this further in his prepared remarks.

Additional visibility we provided a company owned store funding outlook for 2022, and 2023 as well as due to the unique operating environment expected to continue next year, a onetime restaurant level margin outlook for 2022.

Tim will speak to this further in his prepared remarks.

Speaker 1: Lastly, please make sure to mark your calendars for our management and franchisee Q&A event open to investors and the general public via web.

Lastly, please make sure to Mark your calendars for our management and franchisee Q&A event.

Open to investors and the general public via webcast with sell side coverage analysts welcome to join and ask questions of the group.

Speaker 1: With cell-side coverage analysts, welcome to join and ask questions of the group. The event will take place on Tuesday, December 14th at 2 p.m. Eastern Time, 11 a.m. Pacific. And we look forward to virtually seeing you there.

The event will take place on Tuesday December 14th at two PM Eastern time, 11 am Pacific.

And we look forward to virtually seeing you there.

Speaker 1: 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 Mulaney.

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 millennia.

Thanks, Chris and good morning, everyone. We're excited to discuss our fourth quarter and full year results with you today, our solid fourth quarter top line results demonstrate the progress, we're making against our strategic plan, putting us on a clear path to deliver best in class unit economics for our franchisees and achieve our long term growth targets that we laid.

Speaker 2: Thanks, Chris, and good morning, everyone. We're excited to discuss our fourth quarter and full year results with you today. Our solid fourth quarter top-line results demonstrate the progress we're making against our strategic plan, putting us on a clear path to deliver best-in-class unit economics for our franchisees and achieve the long-term growth targets that we laid out at our investor day.

Now at our Investor day.

We remain as focused as ever on getting our fundamentals in place to achieve these goals.

Speaker 2: We remain as focused as ever on getting our fundamentals in place to achieve these goals.

Overall, our franchisees and operators, particularly our restaurant managers continue to drive solid financial performance in Q4, leading to a diluted EPS of $1 80.

Speaker 2: Overall, our franchisees and operators, particularly our restaurant managers, continue to drive solid financial performance in Q4, leading to a diluted EPS of $1.80, or a 9.8% increase from the prior year.

Or nine 8% increase from the prior year.

Speaker 2: In a few moments, I'll provide more detail on the components of these earnings.

In a few moments I'll provide more detail on the components of these earnings.

We achieved systemwide sales growth of eight 6% as compared to Q4 2020 and same store sales growth of 12, 3% on a two year basis.

Speaker 2: We achieved system-wide sales growth of 8.6% as compared to Q4 2020 and same-store sales growth of 12.3% on a two-year basis.

Breaking down our Q4 positive comp of 0.1% our franchise business increased 0.6%, while our company operated stores were down four 4%.

Speaker 2: Breaking down our Q4 positive comp of 0.1%, our franchise business increased 0.6%, while our company-operated stores were down 4.4%.

Speaker 2: The difference was primarily due to franchisees taking more aggressive action on price increases faster than company-owned locations, as well as franchisees demonstrating greater success with hourly worker hiring and retention.

The difference was primarily due to franchisees, taking more aggressive action on price increases faster than company owned locations as well as franchisees demonstrating greater success with hourly worker hiring and retention.

Our performance this quarter was heavily driven by price while average check held constant.

Speaker 2: Our performance this quarter was heavily driven by price, while average check held constant.

I'd like to provide some further detail on how labor and the current operating environment impacted our same store sales for the quarter.

Speaker 2: I'd like to provide some further detail on how labor and the current operating environment impacted our same-store sales for the quarter.

Speaker 2: We conservatively estimate that limited operating hours due to staffing challenges negatively impacted our comp by roughly 3%.

We conservatively estimate that limited operating hours due to staffing challenges negatively impacted our comps by roughly 3%.

Speaker 2: Also, supply chain challenges driven by labor issues within distribution channels impacted our comp negatively by an additional 1%.

Also supply chain challenges driven by labor issues within distribution channels impacted our comp negatively by an additional 1%.

Speaker 2: While we don't typically provide quarter-to-date trends, within this unique top-line environment, we wanted to note that we are seeing a very good start to Q1. And in the first six weeks, we are trending at a low double-digit two-year stack, with comps in the low to mid single-digit range.

While we don't typically provide quarter to date trends within this unique top line environment. We wanted to note that we are seeing a very good start to Q1.

And in the first six weeks, we are trending at a low double digit two year stack with comps in the low to mid single digit range.

We continue to believe that our top line fundamentals are in solid shape.

Speaker 2: We continue to believe that our top line fundamentals are in solid shape.

And are taking action to ensure we successfully execute on our day parts and maintain a reliable wide menu offerings and operating hours. Our guests have come to expect from Jack in the box.

Speaker 2: and are taking action to ensure we successfully execute on our day parts and maintain the reliable wide menu offerings and operating hours our guests have come to expect from Jack of the Box.

Shifting to unit count we opened four restaurants during the quarter and closed five as part of our broader initiative to make our system and store base more efficient.

Speaker 2: Shifting to unit count, we opened four restaurants during the quarter and closed five as part of our broader initiative to make our system and store base more efficient.

These closures included one company owned and four franchisee restaurants.

Speaker 2: These closures included one company owned and four franchisee restaurants.

Speaker 2: For this quarter, there were no offsetting agreements due to the nature of these closures.

For this quarter there were no offsetting agreements due to the nature of these closures.

Speaker 2: However, keep in mind that most of our closed locations continue to pay both royalty and rent contracts.

Keep in mind that most of our closed locations continue to pay both royalty and rent contributions.

We remain very confident in our growth strategy and believe our best in class economic opportunity for franchisees will enable us to have Jack in the box in 40 states by the year 2030.

Speaker 2: We remain very confident in our growth strategy and believe our best-in-class economic opportunity for franchisees will enable us to have jack-in-the-box in 40 states by the year 2030.

Turning to revenues.

Speaker 2: We reported $278 million, up $23 million, or 9% year over year. The increase was largely due to higher system-wide sales, helped by the 53rd week in 2021, as well as positive same-store sales.

We reported $278 million up $23 million or 9% year over year.

The increase was largely due to higher systemwide sales helped by the 50 <unk> week in 2021 as well as positive same store sales.

For our company owned stores, which make up about 7% of total store count and less than 10% of system wide sales restaurant level margin was 21%.

Speaker 2: For our company-owned stores, which make up about 7% of total store count and less than 10% of system-wide sales, restaurant-level margin was 20.1%.

Speaker 2: while franchise level margin improved 8.7% or 6.1 million.

While franchise level margin improved eight 7% or $6 1 million.

Our franchise level margin performance was driven by the 50, <unk> week and higher franchise fees, while our company owned store decline was largely the result of the cost pressures that are impacting us and the broader industry as a whole.

Speaker 2: Our franchise-level margin performance was driven by the 53rd week and higher franchise.

Speaker 2: while our company-owned store decline was largely a result of the cost pressures that are impacting us and the broader industry as a whole.

G&A expenses increased approximately $4 9 million compared to Q4 2020. This excludes the 50 <unk> week in 2021, which accounted for about $1 5 million in the fourth quarter.

Speaker 2: G&A expenses increased approximately $4.9 million compared to Q4 2020. This excludes the 53rd week in 2021, which accounted for about $1.5 million in the fourth quarter.

Excluding that coli gains of 200000 in Q4 versus a $1 3 million gain last year G&A increased by $3 8 million.

Speaker 2: Excluding net COLE gains of 200,000 in Q4 versus a 1.3 million gain last year, GNA increased by 3.8 million.

Our reported effective tax rate as a percentage of earnings from continuing operations before income taxes was 25, 4% for the quarter as compared to 23, 6% in Q4 2020.

Speaker 2: This was primarily due to a one-time benefit of favorable federal and state audit findings recorded in the prior year.

This was primarily due to a onetime benefit of favorable federal and state audit findings recorded in the prior year.

When you combine all of these elements net earnings increased to $38 9 million for the fourth quarter compared to $37 8 million a year ago.

Speaker 2: When you combine all of these elements, net earnings increased to $38.9 million for the fourth quarter, compared to $37.8 million a year ago.

Additionally, adjusted EBITDA was just over $74 million in the fourth quarter compared to just over $78 million in the prior year.

Speaker 2: Additionally, adjusted EBITDA was just over $74 million in the fourth quarter compared to just over $78 million the prior year.

Our diluted EPS in Q4 was $1 80.

Speaker 2: Our diluted EPS in Q4 was $1.80.

Speaker 2: an increase of 9.8% or 16 cents. Here's a breakdown of that.

An increase of nine 8% or 16.

