Q3 2023 Jack in the Box Inc Earnings Call
Thank you for standing by my name is Deanna and I will be your conference operator for today at this time I would like to welcome everyone to the Jack third quarter 'twenty 'twenty to meet earnings webcast.
All lines have been placed on mute to prevent any background noise.
After the speaker remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question press are one again thank you.
Now I would like to turn the call over to Chris Brandon Vice President Investor Relations.
Please go ahead.
Thanks, operator, and good morning, everyone. We appreciate you joining today's conference call highlighting results from our third quarter 2023.
With me today are Chief Executive Officer, Darrin, Harris, and interim Chief Financial Officer, Don Hooper.
Following their prepared remarks, we will be happy to take questions from our covering sell side analysts.
Note that during both our discussion and Q&A, we may refer to non-GAAP items.
These refer to the non-GAAP reconciliations provided in the earnings release, which is available on our Investor Relations website at Jack in the box Dot com.
We will also be making forward looking statements based on current information and judgments that reflect managements outlook for the future.
However, actual results may differ materially from these expectations because of business risks. We therefore considered the safe Harbor statement in the earnings release and the cautionary statements in our most recent 10-K to be part of our 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 available on our Investor Relations website.
And with that I'd like to turn the call over to our Chief Executive Officer Darrin Harris.
Thank you, Chris I want to begin by thanking our restaurant level team members, our franchisees and the Jack and del Taco Corporate staff, who continue to make us proud of their dedication to serve our guests and the results being achieved from the execution of our strategy.
We are very pleased with the performance of our business in Q3, and we continue to see the execution of our strategy to deliver results in the quarter and year to date.
We have demonstrated continued top line and margin momentum that has resulted in impressive adjusted EBITDA and operating EPS growth.
I believe our performance reflects three items strong operations execution, the right promotions at the right time and effective communication and engagement with our core users.
This quarter was also an exciting milestone for entering new markets and our future growth with a very successful start to our entry into Salt Lake City.
And strong sales results right from the start.
Okay.
We are also pleased to reiterate our guidance from last quarter, while increasing our share repurchase outlook as a result of the accelerated refranchising of del Taco restaurants.
As you saw this morning, we are very excited to announce that Bryan Scott has accepted the role of Chief Financial Officer at Jack in the box.
Brian brings tremendous experience to the Jack family, including a decade long tenure as CFO of <unk> and healthcare <unk>.
Helping take the company public and grow it into a $3 $5 billion leader within its industry.
We look forward to introducing you to him.
And lastly, I'd like to give a special thanks to Don Hooper, who has done an outstanding job the past eight months as our interim Chief Financial Officer.
Part of this morning's announcement included the addition of <unk> to our executive leadership team along with our management team and I'm excited to be continuing to work closely with her and she will make a great addition to our team going forward.
Now, let's briefly dive into each of our strategic pillars.
We begin with building brand loyalty and our efforts to grow sales and accelerate transactions with our creative marketing strategy.
<unk> same store sales grew seven 9% led by continued staffing and operating hours improvement, especially in our late night day part, enabling us to flex promotional <unk> and we did just that.
To Mark the 10 year anniversary of the original Munchy Mill, we teamed up with Snoop Dog to introduced a limited edition Snoop <unk> Mill. In addition to the build your own <unk> platform.
Version featured a few new items like our spicy sauce unloaded chicken sandwich, a baked brownie and a Snoop air Freshener for those that were lucky enough to get one prior to selling out.
Our Jack in the box restaurant in Inglewood, California also got Snoop provide with a dog in the box takeover from June 29 to July 2nd in celebration of this partnership we dropped it like it was hot creating a guest experience unlike ever before it Jack and our guests since fans loved it.
But all kidding aside the promotion had some important signals related to our business and Investor story first that our restaurants are in much better shape related to staffing and hours and to the point, where our national late night Activations such as this was even possible.
It helped those within our system that had yet to reopen late night to do so in a more rapid fashion.
And lastly, it enhanced our belief that Jack can truly own late night and while this collaboration was certainly a key sales and transactions driver. It can also be seen as our first big opportunity since COVID-19 to re plan our flag into this all important day part.
Our hook and build strategy continues to drive add on purchases and ticket helped by the return of fan favorites, French toast sticks and mozzarella sticks.
And early in the quarter, our Pineapple Express shake and Pineapple Express Red Bull infusion drove incremental sales and provided customers with a new occasion.
Onto the premium side of our barbell menu, we continued with new product innovation, introducing two ribeye steakhouse burgers.
It was an active quarter for digital.
And our investments in Martech continue to position <unk> to be a more formidable digital competitor.
