Q4 2023 Jack in the Box Inc Earnings Call
Thank you for standing by and welcome to the Jack fourth quarter and full year 2023 earnings call I would now like to walk them, Chris branded Vice President of Investor Relations to begin the call Chris over to you.
Thanks, operator, and good afternoon, everyone. We appreciate you joining today's conference call highlighting results from our fourth quarter and fiscal year 2023 with me today are Chief Executive Officer, Darren Harris and for his first earnings call since joining Jack in the box in early August.
Our new Chief Financial Officer, Bryan Scott following their prepared remarks, we will be happy to take questions from our covering sell side analysts Don Hooper Jack in the box Senior Vice President and controller will also be joining us for the Q&A portion of the call.
Note that during both our discussion and Q&A, we may refer to non-GAAP items. Please 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 reflects managements outlook for the future.
However, actual results may differ materially from these expectations because of business risks. We therefore consider the safe Harbor statement in the earnings release and the cautionary statements in our most recent 10-K to be part of our discussion.
The 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 all available on our Investor Relations website.
Lastly, I'd like to provide an update on some upcoming conferences and events, we will be attending the Barclays Conference in New York City on Wednesday November 29th as well as the Wolfe research and truest events during the first week of December.
In addition to the ICR conference in early January we also recently announced our 2024 Investor Day, which will take place Wednesday January 24th we hope you will be available to attend our live webcast and for those attending in person. We look forward to hosting you at our restaurant support Center headquarters in San Diego.
And with that I would like to turn the call over to our Chief Executive Officer Darrin Harris. Thank you Chris.
Before I recap, our fourth quarter and full year.
Want to take a moment to welcome Brian Scott to Jack in the box in del Taco and.
And just this first couple of months on the job Brian. It has proven his ability to get up to speed quickly on both our business and the industry as well as earn the respect of our team and franchisees.
He is an outstanding addition to our leadership team.
And I am excited for you to get to know Brian more in the coming weeks and months and learned about how he will enhance our strategy and support our growth ambition.
During the quarter I was thrilled to announce the hiring of Tom Rose as the new brand President of del Taco and we look forward to having him participate in our Investor day in late January Tom.
Tom and I have known each other for over 20 years, and we have a deep level of trust.
We have shared experiences and backgrounds as former franchisees Tom's operational expertise and his ability to connect with franchisees is something that will benefit both brands and our culture greatly.
He has already made an impact by advancing our strategic initiatives and identifying new opportunities for operational execution sales growth and profitability for del Taco.
We also made some recent and notable changes to the marketing function at del <unk>.
Highlighting by the addition of Sarah Mcaloon, who will join our executive leadership team as senior VP and Chief administrative officer, where she will lead marketing and support the shared services teams.
Sarah was a trusted partner in mind, while we work together to turnaround Ccs pizza.
I had the pleasure to witness our ability to drive 17 straight quarters of same store sales growth clarify the brand position and connect with franchisees.
Part of the New approach will also include increased involvement of Jack CMO and Chief Digital Officer, Ryan Ostrom, who will now support common Sara with the del Taco brand strategy. In addition to his regular role leading Jack marketing and digital for both brands.
Having this type of strategic leadership now supporting del Taco will immediately accelerate our business and support our combined growth strategy.
Shifting to our fourth quarter and full year performance, we achieved several important milestones in 2023, starting with positive net new unit growth.
A growing new restaurant pipeline.
Strong new restaurant sales.
Fantastic early success in opening two new markets.
And significant improvements in franchisee profitability in four wall economics.
We also made great progress Refranchising del Taco restaurants, as we move assertively to an asset light model.
Entering 2024, I am more encouraged than ever that we have the right people and strategy in place to continue driving meaningful results and shareholder value.
We continue to strike a good balance between premium value and add on offers that have strength in our performance. The last few years as we look into 2024, we will continue to find the right offers for our guests on a limited budget, especially through our digital offers.
While we see strength from our higher income guest this lower income segment remains pressured and an opportunity for us to find the right value and breakfast offering.
Our focus on employing culturally relevant messaging at Jack through fiscal 2023, let us to team up with personalities such as Mark Hamill and Ryan Reynolds earlier in the year.
And more recently Snoop dog, we marked the 10 year anniversary of the <unk> platform by introducing the limited edition Snoop Smutchy meal, a very successful platform that drove sales and generated plenty of positive buzz for the brand.
As part of <unk> creative marketing strategy, we will continue to focus on relevant partnerships, where they make sense as well as showcasing jackpots as its own celebrity.
And on that note. Some of you might have seen last week that Jack box was included in People's Fame Sexiest Man alive issue now.
Now with the zone inaugural category, which is classic Jeff box. He has claimed People's Sexiest Jack Award, becoming the first restaurant mascot to join this prestigious group. Thanks to as many loyal fans, who launched a petition to get him nominated.
Needless to say, it's been a lot of fun.
During the quarter, we promoted new and returning fan favorite menu items at Jack, including a double Bacon sourdough, Jack soft and loaded potato wedges a breakfast taco.
Dated combinations of the fan faves box as well as the addition of three new ice cream machines.
We experienced positive sales in all day parts, except breakfast.
And while much of the comp growth was price related or late night day part had its fourth consecutive quarter of positive year over year transactions.
Breakfast continues to represent an opportunity for us as customer behaviors promotional rollovers and aggressive competitive discounting has presented challenges.
For 2024, our promotions at Jack will continue to focus on innovation, plus beverage and snack attachment to support the hook and build strategy while.
While continuing the success, we've had with premium products and balancing it with value messaging to drive frequency.
Jackson digital orders continue to increase materially currently at 12% of sales.