Here's a breakdown of that 16 SaaS.

Our lower diluted share count driven by share repurchases that benefited us by <unk> <unk>.

Speaker 2: A lower diluted share count driven by share repurchases benefited us by $0.10. I'll provide more detail on share repurchases in a moment. Earnings from operations impacted us negatively by $0.06.

Provide more detail on share repurchases in a moment.

Earnings from operations impacted us negatively by <unk> <unk>.

Speaker 2: Net interest expense positively impacted us by $0.02. Our effective tax rate negatively impacted us by $0.02. And lastly, the 53rd week positively impacted us by $0.12.

Net interest expense positively impacted us by <unk>.

Our effective tax rate negatively impacted us by <unk> <unk> and lastly, the 50 <unk> week positively impacted us by 12.

Shifting to cash.

Speaker 2: Our economic model remains strong and resilient and it continues to generate significant free cash flow throughout the quarter.

Our economic model remains strong and resilient and it continued to generate significant free cash flow throughout the quarter.

Speaker 2: For full year 2021, we generated attractive net cash provided by operating activities of approximately $200 million.

For full year 2021, we generated attractive net cash provided by operating activities of approximately $200 million.

After deducting for Capex, we have generated strong free cash flow of approximately $160 million.

Speaker 2: After deducting for CapEx, we have generated strong free cash flow of approximately $160 million.

We spent approximately $41 million on capex, primarily towards lease right of first refusal transactions remodel refresh of company operated restaurants, and digital and technology initiatives.

Speaker 2: During the fourth quarter, we repurchased approximately 677,000 shares for $70 million, or approximately $103 per share on average, bringing our total 2021 year-to-date repurchases to $200 million.

During the fourth quarter, we repurchased approximately 677000 shares for $70 million or approximately $103 per share on average, bringing our total 2021 year to date repurchases to $200 million.

On November 19th our board of Directors approved a new stock buyback program, providing authorization for an additional $200 million expiring in November 2030.

Speaker 2: This new authorization further demonstrates the board's confidence in our long-term capital allocation strategy.

This new authorization further demonstrates the board's confidence in our long term capital allocation strategy.

Speaker 2: In Q4, we returned $9.4 million to our shareholders in the form of a $0.44 quarterly dividend payment, bringing our full year 2021 dividend payment to approximately $37 million.

In Q4, we returned $9 4 million to our shareholders in the form of 40, <unk> quarterly dividend payment, bringing our full year 2021 dividend payment.

To approximately $37 million.

I also wanted to briefly elaborate on our guidance and outlook measures. We provided earlier this morning.

Speaker 2: I also wanted to briefly elaborate on the guidance and outlook measures we provided earlier this morning.

First on the guidance. It is clear the business will continue to face external cost pressures and do this unique environment. We thought some additional one time visibility into our company owned restaurant level margin for next year would be helpful.

Speaker 2: First, on the guidance, it is clear that the business will continue to face external cost pressures, and due to this unique environment, we thought some additional one-time visibility into our company-owned restaurant-level margin for next year would be helpful.

As noted in our release, we expect our company owned restaurant level margin to be between 20 and 21% for 2022.

Speaker 2: As noted in our release, we expect our company-owned restaurant-level margin to be between 20 and 21 percent for 2022, which includes mid- to high-

Which includes mid to high single digit price increases.

In addition to just the cost and pricing elements keep in mind the impact of the 20 stores. We took we took on in 2021 in Oregon, Kansas and Oklahoma.

Speaker 2: In addition to just the cost and pricing elements, keep in mind the impact of the 20 stores we took on in 2021 in Oregon, Kansas, and Oklahoma will add pressure to the margin in the near term, as well as our ability to maintain full hours of operation as we work to improve performance of those restaurants.

<unk> will add pressure to the margin in the near term as well as our ability to maintain full hours of operation as we work to improve performance of those restaurants.

Speaker 2: We hope to improve these stores as soon as possible and will actively look to re-franchise them once they are in a sound operating state.

Hope to improve these stores as soon as possible and will actively look to refranchising them. Once they are in a sound operating state.

While there are likely few surprises on the expense and capital front with the latter being previously disclosed. It is clear we are committed to continuing to make necessary investments in our business to fuel growth. This.

Speaker 2: While there are likely few surprises on the expense and capital front, with the latter being previously disclosed, it is clear we are committed to continuing to make necessary investments in our business to fuel growth. This includes investing in our digital and tech priorities that will have a direct impact on both our top-line capabilities and our store-level profitability.

This includes investing in our digital and tech priorities that will have a direct impact on both our top line capabilities and our store level profitability.

One additional area of guidance from this morning's release was our company owned restaurant funding outlook, we plan to fund up to five company owned restaurants in 2022 and between 7% and 15% in 2023.

Speaker 2: One additional area of guidance for this morning's release was our company-owned restaurant funding outlook. We plan to fund up to five company-owned restaurants in 2022 and between 7 and 15 in 2023.

We wanted to provide visibility into possible capital impacts within existing 2022 guidance and give you more insight into our evolving game plan to open company owned stores, along with the franchisee locations in other markets where appropriate.

Speaker 2: We wanted to provide visibility into possible capital impacts within existing 2022 guidance and give you more insight into our evolving game plan to open company-owned stores, along with franchisee locations and other markets where appropriate.

Speaker 2: And as an adjustment, the $200 million board authorization expires in 2023, not 2030.

And as an adjustment that $20 million to $200 million board authorized.

Board authorization expires in 2023 not 2030.

To wrap up our financials before handing it over to Darren our solid performance results. Despite a challenging fourth quarter environment demonstrated the strength of our economic model at both the company and store level.

Speaker 2: To wrap up our financials before handing it over to Darren, our solid performance results, despite a challenging fourth quarter environment, demonstrated the strength of our economic model at both the company and store level.

Speaker 2: We've made meaningful progress on all fronts of our four-pillar strategy, and we're in a great position to continue to successfully execute on each of those pillars heading into fiscal 2022.

We've made meaningful progress on all fronts of our four pillar strategy and we are in a great position to continue to successfully execute on each of those pillars heading into fiscal 2022.

And most importantly, we are seeing our priorities and strategic initiatives, having a meaningful positive impact on franchisees as their economics profitability and store level cash on cash returns have maintained best in class status within the industry.

Speaker 2: And most importantly, we are seeing our priorities and strategic initiatives having a meaningful positive impact on franchisees, as their economics, profitability, and store-level cash-on-cash returns have maintained best-in-class status within the industry.

We are confident that we can build on this momentum as a unified system to advance our growth strategy and expand our reach into new markets and we will drive significant shareholder value by continuing to focus on operating efficiently investing wisely and building our fundamental fundamentals for long term growth.

Speaker 2: We are confident that we can build on this momentum as a unified system to advance our growth strategy and expand our reach at the new market.

Speaker 2: and we will drive significant shareholder value by continuing to focus on operating efficiently, investing wisely, and building our fundamentals for long-term growth.

Thank you again for joining the call today, and now I'll turn it over to Darren.

Speaker 2: Thank you again for joining the call today. And now I'll turn it over to Darren. Thank you.

Thank you, Tim and good morning, everyone.

Speaker 3: As I look back at our quarter 4 and full fiscal year results, I am extremely proud of the ability of this brand to remain strong in our performance during these interesting times.

As I look back at our quarter, four and full fiscal year results I am extremely proud of the ability of this brand to remains strong and our performance during these interesting times.

Speaker 3: The energy and perseverance of our restaurant staff and our franchise operators excelled during a challenging time in our industry.

<unk> and perseverance of our restaurant staff and our franchise operators excel during a challenging time in our industry.

I am truly grateful for the unwavering strength and agility with which our team members and company and franchise restaurants operate.

Speaker 3: I am truly grateful for the unwavering strength and agility with which our team members and company and franchise restaurants operate.

Speaker 3: It's in large part thanks to them that we continue to see growth in sales and progress within our four strategic pillars.

This is in large part thanks to them that we continue to see growth in sales and progress within our four strategic pillars.

Speaker 3: While our industry does have headwinds, we are laser focused on mitigating their impact while we remain disciplined and centered on the long-term health of the business and our strategy.

While our industry does have headwinds we are laser focused on mitigating their impact while we remain disciplined and centered on a long term health of the business and our strategy.

Speaker 3: Now diving into the results for the fourth quarter, we are pleased to report positive same-store sales for the quarter and a strong 12.3% comp on a two-year basis.

Now diving into the results for the fourth quarter.

We are pleased to report positive same store sales for the quarter and a strong 12, 3% comp on a two year basis.

As we navigated nicely through a unique and volatile topline environment within the industry.