Digital sales are now approaching 12% up from 10, 6% a year ago.
And encouragingly we.
We saw a big jump in usage of our <unk> e-commerce channels in Q3, notably.
Notably the newly designed App and recently launched web ordering site.
Both of which are beginning to gain more traction since their launch a couple of quarters ago.
These channels provide customers with ease of ordering while enabling us to capture important data that can be used to communicate with our guests more effectively and grow our JAK Pac rewards database.
We continue to focus on our <unk> loyalty program with membership up 34% since Q2.
And third party delivery continues to perform well with a nearly 12% increase in sales contribution year over year.
Certainly helped by late night.
This all led to higher average check and improving transactions from our digital guests and a 54% increase in web and App sales compared to Q3 last year.
Lastly on this pillar I would like to briefly update you on re imaging. We completed two franchise re images during the quarter and are encouraged to see solid interest from our franchisees with 81 restaurants in the design and permitting stage, we still expect about five industrial image remodels to be completed by the end of Q4.
For both franchise and company owned and we look forward to updating you on the performance in sales lift of these stores as we gear up for 2020 for it to be a strong year for the Jack <unk> program.
Now turning to our second pillar driving operational excellence.
Our laser focus on building the capability of our people elevating the execution of standards and simplifying our operating system continues to result in a better and faster guest experience.
Over 95% of our system has now been trained and certified which contributed to a 12 second improvement in speed of service, representing the fourth consecutive quarter of year over year speed improvement.
We returned two unannounced food safety evaluations in Q3, and continue to see year over year and quarter over quarter improvements in food safety and third party assessed standards. All in all we are operating at very high levels and I credit both the operations team and franchisees for their dedication.
To improve the guest experience and implement our new approach.
Both hours of operation and reopened dining rooms remain <unk> to transactions.
Franchisees have made greater strides over the past couple of quarters doing so again in Q3 to their credit we're nearing pre COVID-19 levels.
Lastly, we are very close to selecting our new Pos provider and implementation is still on track to begin in the first quarter of fiscal 2024 with completion by the end of fiscal 2025.
This modernized restaurant tech stack will create future cost saving opportunities through more enhanced back office systems, plus automation and AI, which should also have a positive impact on the guest experience.
Success across our operational focus areas should lead to growing restaurant profits our third strategic pillar.
We have enhanced our restaurant level margin the past two quarters and are taking advantage of the improving operating environment by doing all we can to maximize franchise profitability in 2023.
Whether it is with new technology equipment processes or supply chain synergies, we identified initiatives that could result in potential annualized savings of $55000 per restaurant or approximately 200 basis points of <unk>.
Our progress to realizing the savings continues we've now rolled out 50% of these programs and are beginning to see them take hold as evidenced in our improving margins.
With inflation easing and value, becoming even more important we will continue to be surgical with our pricing actions using more sophisticated data and analytics tools to identify restaurant level pricing opportunities.
Improved restaurant economics for franchisees and positive relationships within our system is now being reflected in our growth pipeline.
We are now seeing development agreements turning to sites and process and sites now having shovels in the ground, which of course brings us to our fourth in all important final pillar expanding our reach.
Since launching our JAK development program in mid 2021, we have signed a total of 77, new agreements for 340 restaurants.
Included in this was our first new Jack franchisee in over a decade and now there are five total.
Along with new market development agreements for Florida, Arkansas, Montana and Wyoming.
Our upcoming entry to Montana, and Wyoming comes from incremental development agreements via del Taco Refranchising, which included commitments from a del Taco franchisee to build both Jack and del Taco restaurants.
Regarding our development within the Mexico border cities, we're making Swift progress and we will open the first Jack restaurants during the first half of fiscal 2024.
We look forward to bringing a brand that is familiar along with an operator that has proven to this market for the first time in over 30 years.
In Q3, we opened six Jack in the box restaurants, the highest quarter for openings. Thus far in 2023 with two in Texas, two in California, one in Arizona, and our first in Salt Lake City.
This particular craved image restaurants, a conversion of one of our competitors debuted with record setting sales in fact in Salt Lake City that first month sales were 66% higher than the previous new market record at jet.
We developed and were able to implement our new market opening playbook created by our marketing and operations teams, which focuses on recruitment and training our team members.
While maximizing the key marketing phases of operating success, such as creating brand awareness in the market.
By restaurant launch.
And then sustaining our guest base.
It was not only our inaugural restaurant in this market. It was also our first restaurant to execute against this playbook and it is working even better than we anticipated.
Not only did we set the single store monthly sales record, but top line continues to grow week over week since opening in mid June .