We will continue to support our restaurants and franchisees to grow their digital business eventually reaching our next goal of 20%.
Digital Carryout continued its momentum surpassing digital delivery growth for the third straight quarter.
Our first party channels, which include App and web ordering outpaced third party and rose, 36% higher than a year ago.
We are gaining traction.
Which allows us to both capture important guest data and utilize an efficient method of providing compelling offers to guests.
Our <unk> rewards program another avenue to collect data and guest insights increased membership by 23% versus quarter, three and achieved plus 90% growth rate in 2023 versus 2022.
For del Taco during the first half of Q4, we promoted chicken Taco packs plus carnitas and during the last six weeks, we promoted Bbq brisket, a premium platform, which was well received by guests for its taste and quality.
We were also encouraged by the outperformance of the breakfast day part.
Digital grew to 12% of sales and operating hours improved yet again, but still have more opportunity to regain their pre COVID-19 levels.
New sign ups for our <unk> rewards program increased 11% in Q4.
In the year with over $1 6 million members.
Sales contribution from the loyalty program continues to improve increase.
Increasing five 8% from the prior quarter.
And through our newly launched member engagement features guests can now redeem faster with improved point level tiers to help retention and frequency.
We have made significant progress on our creative marketing strategy in 2023, and I am excited about what the new leadership at del Taco or bring to aggressively compete in the <unk> and Mexican category, while we continue to execute on proven sales fundamentals that Jack.
I'm impressed with our operators the ability to consistently deliver a better and faster guest experience since launching initiatives to support our strategic pillar of driving operational excellence.
We have seen notable improvement in staffing our restaurants with the right people.
Training team members to execute against elevated standards and simplifying our operating systems.
As a result, I was particularly pleased to see that all day parts improve speed of service with Jack delivering the fifth consecutive quarter of at least 10 seconds of year over year improvement.
Service alerts for Jack in the box also improved compared to Q3, and we were particularly encouraged to see improvement in our digital execution as we prioritize reducing friction for our guests via this channel.
We are very close to announcing Jack's new Pos provider with implementation set to begin shortly and system wide completion still slated to take place by the end of fiscal 2025.
By modernizing our restaurant Tech stack that will facilitate cost savings improved back office systems support automation and help us achieve our digital objectives. We believe this technology is the center of our ability to deploy applications that can have a meaningful impact on the guest experience and drive increased sales and profitability.
Our growth potential correlates to our ability to continue growing restaurant profits, which showed significant improvement in fiscal 2023.
During the quarter, Jack improve restaurant level margin by 450 basis points compared to last year, extending our trend of margin improvement to four straight quarters.
Our initiatives to improve margins are making an impact we have rolled out 60% of the initiatives, which as you recall should result in annualized savings of approximately $55000 per restaurant and 200 basis points of restaurant level margin improvement at Jack.
And on that note.
Franchisee profitability improved each quarter throughout the entirety of fiscal 2023.
Part of the improvement was a result of our enhanced internal pricing competency and capability.
Initiatives that we will also look to implement on the del Taco side.
Our approach has been surgical and data driven to enhance profitability and identify areas of opportunity to be competitive.
With that let me spend a moment on <unk> 28, which will certainly affect labor competition within the entire restaurant and retail industry in California.
We are confident in our ability to manage through this helped by our unique franchisee scale in decades long experience operating within the state.
We will rely on pricing.
Margin improvement initiatives and.
And unique guest loyalty in California, where both brands have been beloved for over 60 years.
Switching focus to expanding our reach 2023 was a big year for building our restaurant pipeline, which is critical to our story.
Since launching our JAK development program in mid 2021, we have signed a total of 90 agreement for 389 restaurants at jet.
This includes our market entry into Mexico, and mid 2024, as well as Florida, Arkansas, Montana and Wyoming thereafter.
The latter two markets also include del Taco commitments and we're part of Refranchising transactions completed earlier this year.
Sentiment for growth remains positive from both existing and new franchisees, despite increasing cost permitting and construction delays.
Let me briefly discuss our two newest Jack markets Salt Lake City in Louisville, which were the first new market openings at Jack in the box in over a decade.
We view both of them is indicative of how we are approaching development related to prototype design and building brand awareness before and after entering the market.
We have a strong playbook for how to open new markets, so that the brand thrives.
In fact, I am pleased to report that the four restaurants opened throughout 2023 in Salt Lake in Louisville, with our new creative image prototypes have outperformed expectations.
These four restaurants have averaged over $100000 in weekly sales per restaurant since opening.
While we are already focused on sustaining this performance for the long term.
This certainly confirms that our approach to successful new market openings is seeing very strong results.
We now have three locations opened in Salt Lake city, including a drive through only prototype and plan to have 15 total restaurants by the end of fiscal 2025.
We previously discussed our record setting sales and are seeing sustained performance, even with the digital channels and late night not yet fully activated as will be the common practice for the first few months of restaurant openings.
In Louisville, our first foray into the true white space territory in many years, we have one restaurant opened another opening within the next two weeks and plan to have five total restaurants by the end of fiscal 2025.
I am pleased to report that the restaurant is outperforming our expectations.
We also recently announced that an experienced franchisee within our system has already committed to enter Louisville, which will follow a similar strategy and executing a blend of company owned and franchise restaurants, as we assertively build out the markets the.
The strength of new restaurant performance isn't only limited to those two markets in fact outside of Salt Lake and Louisville, New restaurants opened in fiscal 2023 averaged $2 million in <unk>.
While new markets are certainly a focus.
Outperformance of all new restaurants, including those opened in current territories is key to our overall growth potential.
Del Taco development aided by Refranchising also had a historical year of commitments <unk>.