Speaker 3: as we navigated nicely through a unique and volatile top-line environment within the industry.

While we generated most of our sales from ticket we remain focused on driving a balance of traffic and average check for the long term.

Speaker 3: While we generated most of our sales from ticket, we remained focused on driving a balance of traffic and average check for the long term.

I am confident that we are well positioned to achieve this objective as our operating environment normalizes.

Speaker 3: I am confident that we are well positioned to achieve this objective as our operating environment normalizes.

Speaker 3: given our proven ability to offer both craveable food and value to customers that are seeking it.

Given our proven ability to offer both craveable food and value to customers that are seeking it.

We are very fortunate to be a brand known for variety, which enables us to be agile with our promotional calendar and navigate the supply challenges many are facing in the industry.

Speaker 3: We are very fortunate to be a brand known for variety, which enables us to be agile with our promotional calendar and navigate the supply challenges many are facing in the industry.

On the unit Count front, we continued our process to selectively closed stores as we optimize our footprint and positioned Jack for more profitable unit growth, we expect to close less stores in 2022 than we did this year and as Tim mentioned, we continue to gain economics from many of the restaurants, we closed.

Speaker 3: On the unit count front, we continued our process to selectively close stores as we optimize our footprint and position Jack for more profitable unit growth.

Speaker 3: We expect to close less stores in 2022 than we did this year, and as Tim mentioned, we continue to gain economics from many of the restaurants we closed via rent or an agreed-to royalty contribution.

Rent for an agreed to royalty contribution.

We are confident that our unique pricing power enables us to meet margin pressure head on and as we keep advancing on our strategic pillars. We will continue to be well equipped to take on any macroeconomic headwinds.

Speaker 3: We are confident that our unique pricing power enables us to meet margin pressure head-on. And as we keep advancing on our strategic pillars, we will continue to be well-equipped to take on any macroeconomic headwind.

Between our varied menu.

Speaker 3: Between our varied menu, best practice sharing among our franchisees, and the market share we have in our top markets, we believe we have the pricing power to operate from a position of strength.

Best practice sharing among our franchisees and the market share we have in our top markets. We believe we have the pricing power to operate from a position of strength.

Speaker 3: I will, as usual, categorize my comments within our strategic pillars.

I will as usual categorize my comments within our strategic pillars.

Speaker 3: And in the fourth quarter, our team certainly continued to make impressive progress on each

And in the fourth quarter. Our teams certainly continue to make impressive progress on each this is what will truly position us to unlock the brand's true potential.

Speaker 3: This is what will truly position us to unlock the brand's true potential.

Beginning with building brand loyalty, our updated brand positioning and craved marketing strategy is significantly improving our brand awareness and perception, helping us achieve our highest creative metrics since 2019.

Speaker 3: Our updated brand positioning and craved marketing strategy is significantly improving our brand awareness and perception, helping us achieve our highest creative metrics since 2019.

From a product and promotional standpoint, both triple Bacon cheesy, Jack and Bacon Bbq Cheeseburger promotion has performed well driving what was.

From a product and promotional standpoint, both triple bacon cheesy jack and bacon barbecue cheeseburger promotions performed well, driving what was a very good quarter for our burger category.

A very good quarter for our Burger category.

And while burger performance was strong, you can never count out our tacos, as Spicy Tiny Tacos and Quarter Four was our highest volume LTO of the year and showed strong attachment and upsell into the loaded version.

And while Burger performance was strong.

You can never count out R. Tacos, a spicy tiny tacos in quarter four was our highest volume LTE over the year and showed strong attachment and upsell into the loaded version.

Finally, our all-day breakfast message, a good example of learnings from our guest feedback, helped reinforce a brand strength and drove another solid performance from our breakfast day part, which included strength from the stacked croissant LTO as well as our core breakfast menu item.

Finally, our all day breakfast message a good example of learnings from our guest feedback helped reinforce our brand strength and drove another solid performance from our breakfast day part, which included strength from the stacked croissant <unk> as well as our core breakfast menu items.

Our menu diversity price point and guests have allowed us to remain resilient and flexible to shifts in customer behavior, helping to diminish the impact of the recent volatility.

Our menu diversity, price point, and guests have allowed us to remain resilient and flexible to shifts in customer behavior, helping to diminish the impact of the recent volatility.

Our ability to stay flexible and innovate systems while building a long-term product pipeline has me very confident that menu innovation remains one of our core strengths.

Our ability to stay flexible and innovate systems, while building a long term product pipe pipeline has me very confident that menu innovation remains one of our core strengths.

Our progress within the E Commerce and loyalty space has enabled digital to become central to our guest experience and brand fabric.

Our progress within the e-commerce and loyalty space has enabled digital to become central to our guest experience and brand fabric.

We had a tremendous year of digital growth, achieving a 90.6% increase in digital sales in 2021 versus the prior year.

We had a tremendous year of digital growth, achieving a 96% increase in digital sales and.

In 2021 versus the prior year.

We achieved the digital run rate milestone during quarter four by exceeding 9% of sales via digital channels part of the success can be attributed to our first full quarter with our JAK Pac rewards loyalty program, leading to a 61% increase in app downloads this quarter versus a year ago.

We achieved a digital run rate milestone during quarter four by exceeding 9% of sales via digital channel.

Part of the success can be attributed to our first full quarter with our JackPak Rewards Loyalty Program, leading to a 61% increase in app downloads this quarter versus a year ago.

Yes.

We will continue to lean in on investing and executing in this area of the business in 2020 to be exclusive offers and experiences while optimizing the digital guest journey.

We will continue to lean in on investing and executing in this area of the business in 2022 via exclusive offers and experiences while optimizing the digital guest journey.

This includes launching mobile web ordering and offering our loyalty program in store during the front half of 2022.

Now onto our next pillar driving operational excellence.

While we saw some continued improvement in our breakfast day part, we continue to feel the impact of challenges related to staffing and hours of operations, as Tim mentioned.

While we saw some continued improvement in our breakfast day part we continue to feel the impact of challenges related to staffing and hours of operation as Tim mentioned.

These factors have particularly impacted our late night business.

These factors have particularly impacted our late night business.

That said, I still remain very confident that late night represents a tremendous opportunity for Jack, and we continue to see strong demand. As these headwinds alleviate, we have an opportunity to not only take share and lead, but dominate this day part versus the competition.

With that said I still remain very confident that late night represents a tremendous opportunity for Jack and we continued to see strong demand as these headwinds alleviate we have an opportunity to not only take share and lead to dominate this day part versus the competition.

It was Tony Darden's first full quarter, leading operations and his experience and insight is refocus us on three main areas, where we see the strongest opportunity for near term near term improvement.

It was Tony Darden's first full quarter leading operations, and his experience and insight has refocused us on three main areas where we see the strongest opportunity for near-term improvement.

First we have been rolling out our new guest experience and brand standards.

First, we've been rolling out our new guest experience and brand standards.

significantly raising the bar on the expectations we place on ourselves in servicing our guests.

Significantly raising the bar on the expectations, we placed on ourselves and servicing our guests.

Second investing in our op services team and tactics tactics, which include refining process systems and technology to drive financial performance.

Second, investing in our ops services team and tactics, which include refining process systems and technology to drive financial performance.

We will also continue to enhance our restaurant-level technology and Martech stack capabilities, and down the road, automation to help with labor optimization.

We will also continue to enhance our restaurant level technology in Martech stack capabilities.

And down the road automation to help with labor optimization.

This will provide our guests with convenient interaction with the brand, especially for off premise ease of use.

This will provide our guests with convenient interaction with the brand, especially for off-premise ease of use.

And third, strengthening our training infrastructure, which will not only help us execute better, but it will help us achieve a critical goal of developing our people and store-level culture.

And third strengthening our training infrastructure, which will not only help us execute better but it will help us achieve a critical goal of developing our people and store level culture.

We have seen within the industry that it will take more than just money to acquire and retain talent and.

We have seen within the industry that it will take more than just money to acquire and retain talent.

In addition to competitive pay, we will focus on better training, and most important, a strong culture and career path opportunity that will excite people more than ever to work in a Jack in the Box restaurant.

In addition to competitive pay we will focus on better training and most important a strong culture and career paths opportunity that will excite people more than ever to working at Jack in the box restaurants.

Our third pillar.

Growing restaurant profits is certainly a highlight of 2021 and I am excited about our upcoming Investor event on December 14th where in addition to management and franchisees taking your questions. We will provide insight into our unit economics performance in 2021.

growing restaurant profits is certainly a highlight of 2021. And I'm excited about our upcoming investor event on December 14th, where in addition to management and franchisees taking your questions, we will provide insight into our unit economics performance in 2021.