Note also that the restaurant is not fully opened for late night, nor have we activated digital.
Both of which support our commitment to serving our guests well and opening with simple operations upon entering a new market.
We plan to open three additional salt Lake city locations by end of fiscal year, including our second drive through only concept prototype in the U S and at least six and 2024, which will be a combination of company and franchise restaurants.
And in Q4, we anticipate opening our first two company owned restaurants and Louisville.
We have an active fourth quarter head with 82 restaurants currently in the permitting designer construction phases, and while we still see a handful of closures occurring this year, we will reach positive net unit growth in 2023 for the first time in nearly five years and are on track to be at the lower end of the guidance range on a gross openings for 2000.
<unk> 23.
Net new restaurant growth is critical to increasing value and we are focused on this trend continuing in the future.
Let's now turn to del Taco.
Which continues to be a value driving addition to our company and I am very excited about the growth potential of the brand.
Del Taco is well positioned to meet varying customer needs with the strong value proposition and barbell menu strategy.
Same store sales grew one 7% during Q3.
With results tightly aligned between company and franchise restaurants.
Increased hours of operation remained a key growth driver increasing $1 seven hours per store compared to 2022 as the brand is getting closer to pre COVID-19 levels.
The 'twenty under two menu platform, which was introduced in 2022 is still holding steady at approximately 16% during non promotional periods.
However, during Q3, we featured $5 <unk> deals, which added another value layer to our barbell menu.
This lineup consists of a variety of del Taco fan favorites, along with crinkle cut fries and a small drink.
And it's at a great value.
We also brought back our very popular carnitas menu for a limited time.
We saw continued growth across all sales channels and digital now represents total sales of 11, 3% up from 11, 1% in Q2.
Last month del Taco revamped its daily out rewards by adding new branded member engagement features rewards members can now earn free food faster with decreased point level tiers and features like surveys and polls shareable Vanity badges and punch cards.
There are currently $1 5 million members up from $1 3 million last quarter and as we continue to grow membership, we will be able to drive incremental visit frequency and average spend.
Turning to operations. There is a continued focus on recruiting and the expansion of labor hours to help drive same store sales.
Aided by increases in labor availability and offering higher wages. We have also been applying the same operational focus at del Taco that we've had at Jack and are seeing traction to reduce turnover and alerts per store, which are both the lowest in more than a year.
Since the Dell development program launched in 2021 and as of the end of Q3 del Taco has now signed 20 agreements for a total of 153 restaurants.
We opened two franchise restaurants in Q3.
Through these first three quarters, we have re franchise 66 del tacos, including 50 in the quarter alone.
And now expect to re franchise between 90 and 120 restaurants this fiscal year.
This is led by tremendous demand from our proven operators and developers within Jack and del Taco.
The combination of healthy valuations and incremental development agreements plus using proceeds for share repurchases.
Make these transactions accretive as we move to a more asset light model.
To wrap up as we proceed with the execution of our strategic pillars, we are creating real value for all stakeholders. Our team members franchisees guests and of course investors.
We are proud of what we are accomplishing and we will remain focused on the areas important to continue the trend.
Thank you for your time and interest in the strategy we are executing.
The growth story, we are building out.
I'll now turn the call over to Don.
Thanks, Darren and good morning, everyone.
Going to start by reviewing each of our two brands individually followed by details on our consolidated performance and capital allocation.
Beginning with Jack in the box are third quarter system same store sales growth was seven 9%.
Shifting of company owned comps of six 9% and franchise comps of 8%.
On a three year basis same store sales growth was 17, 5%.
Jack's quarterly system wide same store sales growth of seven 9% includes an eight 7% increase in pricing.
0.2% increase in mix and a 1% decrease in transactions.
As a result, our overall average check increased since the prior year and we have also seen positive year over year mix shift for the second consecutive quarter.
And although down our transactions were supported by the effective execution of our <unk> strategy and the successful marketing of our barbell menu with culturally relevant messaging.
Additionally, we have had improvements in operations execution, including increasing the average operating in dining room hours, which remain tailwind for the Jack in the box system.
And while company operations are leading the way franchise operations are nearly caught up.
On product categories. Notable contributions came from burgers chicken and breakfast.
All day parts generated positive sales year over year, but once again the late night day part stood out the most with late night now posting positive transactions year over year for the third straight quarter.
Turning to restaurant count there were six Jack franchise openings, along with two franchise closures.
This resulted in a quarter end restaurant count of 2191 restaurants.
As a reminder, Jack will be delivering positive net restaurant growth in fiscal year 2023 for the first time since fiscal 2019.
Okay.