Generating a 138 total in 2023.
Ill closing the year with net positive unit growth led by 14 restaurant openings.
We made outstanding progress toward del Taco, becoming asset light Refranchising 111 restaurants last year.
There is a clear demand driven path to re franchise approximately 120 restaurants over the next three years, which would get del Taco to over 90% franchised by the end of 2026.
We will continue to utilize refranchising proceeds to create shareholder value via share buybacks debt reduction or other high return investments.
To sum up Q4, and fiscal 2023, we had very solid results and I'm proud of our team for how they executed against our strategy and plan for growth I want to sincerely. Thank our restaurant level team members franchisees and corporate teams at Jack and del Taco for helping make this possible.
There is still plenty of work to do but I'm more confident than ever in our strategy and the outstanding people, we have to help us reach our growth ambition.
I will now turn the call over to Brian.
Thanks, Darren and good afternoon, everyone I am very excited to be part of this outstanding company and working with such a talented and passionate team.
Time here, thus far is only enhanced my confidence that we have a tremendous growth opportunity.
I look forward to working with Darren and the team to clearly articulate our strategy to deliver meaningful and sustained shareholder value.
And I look forward to working with our investment community and seeing some of you at upcoming conferences and events, most notably ICR and our 2024 Investor day, taking place in late January.
I'll begin by reviewing each of our two brands individually followed by details on our 2023 consolidated performance on 2020 for guidance.
Beginning with Jack in the box are fourth quarter system same store sales growth was three 9%.
Consisting of company on comps of four 4% and franchise comps of three 8%.
This included a seven 6% increase in pricing, partially offset by a decrease in transactions and negative mix due to fewer drank attachments and items per check.
Turning to restaurant count for the full year, there were 20, Jack restaurant openings with 15 closures.
<unk> and Jack delivering positive net restaurant growth for the first time since 2019.
We ended the year with 2186 restaurants and have started off 2024 strong with six openings since the start of the quarter.
There are currently 77 restaurants in the design permitting and construction phases, and we anticipate approximately 25% to 35 restaurants to open in fiscal 2024.
Jack restaurant level margin expanded year over year by 450 basis points from 16, 2% up to 27% driven.
Driven by menu price increases as well as the change in the mix of restaurants.
This was partially offset by increases in commodities wage inflation and utilities.
Food and packaging costs as a percentage of company owned sales declined 180 basis points to 38% driven by menu price increases and a positive shift in sales mix, partially offset by an increase in ingredient cost.
Commodity inflation was three 4% for the quarter.
Labor cost as a percentage of company owned sales decreased 200 basis points to 39% due to sales leverage and the benefit of Refranchising, Oregon of Nashville.
This was partially offset by wage inflation of three 8%.
Occupancy and other operating cost as a percentage of company owned sales decreased 70 basis points to 17, 6%.
Franchise level margin was $71 1 million or <unk> 39, 9% of franchise revenues.
<unk> to $74 6 million or 42, 4% a year ago.
The decrease was mainly driven by fewer early termination fees in the current year as well as higher franchise costs for technology investments, partially offset by a franchise same store sales growth.
Now turning to del Taco.
Same store sales declined one 5%.
Consisting of company on comps down one 4% on franchise comps down one 5%.
This was driven by declines in both transactions and mix more than offsetting a six 6% price increase.
We anticipated a tough year over year comp in the quarter with a heavy media spend in the prior year supporting the toward his promotion and that proved to be true.
Although this negative trend continued through October we've had meaningful improvement in November with consistently positive comps.
I guess more recent trend along with the announced changes to our Dell leadership and our revised marketing strategy gives us confidence in our ability to drive positive same store sales growth this year and unlock sustained long term growth for the strong brand that serves an expanding market.
<unk> average check amount was up year over year and the average check number of items per check were down slightly.
Staffing improvements resulted in operating hours running above the prior year with more opportunity remaining on the franchise side running a full hour below pre COVID-19 levels.
For the full year, there were 14 restaurant openings and 13 restaurant closures.
So taco ended the year with our restaurant count of 592.
While Taco restaurant level margin was 14, 8% compared to 15, 9% in the prior year.
Food and packaging costs decreased 220 basis points to 27, 2% due primarily to commodity deflation of two 2%.
As well as menu price increases.
Labor costs increased 210 basis points to 34, 7%, primarily due to three 4% wage inflation.
Occupancy and other costs increased 110 basis points to 23, 3% driven primarily by higher utility and property insurance costs.
Franchise level margin was $6 3 million or 32, 5% of franchise revenues compared to $5 2 million or 42, 5% in the prior year.
The decrease as a percentage of revenue was driven by the impact of increased pass through rent and marketing in connection with our Refranchising transactions.
Shifting now to our consolidated results SG&A for the fourth quarter was $43 7 million or 11, 7% of revenues as.
As compared to $37 5 million or nine 3% a year ago.
The biggest drivers of expense increase were higher incentive compensation and litigation accruals.
Along with a prior year benefit from the chicken settlement.
Consolidated adjusted EBITDA was $68 4 million down from $81 9 million in the prior year.
Due primarily to the impact of del Taco Refranchising.
Higher SG&A and a lower JAK franchise level margin.
GAAP diluted earnings per share was $1 eight for the quarter compared to $2 17 in the prior year.
Operating earnings per share, which included certain adjustments was $1 nine for the quarter versus $1 33 in the prior year.
Our effective tax rate for the quarter was 33, 1%.
Compared to 29, 1% in the prior year quarter.
The primary drivers of the higher rate was the impact of non deductible goodwill on the sale of company operated restaurants.