If you haven't already Mark your calendars. Please do it'll be a great opportunity for you here from some of our franchisees directly.

If you haven't already marked your calendars, please do. It'll be a great opportunity for you to hear from some of our franchisees directly. And lastly, our final.

And lastly, our final pillar of expanding <unk> reach.

We continue to get much closer to a consistent level of positive net unit growth and we are confident that we are well on our way to reaching our long term net unit growth goal of 4% by 2025.

We continue to get much closer to a consistent level of positive net unit growth, and we are confident that we are well on our way to reaching our long-term net unit growth goal of 4% by 2025.

As you have seen and I credit, Tim Lenderman and team for their hustle and progress against our top objective, we signed 23 development agreements committing to 111 future restaurant openings.

As you have seen, and I credit Tim Linderman and team for their hustle and progress against our top objective, we signed 23 development agreements committing to 111 future restaurant openings, which is a record for JET.

Which is a record for Jeff.

Our 31 completed site approvals are the most since back in 2017.

Our 31 completed site approvals are the most since back in 2017.

Especially considering we spent a good part of the year repairing our franchisee relationship.

Especially considering we spent a good part of the year repairing our franchisee relationship, mapping markets, and rebuilding a store pipeline. And now we are ready.

<unk> markets and rebuilding a store pipeline.

And now we are ready to succeed.

We also spent time getting our franchise development program up and running which didn't really happen until late in the year.

We also spent time getting our franchise development program up and running, which didn't really happen until late in the year. So I'm extremely pleased with the progress so far.

So I am extremely pleased with the progress so far.

Now we know this doesn't translate to immediate openings on paper, but make no mistake. It is a clear leading indicators that our franchisees are as excited as ever about growing within this brand and.

Now, we know this doesn't translate to immediate openings on paper, but make no mistake, it is a clear leading indicator that our franchisees are as excited as ever about growing within this branch.

And we will continue to keep you informed in these new development agreements with both existing and new franchisees throughout 2022.

And we will continue to keep you informed and these new development agreements with both existing and new franchisees throughout 2022.

Closing out my thoughts on the quarter and.

At year like 2021 really makes me appreciate our franchisees company leaders and everyone in our restaurants, working so hard to represent the brand and serve our guests.

A year like 2021 really makes me appreciate our franchisees, company leaders, and everyone in our restaurants working so hard to represent the brand and serve our guests.

I feel extremely lucky to represent this management team, our corporate teams and operators and our franchisees out there making it happen each and every day.

We feel extremely lucky to represent this management team, our corporate teams and operators and our franchisees out there, making it happen each and every day.

our people, franchisees, and the culture we are creating at Jack in the Box more than anything is what gives me tremendous excitement about our future.

Our people franchisees and the culture, we are creating at Jack in the box more than anything.

What gives me tremendous excitement about our future.

And one of my favorite highlights of 2021 won't show up on an income statement, but it is something we're extremely proud of tied to the critical critical objective of improved franchisee relations.

And one of my favorite highlights of 2021 won't show up on an income statement, but it's something we're extremely proud of, tied to the critical objective of improved franchisee relationships.

A recent Franchise Relationship Institute survey showed that our overall satisfaction score of franchisees improved 15.5 points compared to 2020. It is now at 72%, which is significantly above the sector benchmark.

A recent franchise relationship Institute survey showed that our overall satisfaction score of franchisees improved 15 five points compared to 2020. It is now at 72%, which is significantly above the sector benchmark.

With more franchises than ever.

For noting that they are strongly satisfied with the relationship and 92%, saying that they feel optimistic about the future of the brand.

before noting that they are strongly satisfied with the relationship and 92% saying that they feel optimistic about the future of the brand. This is.

This is what it's all about serving others.

And it gives me tremendous confidence that we are taking the steps that matter in accomplishing our strategy while helping Jack reach the potential that we all know exists.

And it gives me tremendous confidence that we are taking the steps that matter in accomplishing our strategy, while helping Jack reached the potential that we all know exists.

I look forward to further executing on this potential and on these goals in 2022.

Look forward to further executing on this potential and on these goals in 2022.

We appreciate you joining us today and we are happy to take your questions.

We appreciate you joining us today, and we are happy to take your questions.

Yes.

As a reminder to ask a question you will need to press star one on your telephone again that is star then the number one let me draw. Your question you May press the pound key.

As a reminder, to ask a question, you will need to press star 1 on your telephone. Again, that is star, then the number 1. To withdraw your question, you may press the pound key. Please be reminded to limit your question to one and one follow-up only. Please stand by while we compile.

Be reminded to limit your question to one and one follow up only.

Please standby, while we compile the Q&A roster.

Okay.

Okay.

And your first question will come from Andrew Charles. You may...

And your first question will come from Andrew Charles You May have.

Patrick.

Thanks guys. Sorry to violate the one question rule off the bat, but just a quick clarification because I'm getting some investor impounds.

Thanks, guys.

Tried to violate the one rule off the bat one question, we're off the bat, but just a quick clarification, because im getting some investor in pounds is the low double digit to your comps they've disclosed for <unk> quarter to date is that in line with the 23 that you saw in <unk>, <unk>, perhaps tracking somewhere a little bit above or a little bit below that level and then just my main question was on pricing.

if the low double-digit to your comp state disclosed for you know one q quarter-to-date if that aligned with the twelve three the phone for cures want to perhaps tracking uh... you're still a little bit about her a little bit below that level

And then just my main question was on pricing. You know, Darren, you expressed, you know, your confidence in the ability for the brand to take an elevated level of price. But, you know, just given the industry is running the highest percentage of pricing in the last 30 years, can you just be a little bit more specific around your confidence that consumers can digest?

Darren you expressed your confidence in the ability for the for the brand to take an elevated level of price, but just given the industry is running the highest percentage of pricing in the last 30 years can you just be a little bit more specific around your confidence that consumers can digest mid to high single digit price in 2022.

mid to high single-digit price in 2022. You know, I recognize that you'll continue to innovate around add-ons and snacking items to help promote value, but of course you still need to drive traffic with premium items at compelling price points to help make those margins.

And is that Youll continue to innovate around add ons, the snacking items to help promote value but of course, you still need to drive traffic with premium items at compelling price points to help make those margins.

Yes.

Yeah, I'll answer the second question first, then I'll turn it to Tim.

I'll answer the second question first and then I'll turn it to Tim.

One is if we look over the data from last year, we took less price than others in the industry. That's one of the points that gives me clarity around our ability to take price and then in our test.

One is if we look over the data from last year, we took less price than others in the industry. That's one of the points that gives me clarity about our ability to take price. And then in our test that we're taking related to price, we're seeing upside opportunity in our core menu, where historically we took a lot of our price in our promotional menu. So the data suggests that we have opportunity with price. It's how fast can we take it to overcome some of the margin pressure.

We're taking related to price, we're seeing upside opportunity in our core menu, where historically, we took a lot of our pricing or promotional menu. So the data suggests that we have opportunity with price. It's how fast can we take it to overcome some of the margin pressure.

Yes.

And Tim, any answer related to that? Yeah, on the first one, as we reported, just first in Q4, we reported a 12.3 two-year stack. And what we're saying is, in the first six weeks, we are trending at a low double-digit two-year stack, which is consistent with Q4 performance, with single-year comps in the low to mid-single-digit range. OK, got it. Consistent with that 12.3. OK.

And Tim.

And the answer is yes on the first one.

As we reported this first in Q4, we reported a $12 three two year stack and what we're saying is in the first six weeks, we are trending at a low double digit two year stack.

As consistent with Q4 performance with comps in the <unk>.

Single year comps in the low to mid single digit range.

Okay got it consistent with <unk> III, Okay, guys. Thank you very much.

Thank you Andrew.

Thank you. Our next question will come from Lauren Silberman. Your line is open.

And your next question will come from Lauren Silberman. Your line is open.

Thanks so much. I wanted to ask about the development commitments, the 111 you signed. What markets are those units in? Anything you can expand there, whether there was new or existing franchisees or any additional color that could be helpful? And then what's your visibility into the timing of the opening of those locations? Thank you.

Thanks, So much I wanted to ask about the development commitments to 111 new side.

Markets are the unit than anything you can expand there, whether there with new or existing franchisees or any additional color that could be helpful. And then what's your visibility into the timing of the opening of those locations. Thank you.

Yeah, Lauren, we, you know, our focus as we rolled out our franchise development program was in the back half of the year.

Yeah Lauren.

Our focus as we rolled out our franchise development program was in the back half of the year.