Moving on to our JAK restaurant level margin, we expanded performance year over year by 600 basis points to 21, 8%.
Notably this is inclusive of our two remaining evolving markets, Oklahoma and Kansas City.
Food and packaging costs as a percentage of company owned sales declined 160 basis points to 31, 4% driven primarily by sales performance led by menu price increases and a positive shift in sales mix.
Partially offset by an increase in ingredient cost.
Commodity inflation was five 2% for the quarter with the greatest increases seen in potatoes, sauces produce and beverages, partially offset by lower costs for pork and poultry.
Labor as a percentage of company owned sales fell 310 basis points to 33% due to sales leverage inclusive of price increases and the benefit of Refranchising, Oregon and Nashville within the last year.
However, this was partially offset by wage inflation of four 2% in the quarter compared to the prior year.
Occupancy and other operating costs decreased 130 basis points to 16, 5% of company restaurant sales due to leverage from higher sales and the benefit of Refranchising, partially offset by higher other operating costs, including utilities delay.
<unk> fees and security as compared with the prior year.
Franchise level margin was $75 3 million or 41, 1% of franchise revenues compared to $70 8 million or 41, 4% a year ago.
The $4 $5 million increase was mainly driven by the flow through of higher sales in the current year.
Turning now to del Taco system same store sales rose one 7% consisting of company owned comps of one 7% and franchise comps of one 8%.
The del Taco quarterly system wide same store sales growth of one 7% included an increase in pricing of eight 1%, partially offset by a decline in mix of three 8% as well as a decline in transactions of two 4%.
Average check is up year over year, although average items per check we're slightly down.
The day parts that contributed the most to sales this quarter were led by snack and dinner staffing improvements resulted in operating hours running above 2022 levels with continued upside opportunity.
In Q3, there were three restaurant closures and two del Taco franchise openings the del Taco restaurant count at the end of quarter was.
594 restaurants.
Del Taco restaurant level margin was 17, 4% compared to 17, 6% in the prior year.
Food and packaging as a percentage of sales decreased 70 basis points to 27, 7%, which was primarily due to menu price increases partially offset by commodity inflation.
Labor as a percentage of sales increased 110 basis points to 34%, primarily due to wage inflation, which was approximately four 8% in Q3.
Occupancy and other operating expenses decreased 20 basis points to 29% driven primarily by lower common area maintenance costs.
Franchise level margin was $5 5 million or 36, 7% of franchise revenues compared to $5 1 million or 42, 7% last year.
The decrease in the percentage was driven by higher franchise costs and the impact of Refranchising transactions with pass through rent, partially offset by franchise same store sales growth.
Shifting now to our consolidated results.
Solidago SG&A for Q3 was $39 6 million or 10% of revenues as compared to $40 million or 10, 1% a year ago.
Excluding net coli gains G&A was two 4% of total system wide sales and within our long term expectations.
Included in other operating expense net for the quarter is impairment of $5 4 million, which is primarily related to del Taco locations, and our Oklahoma and Atlanta markets.
Consolidated adjusted EBITDA was $79 4 million up from $73 2 million in the prior year due primarily to higher JAK franchise and restaurant level margins.
Consolidated GAAP diluted EPS was $1 41.
Compared to $1 eight in the prior year.
Operating EPS per share, which included certain adjustments was $1 45 for the quarter versus $1 38 in the prior year.
Note that the effective tax rate for the quarter was 32, 6% compared to 28, 8% for the same quarter a year ago.
The operating EPS tax rate for the third quarter of 2023 was 26, 8%.
Moving to capital allocation during Q3, we repurchased approximately 0.3 million shares for $26 9 million, including the applicable excise tax as part of our ongoing share repurchase program.
Year to date, we have repurchased $64 million.
We now plan to execute at least $80 million in share repurchases. This fiscal year and currently have $152 million remaining under our board authorized buyback program.
As of quarter end, we had available borrowing capacity of $172 million net of letters of credit, which is comprised of $109 8 million under our variable funding notes as well as $62 2 million under our del Taco credit facility.
Beyond share repurchases. We will also continue investing in our brands, while returning cash to shareholders through dividends.
To that end on August 4th 2023, the board of directors declared a cash dividend of <unk> 44 per share to be paid on September 18th 2023 to shareholders of record as of the close of business on September six 2023.
Of course, future dividends will be subject to board approval.
For guidance, we would like to reiterate our expectations from our prior earnings call in May with the exception of two items first we now plan to re franchised 90 to 120 del Taco restaurants in fiscal 2023 up from our previous guidance of 65.
To 85 restaurants.
This will not impact our operating EPS guidance of $5 90.
To $6 10.