Our non-GAAP operating EPS tax rate was 29, 7% for the fourth quarter and 27, 2% for the fiscal year 2023.
During Q4, we repurchased 400000 shares as part of our ongoing share repurchase program for the full year, we repurchased one 1 million shares for $90 million.
With the recent expiration of our prior share repurchase authorization. The board of directors has authorized a new share repurchase program for up to $250 million of the company's common stock.
We generated $215 million of operating cash in the fiscal year and ended the year with an unrestricted cash balance of $157 7 million.
These amounts were favorably impacted by a federal and state tax payment deadline extension, which shifted fiscal 2023 income tax payments of approximately $50 million into fiscal 2024.
Correspondingly our uses of cash flow in the first quarter of fiscal year 2024 included a $50 million of tax payments and a $25 million final payment for a previously announced litigation settlement.
As of quarter end, we had available borrowing capacity of $175 5 million net of letters of credit.
Our total debt at year end was a $1 75 billion with our net debt to adjusted EBITDA leverage ratio at four six times.
Our capital allocation plan includes investing in our growth strategy and technology initiatives, along with opportunistic share repurchases, while also returning cash to shareholders through dividends.
To that end last week, our board of directors declared a cash dividend of <unk> 44 per share to be paid on December 28 2023.
Lastly, I'll cover our current outlook for 2024 on.
On a consolidated basis, we are expecting the following <unk>.
Capital expenditures and other capitalized investments of $110 million to $120 million.
Which includes investments in new restaurant openings are re image remodel program.
Franchise, Ti allowances and incentives and increased investments in technology initiatives, such as our new Pos and enhancing our digital platforms.
SG&A for the full year of $165 million to $175 million.
This SG&A guidance excludes any potential impact from coli gains or losses, and any del Taco refranchising occur in 2024.
G&A, which excludes our selling and advertising cost is expected to be two three to two 5% of system wide sales.
Company owned commodity costs are expected to be higher than prior year by 1% to 3%.
Company on wage rates are expected to increase by 10% to 12% versus 2023.
And are impacted by California's new minimum wage law AB 228 effective in April 2024.
Excluding the impact of <unk> 28, we anticipate wage rates will be higher by 3% to 5%.
Depreciation and amortization is expected to be in the range of <unk> $61 million to $63 million.
This DNA guidance also excludes the impact of any del Taco refranchising that could occur during the year.
Our adjusted tax rate is expected to be approximately 27%.
We are currently assuming share repurchases during the year of $70 million to $80 million.
Adjusted EBITDA for the year is expected to be $325 million to $335 million.
And operating EPS is expected to be $6 25 to $6 50.
It excludes any diluted impact from Refranchising del Taco restaurants.
At the brand level Jack in the box expectations include same store sales growth in the low to mid single digits.
25% to 35 gross new restaurant openings with net positive unit growth for the full year.
Company owned restaurant level margin of 21% to 23%.
This assumes price increases of 6% to 8% over prior year, which includes additional price take needed to offset the impacts from AB 298.
Without the impact of avian 12, 28, we expect price increases of 3% to 4%.
And we expect Jack franchise level margin of 40% to 42%.
For del Taco, we are expecting same store sales growth in the low to mid single digits.
Gross new restaurant openings of 10% to 15 with net positive unit growth for the full year.
Company owned restaurant level margin of 14% to 16%.
This includes price increases of 6% to 8% over prior year.
And without the impact of <unk>, 12, 28 price increases would be 4% to 5%.
And finally, we expect del Taco franchise level margin of 29% to 31%.
In summary, we are very pleased to have delivered another quarter of positive performance and made meaningful progress in our strategic pillars.
And with that we'd be happy to take some questions. Operator, please feel free to open up the line for Q&A.
At this time I would like to remind everyone as I wanted to ask a question Press Star then the number one on your telephone keypad. We ask that you. Please limit yourself to one question.
Pause for just a moment to compile any questions.
Again, if you'd like to ask a question. Please press star one on your telephone keypad now.
Our first question comes from the line of Brian Bittner with Oppenheimer <unk> Company. Please go ahead.
Thank you good afternoon.
I have a question on Jack and del Taco So.
To want two quick ones and hopefully you can take them.
On Jack Youre, two new markets in Salt Lake and Louisville are trending at over $5 million <unk>, which is very impressive and I guess, surpassing your expectations. So how does this potentially reshape the near term strategy on powering into new markets for the Jack in the box brand and.
On del Taco the business clearly seems to have hit a soft patch and it's happening at a time Darrin, where you're reshaping the management team at del Taco with trusted partners that you've worked with in the past and Tom and Sarah can you just unpack these changes a little bit more for us how quickly you expect these.
<unk> could impact brand performance. Thanks.
Good afternoon, Brian good to hear from you overall in Salt Lake City, Let me just start there we're incredibly happy with the performance in Salt Lake and in Louisville.
As we've said on the call we've averaged over $100000 in weekly sales amongst those four restaurants and on average they have been opened 11 weeks for those four restaurants. So we some open longer than others, but it is.
Over or outperforming our anticipation and Salt Lake City, we have 15 locations that we should open by fiscal year 'twenty fives were aggressively going in and developing the market alongside with two other franchisees in Louisville, we're opening five by fiscal year 'twenty five and that's just the start of the pipeline as we've recently signed one of our existing franchisees.
<unk> to partner with us to also develop that market and so what we like is we've put together a specific playbook of how to enter the market everything from operations, how we're going to build awareness before and after coming to the market.
How we want to ramp up into digital sales and.
And in late night sales and without any <unk> and so recently one of the first stores that we opened in Salt Lake City that has been one of our highest volumes.