And we initially went to our existing base of franchisees and said, that's who we want to give the first opportunity for growth. And we're still working through that pipeline of interest. So most of the franchise agreements were in existing markets.

And we initially went to our existing base of franchisees and said that's what we want to give the first opportunity for growth and we're still working through that pipeline of interest. So most of the franchise agreements were in existing markets.

Outside of what I would say some new areas of the new area which was Salt Lake City that we've talked about on previous calls And we've had two agreements signed in Salt Lake City Which will help us expand into an adjacent market what we've called our wagon will approach so we're excited about

Outside of what I would say some new areas new area, which was salt Lake City that we've talked about on previous calls and we've had two agreements signed in Salt Lake City, which will help us expand into an adjacent market what we've called our wagon wheel approach. So we're excited about.

The company investing a long franchisees in Salt Lake City as an example to grow the rest came from existing markets And from a standpoint of timing, you know, we're building a pipeline that you know is fueling the next, you know Two years of growth so by the time we sign by the time they find real estate and open It's it's pretty consistent with what we've talked about on these calls that it takes about 24 months to really start to see those openings come to fruition

The company investing a long franchisees in Salt Lake City as an example to grow the rest came from existing markets.

From a standpoint of timing we're building a pipeline that is fueling the next two years of growth. So by the time, we signed by the time, they find real estate and open its pretty consistent with what we've talked about on these calls that it takes about 24 months to really start to see those openings.

Fruition.

Thank you.

Your next question will come from John Glass. Your line is open.

Your next question will come from John Glass. Your line is open.

Yes, Hi, Hi, guys. This is Brian.

Yes. Hi. Hi, guys. This is Brian . I'm for John . Maybe just one of the supply chain challenges, if you could provide more detail on that. Was it kind of specific items where availability was low? And I guess, are you getting past those issues? And what have you been doing to kind of get over that hurdle?

John maybe just one of the supply chain challenges if you could provide more detail on that.

Was it kind of specific items, where availability was low and I guess are you getting past those issues and what have you been doing.

To kind of to kind of get over that hurdle.

Yes. Unfortunately, we had a challenge with one of our large dcs.

Yeah, unfortunately, we had a challenge with one of our large D.C.

where they had a staff walkout. And so for about eight to 12 weeks of the quarter.

They had a staff work out and so for about eight to 12 weeks of the quarter.

We were working tirelessly with our franchisees to make sure that we could supply our existing restaurants. So we definitely felt that was the biggest challenge during the quarter, which we think is a one-time event, not a thing that is normal related to this whole environment we're in.

We were working tirelessly with our franchisees to make sure that we could supply our existing restaurants. So we definitely felt that was the biggest challenge during the quarter, which we think is a onetime event.

Not a not a thing that is normally related to this whole environment. We're in.

And with that, both our partner at the DC and us, we learned about ways to mitigate that for the future. And we put multiple layers of protection in place so we didn't have to go through that challenge again. But it was definitely something we didn't anticipate. And now we're prepared for beyond a shadow of a doubt.

And with that both our partner at the D. CNS, we learned about ways to mitigate that for the future and we've put multiple layers of protection in place. So we didn't have to go through that challenge again, but it was definitely something we didn't anticipate.

And now we are prepared for beyond a shadow of doubt.

Yeah, and Brian , just to add to that, I mean, obviously, the industry is undergoing supply chain pressures and challenges. As Dara noted, you know, we're just given the breadth of our menu, the flexibility of our menu, we're able to, you know, handle this.

And Brian just to add to that I mean, obviously the industry has been undergoing supply chain pressures and challenges as Darin noted, we're just given the breadth of our menu the flexibility of our menu we're able to.

Handle this.

in a much more advantageous way than a lot of our peers said. And a lot of the pressure here in the quarter was really driven by this distribution challenge more so than call it a product challenge. So at a high level, as we look proactively to face this particular headwind, our primary strategy is to build capacity and increase specification flexibility. So there's a couple of things that we're really doing head on to address that.

And a much more advantageous way than a lot of our peer set and a lot of the pressure here in the quarter was really driven by this distribution challenge more so than call. It a product challenge so high level as we look proactively to face. This particular headwind our primary strategy is to build capacity and increased specification flexibility. So there is a <unk>.

Couple of things that we're really doing head on to address that one is that we're increasing the use of our reverse auction system more so than traditionally and what this does is it allows us to.

You know, one is that we're increasing the use of our reverse option system more so than traditionally. And what this does is it allows us to, you know, have much faster RFP cycle time as we evaluate, you know, opportunities.

Much quickly much faster much faster RFP cycle time, as we evaluate opportunities.

And then secondly, we implemented a new technology that provides automation and allows us to more efficiently manage spec compliance. So as there's, let's say, pressure on a certain product that we're having challenges getting, we're able to evaluate alternate suppliers and

And then secondly, we implemented a new technology that provides automation and allows us to more efficiently management manage spec compliant. So as there is let's say pressure on a certain product.

We're getting we're having challenges getting we're able to evaluate alternate suppliers in.

New production line approvals much faster to get that supply back into the system. So we've had great success with that end point being we're taking some pretty aggressive action on supply chain overall.

new production line approvals much faster to get that supply back into the system. So we've had great success with that and, you know, point being we're taking some pretty aggressive action on supply chain overall.

Thank you.

Your next question will come from Jeff Farmer, your line is open.

Your next.

<unk> will come from Jeff Farmer Your line is open.

Great, thank you. Your mid to high single-digit menu price guidance for 2022 is in line or sits just below that level of...

Great. Thank you.

Mid to high single digit menu price guidance for 2022 is in line or sits just below that level of commodity and wage rate inflation that you pointed to for the year. So I guess, Mike My question is your.

Kabaddi and wage rate inflation that you pointed to for the year, so I guess my question is

You're guiding to a 400 basis point restaurant level margin sort of pressure level. You mentioned the acquisition of franchise restaurants as one of the pressure points there. But again, the main question here is, given that your menu pricing is not too far off from the inflation you're seeing on both commodity and wage rates, why are you seeing almost a 400? Why do you expect to see almost a 400 basis point headwind on the restaurant level margin?

Youre guiding to a 400 basis point restaurant level margin sort of pressure level.

You mentioned the acquisition of franchise restaurants.

One of the pressure points there, but again the main question here is given that your menu pricing is not too far off from the inflation youre seeing on both commodity and wage rates why are you seeing almost a 400 why do you expect to see almost a 400 basis point headwind on the restaurant level margin.

Yeah, so, you know, there's primarily two things here. One is, as you rightly noted, that, you know, there's the acquisition of certain markets that have depressed margins that we're bringing into the restaurant level margin, so it's having a depressive

So there's primarily two things here one is as you rightly noted that there is.

The acquisition of certain markets that have depressed margins that we're bringing in to the restaurant.

Strong level margin. So it is having a depressive effect also outside of pricing restricted hours are a component that goes into that as well. So until we start seeing a loosening of the labor market, we're including that in our calculus of our comp forecasting.

Also, outside of pricing, you know, restricted hours are a component that goes into that as well. So, you know, until we start seeing a loosening of the labor market, we're including that in the calculus of our comp forecasting.

and margin forecasting. So there's an effect being driven just by reduced labor hours.

And margin forecasting so there is an effect being driven just by reduced.

Reduced labor hours.

And just just on that point, while we're there just to point out how we're attacking that as well we are hoping that there is upside with a few things we're putting in place certainly in the company stores as we've had.

And just on that point while we're there, just to point out how we're attacking that as well.

You know, we're hoping that there's upside with a few things we're putting in place, certainly in the company stores is, you know, we've had successful experiences with using mobile and app-based application portals.

Successful experiences with using mobile in App based application portals that allows us to speed up the processing and selection of employees in lieu of having our restaurant managers take time out of their day to review applicants as you can imagine that the application process is ramping up much more more so than pre COVID-19. So.

That allows us to speed up the processing and selection of employees in lieu of having our restaurant managers take time out of their day to review applicants.

As you can imagine, the application process is ramping up much more so than pre-COVID. So this tool has been effective and efficient for us.

This tool has been effective and efficient for us.

Two, we're actively utilizing social media and online channels to get greater impression and reach. So we're really casting our net wide in the hopes of attracting employees into the stores or restaurant workers into the stores.

Two we're actively utilizing social media and online channels to get greater impression and reach so we are really casting our net wide in the hopes of attracting.

Employees into the stores or restaurant workers into the stores.