For fiscal 2023, which remains the same as previously stated.
Second we now plan to execute at least $80 million in share repurchases in fiscal 2023.
Yeah.
While we do not typically provide quarterly commentary, we do want to provide some additional color on the fourth quarter, given the operating environment over the last year.
In the fourth quarter, we are beginning to lap some of the stronger price increases taken last year, which is likely the case with others in our industry as well as improvements in hours of operations.
Additionally, we would also like to remind you that we will be rolling over two items from the prior year.
First you will recall, we experienced higher than normal early termination fees in the prior year due to some accelerated closures the level of which will not recur this year and second.
We received a chicken related legal settlement.
Both of these items benefited operating EPS by <unk> 30 in Q4 last year.
That said, we are leaning into value beginning with our jackpot combos in Q4, and our long term top line fundamentals remained strong.
In summary, we are very pleased to have delivered another quarter of robust performance and are on track for the remainder of the year.
Thank you to both the Jack and del Taco teams for what they are doing on behalf of our brands.
And with that we'd be happy to take some questions. Operator, please feel free to open the line for Q&A.
Thank you.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
We will pause for just a moment to compile the Q&A roster.
Your first question comes from Brian Bittner Oppenheimer, Brian . Please go ahead.
Thank you congratulations on the strong quarter, you did have a very strong third quarter with your EPS it was well above <unk>.
Consensus expectations despite.
Fact that you added 19 impairment charge that none of us are modeling and I think.
That shows that the underlying business was tracking well above consensus forecast, but the full year guidance.
It has an implication for the fourth quarter. It has an EPS range for the fourth quarter, that's well below the street and I know you have a lot of Refranchising you talked about the lapse from last year, but.
We kind of all have those in our models. So all things considered the only way to get to the fourth quarter implied EPS range is to have a pretty measurable deterioration in the underlying business.
So I guess the question is is there some costs coming in the fourth quarter that maybe we're not aware of.
Or is your guidance for the fourth quarter, perhaps.
Tilting, maybe a little bit conservative.
Any color you can provide on all of that would be helpful.
Yes. Thank you for the question, Yes, I think there are several factors that you need to consider one of which I mentioned in.
My prepared remarks, and that is a non recurring benefit that we received in Q4 last year that won't be recurring and that relates to some outsized early termination fees related to accelerated closures and then a chicken settlement.
As you noted we did record 19 of impairment the other item to take into consideration is the increased refranchising.
We've accelerated due to the strong interest in multiples. We've received in addition to the acceleration in our development pipeline as it related to the development agreements, we've been able to sign with those refranchising transactions and lastly, I think like others in our industry, we're going to be lapping some of our peak.
Pricing that we took a year ago in fact Q4 for both brands was the strongest performing quarter of last year.
And just from a pricing standpoint, we're going to be rolling over a rolling off about 400 basis points of price in Q4, and then lastly.
We really saw an increase or an uptick in our hours of operations recovery last year and we're rolling over that so when you take all that into consideration, we're reaffirming reaffirming the operating EPS guidance for the year So Brian .
I think Dan did a good job of capturing our sentiment.
We feel that generally the business is performing extremely well youre seeing it quarter after quarter, we anticipate that continuing into the fourth quarter all year, we've been guide.
Our guiding conservatively for this fourth quarter because of these one time events and.
As most of us in the industry trying to figure out.
What the fourth quarter looked like overcoming such price.
That makes sense and just Darren if I could follow up with you you made an interesting comment in your prepared remarks as it relates to value becoming much much more important for driving the business can you just unpack that comment a little bit is that a comment on the macro are you seeing something in the macro that's.
Causing you to believe that value is becoming incrementally vital or anything else you can add to your comments around value.
And I think for us what we're noticing within our business and within the industry is that balancing between premium and value is critical to driving transactions.
So we're just paying closer attention not that anything has shifted yes, we're anticipating that small shift and so we're balancing more of our promotional items through the back half of the year with some some focus value opportunities.
Great. Thank you.
Your next question comes from Gregory Frankfurt Guggenheim Securities. Please go ahead.
Hey, thanks.
Maybe Darren I think maybe eight nine months ago, we were speaking and you were talking about low hanging fruit around.
Around right sizing pricing by market and I'm wondering if you could maybe first.
Yes, what do you think are the biggest pieces of low hanging fruit from here going forward.
And two as you think about pricing.
Thank you should outpace the industry underpriced industry going forward, just given that that may still be a continued opportunity. Thanks.
Yes, I think for US we continue to feel really good about late night and that business growing and I also think we have opportunity to continue to perform at the breakfast day part those are the two areas I think that we have.