We recently turned on digital overnight sales went up 16%. So we're going to pace ourselves into these markets, but we're very very excited about the way we've entered it we're excited about the playbook that we've.
Used to enter the market and we're going to continue to look for new opportunities like this.
And so let me transition now to your question on leadership.
<unk>.
Let me talk about our business at del Taco, we saw it becoming soft in our guidance last year in this fourth quarter, we knew that we were.
Overcoming a torture promotion late last year that was.
Basically.
We overspent on marketing to promote a new product line and that marketing carried over into this year. So we almost doubled the marketing we would normally spend on a window on our new product introduction. So we knew we had a very tough lap in our comp so we weren't surprised by the negative comp.
Now what I would say is the good news here and then I'll talk about our leadership team is that we are now in a place of positive same store sales and transactions at del Taco in November. So we are seeing with the new product area. The way we've the way we've lapped now that double spend in marketing that we're having.
Positive same store sales and transactions with some of the moves that we've made at del Taco.
I am excited about the team we've put in place a del Taco, we went through our integration.
Tom is a a.
Long trusted.
Partner that I've known in this industry for years, who comes in and as an operator by heart Rolls up his sleeves and is one of the he was at 1.1 of the largest KFC franchisee. So he knows this business inside and out and I call on Tom and I knew this opportunity existed and said you're the first person the only person I want in this role and he accepted thankfully.
And so I'm confident in his leadership and engaging with franchisees and driving operational performance fixing the menu that we have at del Taco to being even more profitable and then I wanted to partner him with two outstanding marketers and same thing a person I have immense trust and Sarah Mcaloon, who came from Pizza hut in my days at <unk>.
Where we work together I made that call in.
She quickly accepted again, two calls and they both accepted solves very grateful and thankful that they did.
And partnering Cerro with Tom a marketer and a great operator, and then putting Orion in touch with them to help execute what we've done at Jack from a brand strategy point I think we've got a really strong team now to focus on sophisticated the del Taco business simplifying it and really driving a marketing calendar that can be effective like we've done it yet last thing I would.
Say about it as a segment patient study is the first one we've done it over five years at Dell. So we're really starting to understand our customers like we did at Jack.
And we think that we have.
Have an opportunity to position ourselves with high quality food and the <unk> Mexican space, where we can compete effectively.
Thank you.
Our next question comes from the line of Lauren.
<unk> with Deutsche Bank. Please go ahead.
Hi, Thanks, so much I wanted to ask about traffic to the guide for next year for low single to mid single digit comp seems to imply negative traffic in 'twenty four and can you just talk about how youre thinking about traffic next year and what youre seeing in the environment and any additional color on what Youre, saying, Cynthia Murray Jack management would be helpful. Thank you.
Yes, good question Lauren.
This is one that we really contemplated do we provide guidance here on price or not because what we did is we decided to guide price for company only.
And the same store sales guidance for the system and as you know we wanted to try to give some better visibility on what the company impact would be because we have such a large presence in California with AB <unk> 28, and the reality to the reality of it is and I think most of the industry are not exactly sure how it's going to perform so although we're guiding six to eight weeks.
<unk> pricing for the company because the majority of California, what we're sharing is we need that to overcome the wage inflation. That's really the story there and so how transactions respond we will continue to keep you updated.
If we think there'll be some transaction decline, but when we're guiding system sales was more for the system versus just just for four.
The company.
Okay.
Our next question comes from the line of Gregory Frankfurt with Guggenheim Securities. Please go ahead.
Hey, Thanks for the question, maybe just a follow up to that.
Can you talk a little bit about what price elasticity has looked like more recently.
My understanding is you've taken four or five points less versus 2019 compared to Mcdonald and since you've under priced them pretty substantially but looking at even extra California increase.
3% to 5% next year, what gives you confidence that consumers may be not pushing back to that or how would you adjust.
If the environment changes at all.
We've really invested in our pricing team over the last year and a half in our tools and technology to go in and be surgical and data driven in how we price. So I think we had at Dell and Jack they'll also take on this.
In 2020 for the same tool book and tool and playbook, but the bottom line is we've proven that we can surgically take price and find out where theres opportunities by store by market and really try to find how to.
How do we reach our guests in the right way and so.
It's challenging in an environment that's unknown, we definitely have seen.
Some some softness at del Taco and the lower income consumer we're still performing on the higher income consumer at Jack We're also seeing.
More of an even performance across all decile of income.
And so overall, what we believe is that with the <unk> 28, and what's happening in California, that's where the real price elasticity concern comes in and we believe that our loyal guests and our Homebase state will continue to come back to Jack and Dell and and we believe that to be the case.
Thank you.
Our next question comes from the line of Andrew Charles with TV Cowen. Please go ahead.
Great. Thanks wanted to learn a little bit more about one of the missing pieces around the refranchising activity for del Taco is expected next year. I know you guys are on track to get 120 more stores your franchise to return to.
90% franchise mix by 2026 key help shape up what next year will look like this year will look like relative to what you did in 2023 or just any other guidepost as we think about the cadence of Refranchising for del Taco.
Yes.
We guided to 120 over the next three years because.
Now we have very strong demand, even with the external environment with interest rates and <unk> 28, Jack franchisees and even outside franchisees have shown real interest and Dell and so we feel really good about that.
And we're going to continue to update you just like we did this year, we'll use our proceeds accordingly, as we've laid out with for share repurchases or debt repayment.
But we believe at a minimum there is somewhere in the neighborhood of 30 to 40 that will do this year and the real lever here is do we find the right operator, that's well capitalized that wants to develop and as you saw US do last year. If we find that we will go faster if not we've given you guidance that will pace it out over time.