And then we've also been successful in utilizing shift differential pay. So we're trying to attract and retain employees, particularly in our late night day parts, to have greater success in fully staffing our restaurant. So, you know, as we use these three levers in the future, we're hoping that to the point that you're making, we're able to have greater success in closing that margin gap. Yeah, and let me add one thing to that, Tim, and we implement a daily pay as well.

And then we've also been successful in utilizing shift differential pay so we're trying to attack attract and retain employees, particularly on our late night day parts.

To have greater success.

Fully staffing our restaurants, so as we use these three levers in the future, we're hoping that to the point that you're making we're able to have greater success in closing that margin gap yes.

Add one thing to that Tim we implemented daily pay as well.

and with the premium differential pay.

And with with the premium differential pay.

We have not, we are in process of rolling across all company restaurants, but where we did, we saw a 25% increase in operating hours and we're starting not only to see it stabilize, but improve.

We have not we are in process of rolling across all company restaurants, but where we did we saw a 25% increase in operating hours and we're starting not only to see it stabilize but improve.

And during the quarter, our staffing was impacted most in the northwest and the midwest and least impacted in California and Texas. So we're seeing some light and some improvement in that, specifically in our late night hour challenge with staffing.

And during the quarter, our staffing was impacted most in the northwest in the Midwest.

And least impacted in California, and Texas So.

We're seeing some light.

And some improvement in that.

And that specifically in our late night, our challenge with staffing.

And your next question will come from Brian Nolan Your line is open.

And your next question will come from Brian Mullen, your line is open.

Hey, thank you. Just a question on company-owned store development. It looks like over the next two years, targeting anywhere from 12 to 20 units. It's good to see. When you think about the targeted AUVs for those stores, should we be thinking about the current overall system-wide average, which is kind of in that high $1.8, $1.9 million range, or should we be thinking about kind of the current AUVs of your company-owned store base, which are some of your highest volume units?

Hey, Thank you just a question on company owned store development. It looks like over the next two years targeting anywhere from 12% to 20 units, it's good to see.

When you think about the targeted <unk> for those stores should we be thinking about the current overall overall system wide average, which is pending that high 181 $9 million range or should we be thinking about kind of the current <unk> of your company owned store base or some of your highest volume units.

Yes, I would think that.

Yeah, I would think that the former is what you would you would be.

The former is what you would you would be.

evaluating some of the recent performance of the units that we opened in 2018 and 2019.

Valuations some of the recent performance of our of the units that we opened in 2018 in 2019, yes, and as we've talked about in December we will provide overall details around our economic model and how those have improved over the last year.

Yeah, and as we talked about in December , we'll provide overall details around our economic model and how those have improved over the last year. Yeah, and really the best, I think, reference for this is to go back to the Investor Day materials. We scope out what the unit economic models are in that, as well as our drive-through only unit economics and what the AUVs are for each of those formats.

Yes, and really the best I think referenced for this is to go back to the Investor day materials, we scope out what the unit economic models are in that as well as our drive through only unit economics and what the <unk> are for each of those formats.

Thanks.

Thank you. Our 2018.

Our 2018.

And 19 openings.

and 19 openings, we're averaging $1.8 and $2.1 million in AUD.

We're averaging one eight.

$2 $1 million in AAV.

And your next question will come from Nick Satkin. Your line is open.

And your next question will come from Nick Satien, if your line is open.

Thank you. Going back to the unit development question, the low end of 1%, if we think about that for 2022, are we talking about growth or are we talking about net development?

Thank you.

Back to the unit development question.

The sort of low end.

1%, if we think about that four for four.

'twenty two.

Are we talking about gross or are we talking about net development.

Oh, that's gross units that we're opening, new locations.

Oh, that's gross gross units that we're opening new locations.

Got it and in terms of the Geos.

Got it. And in terms of the geographies where you plan to open the stores over the next couple of years, is it kind of even between sort of California, Texas and some of the less penetrated markets? Is it more concentrated in the less penetrated markets?

Geographies, where you plan to open the stores over the next couple of years.

It kind of even between sort of California, Texas and some of the.

Less penetrated markets is it more concentrated in the less penetrated markets.

It's definitely.

It's definitely in, for sure, California and Texas, we still have plenty of opportunity, but we've seen expansion in a lot of under-penetrated markets and some where we're seeing signing of development agreements in those markets.

For sure, our California, and Texas, we still have plenty of opportunity, but we've seen expansion a lot of under penetrated markets and somewhere were seeing signing of development agreements in those markets.

Yes.

So it's across all the geographies within our existing footprint. And then with some company store development, we will proceed into one or two new markets if you consider Salt Lake City a new market, and one other market.

So it's gene.

Geographies.

Within our existing footprint and then with some company store development. We will we will proceed into one.

Or two new markets, if you consider salt Lake city, and new market and one other market.

Got it. Can you update us on where we are with remodels? What percentage of the system is remodeled now? What percentage of company-owned units are remodeled? What the remodel cadence going forward is going to look like?

Got it and then just can you update us on where we are with Remodels.

What percentage of the system is remodeled now what percent of the company owned units or remodel.

What the remodel cadence going forward is going to look like.

Yes, so just a high level, we know we've got.

400 and change locations that could use refresh remodels.

400, and change locations that could use refresh remodels, we're really going to pace out how this goes we've slotted.

We're really going to pace out how this goes. We've slotted, last quarter we discussed having roughly $20 million of annual.

Last quarter, we discussed, adding roughly $20 million of.

Annual.

capital sort of earmarked for these remodel refreshes.

Capital sort of earmarked for these remodels refreshes and like.

And like I said, we're going to ensure that there are guardrails in place so we don't go meaningfully beyond that on an annual basis.

As I said, we're going to ensure that they are guardrails in place so.

So we don't go meaningfully beyond that on an annual basis.

And really, it's more or less a first-come, first-served type of approach with our franchise system. But generally speaking, we're evaluating these on a one-off basis, so there's various programs in place that they can choose from, and it's going to be site-specific, so we'll look at the need.

And really it's more.

More or less a first come first serve type approach with our franchise system, but generally speaking we're evaluating these on a one off basis. So theres various programs in place that they can choose from and it's going to be site specific so.

We'll look at the the need.

We'll look at the term of the lease, the term of the franchise agreement, ensure that an ROI is appropriate and that they don't select a remodel package that doesn't provide something that surpasses a return hurdle rate associated with that, and then move forward that way. But this is, again, this will be the first year that we're rolling this out, so we'll be cautious in how we deploy our capital.

We'll look at the term of the lease the term of the franchise agreement ensure that ROI is appropriate and that they don't select a remodel package that doesn't provide something that surpasses our return hurdle rate associated with that and then and then move forward that way, but this is again this will be the first year that we're rolling this out so it will be <unk>.

<unk> and how we deploy our capital.

Okay.

Thank you very much.

Our next question will come from Zachary Frankfort. Your line is open.

Your next question will come from Zachary Frankfort, your line is open.

Hey, Hey, it's Gregory.

Hey, it's Gregory. Just one question. You guys have talked a lot about the pipeline for franchise stores the next couple of years. Can you maybe talk about what that might look like from a gross opening perspective in 22? I would imagine the pipeline as you're working with franchisees is pretty well built for what you know is going to open in 22 and roughly what that number could look like.

Just one question you guys have talked a lot about the pipeline for franchise stores. The next couple of years can you maybe talk about what that might look like from a gross opening perspective in 'twenty two I would imagine the pipeline that you're working with franchisees is pretty well built for what you know is going to open in 'twenty two.

Roughly what that number could look like.

Yes so.

Look I think the point, we're trying to what we really want to get across here is the scale of new sign ups. That's happened. This this company in a long time Hasnt had a robust pipeline in place actually they havent had much of a pipeline at all and in the last few quarters, we ramped up to three digits of units of.

Look, I think the point we're trying to what we really want to get across here is the scale of new signups that's happened. This company in a long time hasn't had a robust pipeline in place. Actually, they haven't had much of a pipeline at all. And in the last two quarters, we ramped up to, you know, three digits of units of restaurants committed to open. So I think we're developing a tangible.

<unk> committed to open so I think we're developing a tangible.

We're able to tangibly demonstrate that we're following up on our growth strategy that we laid out on Investor Day.

We're able to tangibly demonstrate that we're following up on our our growth strategy that we laid out on Investor day.

And we.

To say that we want to get to where we plan on getting to a 4% net unit growth run rate by 2025, and the pipeline that that.

And the pipeline that Darren mentioned puts us well on pace to achieve that, so we're pleased with the performance that Tim Linderman and the development team have had so far.

Aaron mentioned puts us well on pace to achieve that so we're pleased with the performance that Tim Lenderman and development team.

<unk> has had so far in.