From a day part standpoint, and then digital digital continues to grow for US. It continues to be a substantial growth part of our business. We saw an 18% Inc.
Little over 18% increase in digital alone leading to 2% of the comp.
We're seeing our overall business performed across both day part and different.
Delivery modes.
The thing on pricing, what we're seeing is we've implemented.
Internal.
Disciplined with analytics tools that enable us to go in and pick specific regions stores.
And find unique opportunities across our whole menu and so we're focused more on a surgical approach than a blanket approach and we look at those opportunities market by market and store by store.
Thank you.
Your next question comes from Brian Mullan Piper Sandler Brian . Please go ahead.
Thank you just a question on the del Taco Refranchising process, it's great to see it progressing so quickly now.
We now have visibility into what the system should look like at the end of this fiscal year can you just give us your current thinking on how you expect this to evolve throughout fiscal 'twenty four I understand it's probably hard to be precise, but just any kind of guardrails are ranges around how you expect it to look would be would be great.
Yes, not at this time, we will continue to focus on the guidance of 90 to 120 for this year, we will revise our guidance as we head into 'twenty, four but overall youre seeing us make substantial progress.
Getting incremental development agreements for Jackson del we're putting restaurants in the hands of our best operators at Jack that was part of our thesis going into this transaction. We knew there was pent up demand and our del Taco operators. So overall, what you can.
Definitely see is that we're continuing to up our share repurchases. These transactions are accretive based upon the multiple valuation that we're getting and so we'll continue to execute on that strategy as aggressively as we have in 'twenty three.
Okay. Thank you.
Okay.
Next question from Andrew Charles TV Cohen, Andrew. Please go ahead.
Great. Thanks, Darren had a two part question is on the value prioritization. So first is hooking bill going to be the preferred route that you guys offer value through I know the sixth hour Jack packets suddenly you have a plan to lean into value more that way or just given the digital traction is that going to be more of a preferred route.
If you looked at your kind of more targeted and personalized value offerings. So curious on the format of how we should think about value going forward and then secondly on the value I mean does this alter the timeframe of the planned launch the hero menu item you guys. Previously talked about is launching at some point early in fiscal 2024.
So related to value I think values, what you get what you pay and so we look at channel. So on digital we are more aggressive with our value offers and our discounting.
As we think about menu items items that will drive traffic similar to the $6 Jack pack.
We also have Jack's deals now that are in test and we feel good about that offering very similar to what you would see at del Taco with our 'twenty under two we were able to learn from what they've done there and we are replicating something for that we would rollout.
Later into 2024, so we have multiple levers to play in value now that may be Jack didn't have previously and so we focus those on the right channels at the right time.
And then as far as the hero menu item.
We are testing.
That item or a few different items related to that and we anticipate.
Rolling that out in Q.
2024.
Thank you.
Next question comes from David Tarantino from Baird. Please David go ahead.
David I think you might be on mute if you can on mute your line.
Oh, yes, sorry about that good morning, everyone.
Mike My question Darrin is about the performance Youre seeing in Salt Lake City.
Seems pretty encouraging I was wondering if you could share.
More details on on I know you mentioned that the volumes are a lot higher than what you normally expect in a new market, but I don't think you've ever shared what you expect in a new market. So I was wondering if you could share more details on what the volumes are tracking towards.
What that would mean for our return profile.
Because it sounds like a pretty good early data point.
It might have a follow up.
Yes.
We're not going to quote exact sales, but I can tell you.
This is an all time record for the brand and 66% higher than any of our previous store openings.
For the monthly sales and what's encouraging about that were not opened at late night, yet we're just starting to open the digital channel or implementing our playbook for new markets.
This store is.
On track to be if not the highest volume restaurant in our system, but one of them. So we feel good about the franchise operator, there how is executed we feel good about the playbook, we implemented and we're just now getting to the point of starting to to.
Deliver media in the market.
It's even more exciting about that is we have three more openings in salt Lake City in fiscal year 2003, and another six planned for fiscal year 'twenty four and so.
We're encouraged by what we're seeing with this new unit openings and beyond that what we didn't comment on the other openings within the system.
Definitely seeing them outperform our system average and so we think.
We're onto something especially with the new creative damage.
Great and on.
The playbook can you just elaborate on.
It did create so much excitement around this this new restaurant in Salt Lake City versus maybe what you've done before.
In newer markets just to give us some context on how youre going to market.
Yes overall, we want to make sure operations are executing at the highest level. So we staff at a very high level. We've trained our team for multiple months being ready to launch in the market and so with that then.