And keep you updated along the way as we did in 2023.
Thanks, Dan.
Yes.
Our next question comes from the line of Dennis Geiger with UBS. Please go ahead.
Great. Thank you and Darren and Brian Thanks for the commentary on the details on development and how the pipeline looks right now.
Just wondering if you could talk a little bit more about the development growth plans late.
Latest on franchisee development, which I think you said was favorable anything on sort of how that's trended through the year.
And I guess importantly, anything on sort of tie.
Timing updates as it relates to pressures on development has that done anything from a from a timeline perspective.
Over the next couple of years as you think about that growth trajectory and sorry to ask.
So many but just the last point anything on closures next year. So we have a better sense to think about.
What net development looks like in 'twenty four thank you.
Yes, So let me start with the last question on closures.
We're not providing guidance there what I would do if I may.
In your shoes is look back over history, and I think Jack has been pretty consistent over time at the number of closures. We limited some of those in 2023, but but overall I think thats a fair estimate as we try to anticipate future closures as you look somewhere in that.
14% to 20% range as you think about historical closures, it's always range somewhere in that neighborhood and so thats not a guy that's just to tell you that's just history.
And then as we look at our guide into next year, we're guiding to 25% to 35, Jack openings and 10 to 15 del openings and we now have a pipeline 90 development agreements with 389 commitment to Jack <unk>.
77 of those in design and permitting and Theyre actually we can actually see the pipeline now and what's in design and permitting versus three years ago. So we're actually able to manage a pipeline and now Dell with the number of Refranchising transactions. We added 109 commitments just from that alone and now we have 138 commitments at Dell for future <unk>.
<unk> that also helps us build a pipeline to get visibility into it for 47 locations now and design permitting and construction phases. So we feel good that we have a pipeline now that we can actually manage and we will continue to build that over the next year I think the last thing I would add is I think the entire industry has been pretty consistent in his statement that.
We have seen costs rise. So we have a value engineering program in place to reduce the 20 or 30% that we saw increases some of Thats from size of the building and then also we've got to figure out ways to take and make this process more efficient because we've definitely seen through COVID-19 and post COVID-19 that some.
The delays in some of our missed this this quarter on the guide those stores just got delayed.
Supplier labor and pushed into this year. So we definitely saw that happening we've opened quite a few at the first month of this year.
Thanks Darren.
Our next question comes from the line of Sara Senatore with the Bank of America. Please go ahead.
Thank you I just wanted to ask about the <unk>.
The investments Youre, making in terms of.
And the allowance taken in Shannon So I was just.
Wondering if you could quantify I guess in terms of the amount the total one Ken calendar 'twenty.
The difference between 2020 for guidance and the Capex from 2023, and then maybe talk about the.
Impact on franchisee returns are you targeting like a specific payback period.
Have thoughts on maybe like what growth.
It would look like if you didn't operating financing China you understand that.
The philosophy behind that thanks.
Yeah, Hi, this is Brian.
On the on the increase in our guidance for overall Capex and investments.
Across a few different areas.
As we look at that.
New store opening guidance for 'twenty for part of it is driven by our investment in new stores and so does that is that is ramping up.
With our own operators.
Charlie and as well with our franchisees that's an increase as I also mentioned that we're investing more in technology with our new Pos expect to start rolling out in 'twenty for continued investments in digital rolling out our ERP. So theres a variety of different really important technology investments that we think will generate material returns over time that stepping up.
And then there's some increase in the Ti allowance incentives, but it's not the bulk of that increase.
But what do you think those are important to be able to.
Keep our franchisees not only investing in remodels, but also keeping them focused on that.
As quickly as possible.
To add to your question about payback I mean, what we're seeing right now in our build cost we want to get our build cost to around one eight to $1 9 million.
And with some of the value engineering, we anticipate that occurring in 2024.
So from a payback standpoint, our target is always to try to stay under five years.
It's really going to be dependent as you know on sales and what it cost to build and we've seen some of that escalate cost wise and we brought that down into 2024. So we think that will help our returns and then with the with what we've performed in say Salt Lake in Louisville, and the sales outperforming we've seen outperformance in all of our openings not just in Salt Lake.
In Louisville, we seen at north of $2 million in the stores that we've opened so we've had successful openings as well. So we think we're in a place to have.
<unk> continued to attract franchisees to grow.
Even in this environment as we navigate last 20 twos.
<unk> environment that we are still working through.
Okay.
Okay.
Our next question comes from the line of Alton Stump with loop capital. Please go ahead.
Great. Thanks for taking my question.
I was pretty encouraged by your guidance for low to mid single digit does at Jack in the box.
Comparable sales for this year, given the fact that obviously you'd be up against a pretty tough compares I guess, how much of that confidence is coming from the fact that you obviously are going to have to take higher pricing, mainly in California, with AB <unk> 28 versus underlying transactional improvements in your business.
Okay.
Yes, I think for us what we've we've really focused on is.
Do we have the right calendar in place do we know how to reach our customers in the right way and because right now with what's going on in California, It's really hard to predict what really will happen with sales. So we're focused on how do we reach our customers. How do we provide them service and the way that we need to and really that's about we've seen things like speed improve.
Year over year by <unk> that help sales or alerts are down since Q3.
All of that.
We will help us now to add color what I would say is we think we have a good pipeline of products coming in this year to get better what we have to do is be able to reach our breakfast customers better that's a little bit of the category. This quarter that we struggled in both breakfast and value. So we'll make sure that we have the right offers for.
Those that are looking for checks under $8 and we'll have the right offers to drive some transactions. There. In addition to really focusing on how do we how do we continue to bring back breakfast and breakfast was our slowest day part I'll add some color here.