We're excited that the franchisees are onboard with us and they are equally as excited as we are to get growth going.

We're excited that the franchisees are on board with us and they're equally as excited as we are to get growth going.

Alright, thanks, guys.

Okay.

Okay.

Your next question will come from Jared Garber, your line is open.

Our next question will come from Jared Garber Your line is open.

Yes.

Hi, thanks for taking the question. Um, kind of wanted to tie a couple threads together here. But, um, you know, we have

Hi, Thanks for taking the question.

Kind of wanted to tie a couple of threads together here, but.

We have record franchisee free cash flow in 2000 22020 in 2021, but obviously next year.

a record franchisee free cash flow in, I guess, 2020 and 2021. But obviously, next year, in 22, the margin outlook would suggest that, you know, the cost environment is going to materially pressure those restaurant-level margins, not only for the company stores, but franchisees.

To the margin outlook would suggest that the cost environment is going to materially pressure those restaurant level margins not only for the company stores the franchisees, but at the same time you are developing this increasing pipeline for development demand. So can you just walk through and I guess, maybe we'll hear about this a little bit more in a few weeks, but what those conversations are like with with with.

But at the same time, you're developing this increasing pipeline for development demand. So can you just walk through, and I guess maybe we'll hear about this a little bit more in a few weeks, but what those conversations are like with franchisees now and how they're thinking about managing through the cost environment in the somewhat near-term, hopefully, and maybe what's underlying some of the longer-term unit growth pipeline development.

He is now and how they are thinking about managing through the cost environment.

Somewhat near term hopefully in may.

Maybe what's underlying some of the longer term unit growth pipeline developments.

Yeah, I think there's a few things here. You know, the conversation we're having with our franchisees are really critical around our pricing discipline and how do we take price on our core menu. And so that's been a lot of the discussion. And it's been healthy dialogue and people, you know, not only learning from the company and the data that we're generating, but from each other and the moves that are being made around the country.

Yes, I think Theres a few things here.

The conversation, we're having with our franchisees are really critical around our pricing discipline and how do we take price on our core menu.

And so that's been a lot of the discussion and it's been healthy dialogue and people not only learning from the company and the data that we're generating but from each other and the moves that are being made around the country.

So that's that's a key component of it and it's been that spirit of partnership beyond that you know, we've presented to our franchisees

So that's a key component of it and it's been that spirit of partnership beyond that.

We've presented to our franchisees.

Yeah.

you know, our strategy around financial fundamentals and where we find opportunity within process and technology to remove costs from the model.

Our strategy around financial fundamentals, and where we find opportunity within process and technology to route.

<unk> cost from the model.

So there's a lot of encouraging, an encouraging bridge of how we can take additional points or improve additional points in labor.

So there's a lot of encouraging.

Encouraging bridge of how we can take additional points or improve additional points and labor.

So the franchisees are healthy, their cash flow is healthy. They've expressed their desire to reinvest in the brand because we know these headwinds are a period in time. And that we've shown that through pricing and through margin improvement initiatives that we can overcome some of the challenges that we're facing in a short-term environment.

So the franchisees are healthy there cash flow is healthy healthy they have expressed their desire to reinvest in the brand because we know these these headwinds.

Or a period of time and that we've shown that through pricing and through margin improvement initiatives that we can overcome some of the challenges that we're facing in the short term environment.

Thanks, and just one quick follow up I'm not sure. If you gave this earlier, but any mix on the on the franchisees that are that are signing up that incremental.

Thanks. And just one quick follow up. I'm not sure if you gave this earlier, but any mix on the on the franchisees that are that are signing up that incremental development demand. Can you remind us of the mix there between current and new franchisees. Yeah, it's the all the numbers.

Development demand can you remind us of the mix there between current and new franchisees.

All the numbers are existing franchisees, because our first priority and the process was true and we still have other existing franchisees interested in and developing we're only about six months into this program and we gave a kind of a window a first opportunity to our existing base. So the numbers we've reported are only.

our existing franchisees because our first priority in the process was to, and we still have other existing franchisees interested in developing. We're only about six months into this program.

And we gave kind of a window of first opportunity to our existing base.

So the numbers we've reported are only our existing franchisees.

Our existing franchisees and we're not finished yet with.

And we're not finished yet with their level of interest. We're still working through market by market, territory by territory.

With their level of interest, we're still working through market by market territory by territory.

We've mapped every market in the country, we've put data around it. So franchise is go out and explore with our real estate team, where they would like to grow.

And so we're only through a small portion of the process with existing franchisees.

And so we're only through a small portion of the process with existing franchisees.

As I mentioned, we've launched our marketing for new. We have a good pipeline, and we're in process of kind of working through what existing franchisees want first, and then we'll start to sign up new franchisees.

As I mentioned, we've launched our marketing for new we have a good pipeline and we're in process of.

Kind of working through what existing franchisees want first and then we'll start to sign up new franchisees.

Great. Thanks.

Yes.

And your next question will come from James Anderson Your line is open.

Your next question will come from James Sanderson, your line is open.

Hey, Thanks for the question I just wanted to talk about some of the technology, we're investing in and how that could potentially improve.

Hey, thanks for the question. I just wanted to talk about some of the technology you're investing in and how that could potentially improve labor productivity going forward, but also if there's an opportunity to have franchisees participate in that investment potentially with some sort of technology fee that they would pay on a per-store basis. Thank you.

Labor productivity going forward, but also if there is an opportunity to have franchisees participate and investment potentially with some sort of technology fee that they would pay on a per store basis. Thank you.

Yes go ahead, a couple of things that we're actively working on an exciting about that will help in store labor is there as were working on robotics, particularly at the <unk> station will have tests underway.

Go ahead. Yeah. A couple of things that we're actively working on and exciting about that would help in-store labor is...

There's, uh, we're working on robotics, particularly at the fry station. We'll have a test, uh, underway, um, um, shortly here and we're optimistic about, about what that has for us in the longterm.

Shortly here and we're optimistic about about what that has for us in the long term and we're also looking at automated drink machines as far as pulling labor out of the system as well as self cleaning milkshake machines as well. So these technologies are things that in our analysis can be fairly meaningful when we look at the unit economic model.

We're also looking at automated drink machines as far as pulling labor out of the system, as well as self-cleaning milkshake machines as well. So these technologies are things that, in our analysis, can be fairly meaningful when we look at the economic model in the long term and across the system as a whole as far as being able to reduce average, require an average labor hours per week. Beyond that, we've also...

So in the long term and across the system as a whole as far as being able to reduce average required average labor hours per week.

Beyond that we've also rolled out.

a software program technology for the restaurants that enable them to help manage labor more effectively and food. And we're at the early stages of actually taking the technology and being able to drive out costs.

A software program technology for the restaurants that enable them to help manage labor more effectively and food and we're at the early stages of actually taking that technology and being able to drive out cost. So all of it enables us to project better from a labor standpoint, and enables us to manage.

So all of it enables us to project better from a labor standpoint and enables us to manage food costs more aggressively. And so those are tools that the brand has not implemented historically that we now have that can really help improve our restaurant level.

Food costs more.

Aggressively and so those are those are tools that the brand has not implemented.

Historically that we now have that can really help improve.

Our restaurant level economics, we also like I said I mentioned on the.

We also, like I said, I mentioned in my early comments that we've invested in a team in op services that their entire focus is how do we improve restaurant level economics through process systems and technology. And so they've got a bridge built and a plan to figure out how we can remove two points at a minimum from the P&L.

My early comments that we've invested in a team.

And op services that their entire focus is how do we improve.

Restaurant level economics through process systems, and technology and so they've got a bridge built in our plan to figure out how we can remove two points at a minimum.

From the P&L.

So that being said, we also, as you know, we've recently hired a new CIO.

So that being said we also as you know we've recently hired a new CIO.

Doug Cooke, who has brought some.

Doug Cook, who has brought some ideas to the table on how we can continue to improve through AI tools and drive costs out of our system.

Ideas to the table and how we can continue to improve through AI tools and drive.

Cost out of our system.

But also, I think your question was also about tech fees. We charge that today. We have the ability to increase that over time. But we would have to sit down with our partners, our franchisees, and help them see the roadmap and participate in that journey with us. And we've been doing that accordingly. We've showed them our tech roadmap and have started bringing them along in the process to where we're taking technology.

But also.

I think your question was also about tech fees.

We charge that today, we have the ability to.

Increase that over time, but we would have to sit down with our partners our franchisees in and help them see the roadmap and.

Participate in that journey with us and we've been doing that accordingly, we've showed them our tech roadmap and have started bringing them along in the process to where we're taking technology.

Yes.