We kicked into marketing and we're at the early stage of our marketing. So after it's simplifying operations, making sure. They were in order then we started communicating locally within the market about Jack in the box entering in a lot of that was through social and digital channels and we're just now getting to the point, where we're ready to launch our overall.
Our awareness building campaign.
Great. Thank you very much.
Next question from Dennis Geiger UBS Denis. Please go ahead.
Great. Thank you.
Continuing to make progress against restaurant development growth can you talk a little bit more about franchisee sentiment right now on development, particularly as it relates to the environment across any macro pressures or our industry timing issues that we're hearing.
From some of your peers all challenge.
Good and positive, but just curious if any updates there darrin and maybe if there's any early thoughts into next year's development considerations too, it's a high level touch on today.
Yes.
Excited we just left the franchise conference where franchisees are really feeling good about where the brand is especially from a topline standpoint their margins are coming back you see what's happened with our margins on the corporate side, improving 600 basis points year over year.
Our initiatives to drive margin with the.
The 200 basis point focus, we're 50% rolled out of those initiatives and they're not even taking hold yet though in the back half of the year, we anticipate those starting to take hold so.
Sentiment from the franchisees standpoint is very positive.
And to come back to where you were talking about development I think that our pipeline continues to grow.
Now have 82 restaurants in permitting designer construction thats the most in well over a decade, that's grown since last quarter. We continue to sign new franchisees. That's just on the Jack side on the Dell side, we're having the same thing we have a substantial number of agreement signed as a result of Refranchising and that was part of our strategy and that's also with.
Jack in the box franchisees and del Taco franchisee. So the sentiment is positive the development pipeline is.
Starting to take hold and now it's about putting shovels in the ground as we said in our comments and Thats beginning to happen.
That's great and if I kind of a quick follow up just on Bryan's question earlier, and I think you spoke to it to a large extent darrin, but if theres anything to add on what youre seeing from customers. I know you mentioned kind of a number of items per ticket down that may just be a continuation of what you and maybe the industry has seen but but any any other behavior changes to call.
<unk> income demographics.
Behaviors and anything like that thank you very much.
On the Jack side of the business and when we look across all of our income decile, we're seeing the best performance coming from the higher income some of that is our strategy and what we've been promoting from a premium standpoint. Some of it is just the response we're getting.
Since we did segmentation research and identified a customer base that we targeted.
Myself and Ryan joined the company.
And then the last thing is just a balanced we're seeing balanced sales.
<unk> across all decile on the del Taco business, what we're seeing is we're seeing strength again across all.
Income levels, we see some opportunity as we've.
Tried to change our value offerings to continue to drive value with some of our lower income guests.
But overall, especially because Dell we've taken so much price. So we have some opportunity to drive our business with our lower income guests, there, but overall pretty balanced.
Look at demographics within both businesses.
Great. Thank you.
Okay.
Next question from Alex Slagle from Jefferies. Alex. Please go ahead.
Thank you.
See if you could clarify just be incremental refranchising actions. It is neutral to EPS this year or.
Dilutive just wanted that.
Yet an idea on that and if you have any thoughts on potential players to be accretion accretive to EPS or EBITDA line.
Forward.
Yes, I think if you look back to our ICR presentation that'll help support.
These transactions are accretive to earnings based upon our share repurchases and so when we obviously, we're losing EBITDA, we're taking an.
Royalties, but we're also driving them at decent valuations.
And so through upping, our our share repurchases that will help these b accretive.
Okay, and then could you provide some additional color on the del Taco performance in Atlanta, Oklahoma, but the challenges are.
Markets sort of plans to readjust to remedy those issues.
Yes.
It's with many of us in the industry of a few markets that at times, if we have leadership changes.
We may have some challenges within operations. So we went in with a plan to help turn those markets around and improve them. We have a couple of those markets are Jack in Oklahoma, and Kansas City that we implemented a playbook.
Kansas City, and Oklahoma, we're seeing double digit comps in Oklahoma close to 20% comps.
Over over 12% comps in Kansas City. So we're implementing the playbook on and it starts with staffing and training and then eventually starting to market. The business eventually focus on margin improvement and I would say for del Taco. The same holds true in Atlanta and in Oklahoma.
Got it thank you.
Next Brian Harper Morgan Stanley Brian . Please go ahead.
Yes. Thank you. Good morning, just just on SG&A. So we have some since the fourth quarter do you think youll be kind of in the mid range of your annual guide low and just any comments on that and then my second question is just following up on.
The franchisee sentiment question.
These are not new issues, but any newer comments on real estate available availability interest rates permitting has anything changed with those topics.