And this last quarter, mostly because we deleted items, we were youll simplifying the menu, but although is good for margins it hurt sales.
Helps simplicity in margins, which we wanted to do for our franchisees, but by removing biscuits, a burrito, a sourdough sandwiches and salads, we definitely we impacted sales this quarter.
Yes.
Great. Thank you Dara.
Yes.
Our next question comes from the line of David Tarantino with Baird. Please go ahead.
Hi, good afternoon.
My question coming back to the pricing philosophy that you have I know Darren you mentioned that the price increase you're assuming.
For this year.
What you need to cover the inflation, but I guess with traffic running negative I Wonder if you could just share your philosophy.
On your thoughts on protecting the traffic versus covering inflation I know, it's a tricky balance but.
Why not for example, say glass pricing in order to protect the traffic and maybe the long term business model I guess could you just kind of walk us through your thought process on that.
I think the real answer is it's balanced so we wanted to provide you a guide on what we need to just purely cover the.
The cost of the wage inflation in California, and that's what we tried to guide to we will be watching it as I said with our pricing discipline to understand where is the right place to take price at the right time, so that we can limit as much as possible any traffic declines.
And on top of that we are aggressively continuing our efforts to drive other operational improvement. So anywhere we can create more efficiency within the stores, whether it's labor or food cost that will also help reduce the need to increase price as well so and we're just really excited about the innovation of our menu and making sure we.
Our consumers want to come to us and so I think as we look at our calendar and some of the innovation we have coming out. This year, we feel very confident we can continue to drive improved traffic as well.
One of the things Brian mentioned it that I'm most proud of in this quarter as we improved it by 400 basis points, our franchisees have seen three quarters straight of improved margins. So the initiatives we've been rolling out in the 200 basis point initiatives have been starting to take hold in the stores and so the next step is to continue with price.
Watch traffic make sure we have the right calendar, but also help our franchisees make more money by following through with what we call our financial fundamentals planning now that Tom is that Dell Heath.
He follows the same playbook that we follow it Jack and strategy and he is putting in place the same initiatives.
That are particular to bill so that we can balance all aspects of this of the business not just topline on transactions.
Got it thank you.
Our next.
She comes from the line of Chris I'll call.
With Stifel. Please go ahead.
Thanks, Good afternoon guys.
Darren you mentioned product innovation is going to play an important role again this year or next year, I guess and I believe the company has indicated a new major product may be introduced next year is that still the case and is there any kind of and if so is there a prior new product that may be a good analog to think about.
For this product and maybe help us understand what aspects of it make it a good comparison.
Yeah, the core Jack historically of innovation right. We were one of the first breakfast first drive through and so we've got a lot of things in test, we're getting closer to rolling out that product that I think is differentiated in the market and we're excited about it coming but we're not ready to announce it yet, but we have plenty of new items.
In our calendar coming for this year and the first one I will say is things like we just we just rolled out <unk>. This week and I think we are the first <unk> rollout boba and it's a great product. We're excited about what is done in test and it just over the weekend was the first entry of <unk> into our calendar. So we will continue to do that as well as introduce.
Really.
Really good innovation to the marketplace on things that fit Jack specifically.
Thanks.
Our next question comes from the line of Alex Slagle with Jefferies. Please go ahead.
Hey, Thanks, I wanted to ask a question on the operation side of things with speed of service, which has always been a big driver of same store sales for the brands.
We made some good progress in recent quarters here, so trying to figure out kind of where you think you stand now versus peers, where do you think it can go and where we're the biggest catalysts could be to make that happen I'm not sure if it's coming from lower tiers.
Stores were a bigger source of improvement could come from or just broadly across the whole system.
Yes, I think things like.
Performance at the op level I think there is two key areas that we have still opportunity to improve and it's with our staffing, which we're now at pre COVID-19 levels at Jack almost there on the franchise side of the business.
It's really an area of late night make sure we're staffed appropriately at night.
So that we can drive out speed of service at the right times and then it's how we balance our labor scheduling we've got.
New.
Way that we're scheduling labor so that we can be most effective at the times, where we need the labor. So we can hit our speed of service numbers.
And then what I would say from an alert standpoint.
Both speed of service and alerts or things that are indicative of same store sales performance.
We have an opportunity in our third party and our online orders to get better at execution of our business model and so we will look to say how can we now that we're about 12% of sales in digital.
Four years ago, we were at 1%. So we've got to figure out better ways that we can execute on that digital business and those two are the key areas from a performance standpoint that we can improve on.
Great. Thank you.
Our next question comes from the line of Jeff Bernstein with Barclays. Please go ahead.
Great. Thank you very much.
Think about the initial fiscal 'twenty four guidance specifically on the earnings side I'm just wondering what do you see the greatest uncertainty Darren I think you mentioned, the California pricing. It was kind of a big unknown from an analyst perspective, but I'm just wondering where you think you're most conservative maybe more aggressive.
How are you thinking about that guidance.
And then just to clarify I think you mentioned down that your franchisee profitability has improved consistently over the past number of quarters I'm wondering whether you ever share.
We're starting a new fiscal year, whether you would share the annual franchise level profitability at each of your two brands for this year versus fiscal.
Fiscal 'twenty three versus fiscal 'twenty, two because so we could have a gauge for expectations going into fiscal 'twenty four thank you.
Sure I think from our standpoint, I think the thing that we have to look at is really focused on.
How do we support our franchisees in.
In California during 2028, and then like Brian said as Thats not only.
Price, it's operational direction, and how do we help them take margin opportunities and improve on their business and so that's where I think in our guidance.
It gives us the most.
I would say to your question discomfort.