Again, if you would like to ask a question you May press star one on your telephone keypad.

Again, if you would like to ask a question, you may press star 1 on your telephone keypad.

Our next question will come from Chris Karol.

Hi, good morning, So just as a follow up on pricing can you just talk a little bit more about how and when the anticipated mid to high single digit pricing gets phased in sounds like.

Hi, good morning. So just as a follow-up on pricing, can you talk a little bit more about how and when the anticipated mid to high single-digit pricing gets phased in? Sounds like franchises have already begun to take more pricing, but any additional detail on the pacing of pricing actions at the company-owned restaurants will be helpful. Thanks.

Franchisees have already begun to take more pricing, but any additional detail on the pacing of pricing actions at the company owned restaurants will be helpful. Thanks.

Yeah, so we're fully cognizant of how price is being taken across the industry today. You know, we've got a lot of dry powder built up, given that we've had sort of moderate price increases.

Yes so.

We're fully cognizant of how prices being taken across the industry today.

Lot of dry powder built up given that we've had sort of moderate price increases in.

In 2021, for company stores, as an example, for 2021, we took roughly 3.5% on price with only 3.9% coming in the fourth quarter.

In 2021 for our company stores as an example for the for 2021, we took roughly three 5% on price with only three 9% coming in the fourth quarter. So the typical cadence would be roughly there's four.

So the typical cadence would be roughly, there's four opportunities that we've historically taken to increase our prices.

The opportunities that we're that we've historically taken to increase our prices.

We're likely looking to see how we can accelerate that pacing in 2022, and we're also actively evaluating how much we can take within the various sensitivity bands that we have.

We're likely looking to see how we can accelerate that pacing in 2022, and we're also actively evaluating how much we can take within the various sensitivity bands that we have.

for the consumer. So this is something that's clearly top priority for the company. You know, we understand that the margin pressures and headwinds we have and we understand our ability to mitigate those by taking price and you know again that we have dry powder to do that. So we're actively evaluating, you know, that acceleration.

For the consumer so this is something that's clearly top priority for the company.

We understand that the margin pressures and headwinds, we have and we understand our ability to mitigate those by taking price and again that we have dry powder to do that so.

We're actively evaluating that acceleration.

Thanks.

And our next question will come from Jake Bartlett Your line is open.

Your next question will come from Jake Bartlett. Your line is open.

Okay, great. Thanks for taking the question.

Great, thanks for taking the question. My question is on the the margin guidance for the restaurant level margin guidance and I'm hoping you can give us a little more detail on

My question is on the margin guidance for the restaurant level margin guidance.

And you can give us a little more detail on how much those acquisitions between stores you acquired are pressuring the margins it sounded like the other part of it.

how much those acquisitions, the 20 stores you acquired, are pressuring the margins. And it sounded like the other part of it is potentially negative companies, same-store sales. And there's a big differential in the fourth quarter between company and franchise. But I also look at the company footprint as more Californian. And you mentioned that California's not seeing the sort of hours and the labor pressures, I think, that you cited more the Midwest and the Northwest. So.

Centrally negative.

Company same store sales and there's a big differential in the fourth quarter between company and franchise.

I also look at the company footprint is more California, and you mentioned that California has not seen.

Hours and the labor pressures I think you cited more of the Midwest and the northwest. So one is why is the company same store sales.

One is, you know, why is the company, CentraSales, you know, being so pressured if in California not seeing the impact there? And then just digging in a little bit more into how those acquisitions impact March.

So pressured.

In California.

The impact there and then.

Digging in a little bit more into how those acquisitions.

Packed.

Yeah, I'll let Tim answer some of it. But one of the things to keep in mind is the acquisitions that we've made are outside of California and Texas. They're in Oregon.

Yes, I'll, let Tim answer some of it but one of the things to keep in mind is the acquisitions that we've made are outside of California, and Texas Bear in Oregon.

Kansas City, and Oklahoma. So those are areas that were outside that kind of core.

Kansas City and Oklahoma. So those are areas that were outside that kind of core and it was pretty meaningful the number of stores that we bought in those markets.

Pretty meaningful the number of stores that we bought in those markets.

Yeah, absolutely. So for those units, ballpark, we're looking at about 130 basis points of margin pressure due specifically to that.

Yeah, absolutely so for those units ballpark, we're looking at about 130 basis points of margin pressure due specifically to that.

The other thing we've been able to do in the meantime since the quarter is we've been in a process of renegotiating leases with some of our organ stores that we will see improved flow through as a result.

The other thing we've been able to do in the meantime, since the quarter is we've been in a process of renegotiating leases with some of our Oregon stores that we will see improved flow through as a result.

Great and maybe just the detailing of why the company same store sales is as underperforming so much given it seems like they didn't have less of.

Maybe just the detail of why the company seems to be underperforming so much, given it seems like they have less of the hour pressure.

The our pressure.

Yes, so well there is two things typically the franchisees certainly has again been more aggressive and have moved faster and taking price.

Yeah, so well, there's there's a few things. Typically, you know, the franchisees certainly have have, again, been more aggressive and have moved faster in taking price.

So that's been significant. They've also taken a different approach and had different success with retaining hourly workers and staffing their stores and been perhaps more nimble on that in Q4. And then also, as you mentioned, there's geographic disparities between where our company stores are located and the franchisees as a whole.

So that's been significant.

<unk> also have taken a different approach.

And had different success with retaining.

Hourly workers and staffing in our stores and then perhaps more nimble on that.

In Q4, and then also as you mentioned Theres geographic disparities between where our company stores are located.

And the franchisees as a whole.

And then lastly, I would say for company performance, the late-night mix versus what the franchisee late-night mix also has some degree of impact as well.

And then lastly, I would say for company performance the.

Late night mix versus what the franchisee late night mix also has.

Some degree of impact as well.

Great. Thanks, a lot.

Our next question will come from Gregory Frankfurt. Your line is open.

Our next question will come from Gregory Frankfort. Your line is open. Hey, just one follow-up. I think you guys have, on the debt side of things, hasn't come up in a while.

Hey, just wanted to follow up.

Thank you guys.

On the debt side of things as they come up in a while I think you guys have a make whole early next year can you just remind us how you're thinking about leverage and debt.

guys have a May call early next year. Can you just remind us how you're thinking about leverage and debt? And if you were to increase your current kind of total debt amount, how you would think about potentially using those proceeds? Thanks.

If you were to increase.

Total debt amount.

How you would think about potentially using those proceeds.

Yes, just as were met so we bought 70 million towards share repurchases in Q4 for the year 2021 fiscal year, we repurchased $200 million I think which we believe was a healthy.

Yeah, just as a reminder, we bought $70 million towards share repurchases in Q4 for the year 2021 fiscal year. We repurchased $200 million, which we believe was a healthy share repurchase program relative to our history.

Repurchase share repurchase program relative to our history.

We just received board authorization for another incremental $200 million, which expires in 2023. So we have the ability to continue in an opportunistic manner sharing purchases that we feel gives the best TSR back to our shareholders.

We just received board authorization for another incremental incremental 200 million, which expires in 2023. So we have the ability to continue and in an opportunistic manner share repurchases that we feel gives the best tsi.

<unk> back to our shareholders and obviously it also allows us to deploy capital.

And obviously, it also allows us to deploy capital, whether it's organic capital or debt capital, to ROI-driven opportunities within our business. I mean, we talked a lot about technology investment today inside the four walls. So we'll be focusing on that in addition to any other way that we can help grow the overall business, like company store development or remodel refresh programs for franchisees.

It's organic.

Capital or debt capital too.

<unk> driven opportunities within our business I mean, we've talked a lot about technology investment today.

Slide the four walls, so we'll be focusing on that in addition to any other way that we can help.

Grow the overall business like company store development or remodel.

Remodel refresh programs for franchisees.

Could you just remind us what the targeted leverage is for the business right now.

Can you just remind us what the targeted leverage is for the business right now?

Yeah. So we gave.

Yeah, so we gave a range of...

A range of.

$4 to five four to five five times. So we'll look to obviously stay within that band and maintain flex for our long term strategy.

Thank you.

And this concludes today's Q&A I'll now hand, it back over to Darin Harris for any closing remarks.

concludes today's Q&A. I'll now hand it back over to Darren Harris for the closing remarks.

Thank you all again for joining today. We will see you on December 14th for our franchisee event. And we look forward to speaking with you in February to discuss our first quarter 2022 results.

Thank you all again for joining today, we will see you on December 14th for our franchisee event.

We look forward to speaking with you in February to discuss our first quarter 2000.

Our 2022 results.

This concludes today's conference call.