I think what you've heard with our peers within the industry I think we've all faced a little bit of challenges with permitting and the time it takes to get permitting to occur on a development standpoint, so we've seen some of our pipeline lengthen.
I think also from a standpoint of.
Just labor on like we face in our industry, but development and the same thing construction labor is a little bit more challenging and so those are just linkedin pipeline, it's not it's not stopping that.
The building of our pipeline, which is where I made the comment earlier is we now have 82 restaurants in the pipeline that's more than we've had in over a decade and so now we have a pipeline to work with and we will continue to fill that up with sites and eventually get them under construction.
Okay.
And on the operating EPS I think we're just going to say, we're reiterating our guidance.
Between $5 90, and $6 and headsets.
Yes.
Okay.
Okay.
Next question comes from Jon Tower from Citi. Please go ahead.
Yeah.
Thank you.
So just I wanted to zero in on the celebrity meal deals or tie ins with the partnerships that you guys have been having in the core Jack in the box brand had been what appear to be a homerun for the brand.
So, Florida, driving sales and a great way to get your your check lift and driving some brand awareness, but I'm just curious.
How youre thinking about leaving more of these into future plans for the company and or how you plan on lapping the mid mobile promotion from this year or the SNP job promo that really looked like it helped the comp quite a bit.
As part of our marketing strategy, we will continue to focus on partnerships, where they make sense.
Overall, the key here is elevating Jack in the box the character jackpots.
And his presence as his own celebrity and I think a lot of his friends youre seeing him partner with to do these.
Promotions, and we'll continue to do that when and where it makes sense.
Are these guys trying to defer.
Sorry go ahead I'm sorry go ahead John .
I was just going to ask are these structured differently than sages.
Signing up.
Normal celebrity and paying them fixed fee or whatever it is annually.
Yes, definitely we do different types of partnerships with mobile promotion I think that was interesting because.
Both of us benefitted from that relationship.
Mobile got some benefit of our advertising, we got the benefit benefit of Ryan Reynolds celebrity endorsement of our brand so.
We both won in that situation I think the same holds true for our partnership with Snoop and Snoop has been a longtime fans of the brand and so he wanted to participate with us in this promotion, especially when we relaunch late night, and our Munchy Mills, which.
We have a lot of fans for our late night business.
Got it thank you.
Next question comes from Chris Corral RBC capital markets can you Chris go ahead.
Hi, Thank you. So maybe just following up on the commentary around the <unk> comparisons maybe to help us as were thinking about the <unk> and just considering the wide range implied by the same store sales guide.
Could you maybe expand a bit more on the Jack trends that you saw over the course of the <unk> and then in particular, what you saw as you exited the quarter I mean, if I'm looking at the multiyear trend versus 2019, they again accelerated for the third for the full third quarter, but curious if you could expand on what you saw throughout the quarter.
Yes throughout Q3, we saw sales continue to improve.
Period, eight through period, 10, and I think a lot of it was what we did with our promotional windows.
And.
No.
And so we will continue to do that I think coming into the fourth quarter.
You look at our four year geometric stack.
It accelerated in Q3 dollars 50 basis points and then we now are going to be lapping some heavy price. So overall, we feel good about the momentum in our business on sales. It's just now how do we.
Forecast.
We're coming that price and also hours of operation, but overall the business is sustaining.
Okay.
Great. Thank you.
Next question comes from Jeffrey Bernstein from Barclays. Please go ahead.
Great. Thank you.
Two questions. One I was just hoping you could.
Talk a little bit about the traffic at Jack in the box.
I think it eased a little bit in the third quarter from the second quarter.
And I know you've made some cautious comments like you just said about the compares going into the fourth quarter. So I'm just wondering.
If you can offer some thoughts on when you think you can turn that traffic.
To the positive side and what the key drivers would be on that front and I had one follow up.
Yes, I think.
For the most part we held steady on traffic throughout the quarter.
And I think late night accelerated it was up transactions were up three 1% and so obviously year over year and so that continues to improve I think opportunity for us is continuing to find.
Success within our breakfast day, part and our lunch day part in driving value transactions in that area.
Okay.
Got you and do you breakout.
The sales mix of breakfast late night, and however, you define value. It seems like those are important areas just trying to get a sense for a benchmark of where you are now maybe where you were before or what youre anticipating.
No we don't.
And reason why speak a little bit about breakfast as we probably had the most acceleration of price.
Through our franchisees at the breakfast day part. So we know there is some opportunity opportunity for us to recapture some value at the breakfast day part and so that's why I speak of value during the breakfast component.
Got you. Thank you.
Ladies and gentlemen that concludes today's call. Thank you all for joining and you may now disconnect.
Please wait the conference will begin shortly.
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