Not as knowledgeable about what's truly the outcome.
And then from a standpoint of margins at Investor Day, we will consider.
Exploring communicating our margins and whats happening with franchisees P&L and what we anticipate new store returns to be.
Especially after last year in 'twenty two.
Having so much inflation and not fully recouping all of that yet we're still on pace to do that but.
At both brands, we have not fully recovered from all of the margin loss in 2022, and so but our franchisees' P&L.
Have improved they're making the same dollars that they were making.
Two years ago, just not the same percentage yet we wanted we wanted to be able to do both and actually improve their margins.
Yes, I would agree I would just add.
The topline is that one obviously that will continue to.
Monitor and that price trend mix.
Outside of that.
Really good line of sight on our G&A at the controls there and I feel like we've got a really good strategy is continuing to integrate del Taco and gained more synergies in 2024.
And on the commodity side, we've got good line of sight there.
And same thing on that on the wage side, we have a good sense improving labor markets are kind of outside of AG 228, we're seeing improved ability to staff in.
In the stores and so I think we feel really good about our ability to control kind of everything below the top line and then obviously, we can to make sure we maximize our sales.
Our next question comes from the line of Jake.
Bartlett with tourists Securities. Please go ahead.
Great. Thanks for taking the question in your mind is really a clarification on the guidance and I believe I'm just correct, if I'm wrong here, but I believe the guidance specifically says.
Excludes the impact of Refranchising. So it assumes no del Taco Refranchising, but you do think there's going to be some refranchising.
And I think you mentioned a minimum of 30 to 40, just to just to make sure I got that right.
Maybe if you can help us.
In terms of G&A per store per.
D&A per store, how should we if we were just kind of build in refranchising any any kind of.
Guidelines for guideposts, as we try to do that.
Right.
So.
I'll start and I'll, let Bryan finish our focus as I said is 120 restaurants with arrive in three years and get to 90% franchise by the end of 2026 and so although we think this is not a guide we think will do at a minimum 30 to 40, if we're not finding the right operator or the right deal.
We'll slow it down but.
The other thing is like we did this year in 2023, we sped it up because we had great deals great operators and the right prices and these transactions were accretive so I'll, let I'll, let Brian add to that.
Yes.
We did not we did not included in the guide because we just don't have perfect line of sight to the timing and the magnitude of the impact so I need to get back to you on that DNA impacts I will make sure we try to circle back on that before I finish the call here. So we can do this.
Some color on how that may influence itself.
I think we've talked about in the past here when you think about the refranchising.
Tradeoff of obviously sell in EBITDA, we pick up royalties, if we use the proceeds to repurchase shares we pick up earnings benefit from that will reduce our field G&A over time as well and then what's really important is that we have strong operators that we're refranchising with whether existing or new so that we can add.
More development agreements that we think is really important to driving long term accretion to the business beyond the benefits of being asset light.
That's a really important strategy. So I'll circle back with you on the automotive on that on the DNA just as an estimate it obviously varies by store.
Great.
There's a little bit of guidance in terms of what you provided last year in terms of the the first 120 stores, but I guess.
Is that relevant for the next 100 stores or is that something we should kind of used as a guide.
Yes, we will update it I think thats the basic guide I would use until we updated at ICR.
Okay, alright, thanks, so much.
Yes.
Thanks.
Our next question comes from the line of Chris <unk> with RBC capital markets. Please go ahead.
Okay.
Hi, Thanks for taking the question, Brian I think you briefly just referenced this but can you provide any more insight on synergies from del Taco is there anything you can point to with regard to opportunities around G&A supply chain or any other areas you can point to.
Yes on the G&A side, we are still working through some areas, where we can consolidate we will get more operational efficiency through consolidating more of our systems. So there's a lot of work that's already been done that in the back half of fiscal 'twenty three that you'll see the flow through into 'twenty four so I would say that.
Biggest.
Our efforts have already actually been accomplished it's just it'll you'll you'll see it in the full year 2004 numbers and then they all Darren on the.
And on the commodity side and the other I think maybe.
We didn't cover that.
We have seen us obviously.
We've guided to commodity cost.
And.
Those commodity costs include some of the benefit from our purchasing and scale.
That we've received at both Jack and del Taco. So those synergies numbers are in there we will exceed our.
Our synergy numbers that we targeted when we made the del Taco acquisition in 2024.
What will be north of $15 million and EBITDA benefit as a result of that and a lot of that has been picked up in commodity costs already but some of it is in overhead and other areas like public company cost and and then we still think there is a benefit as we finish our enterprise system and the <unk> area and we get shared systems.
Pass over.
Both brands over the next couple of years, Yes, one last thing I'd mention is in fact, you look at our G&A guide, which is to get the full year, we actually expect to exit 2004 on a slightly lower run rate of G&A. Then we're starting to get a good example of how we're still extracting more benefits from that from integrating the companies.
Okay.
Great. Thank you.
Our next question comes from the line of Brian <unk> with Morgan Stanley. Please go ahead.
Yes.
Yes, thanks, good afternoon.
Understood.
Clarification question on the pricing I think that the number of U S.
For Jack in the box for the fourth quarter I think it was similar to the prior quarter. If I heard that correctly I thought there was kind of some pricing roll off. So I guess my question was just did you already take kind of some new layer of pricing and then.
As you think about that that 6% to 8%.
I'll come right when the wage change happens or how should we think about that from a timing perspective.
Are you asking on the company owned side or the franchise side Brian.
I believe the number you gave was on the company owned side just company Okay.
Okay.
Yes, I mean, we've balanced that.
<unk>.
We typically balance it and we've taken pricing throughout the year.
And so we.
We will continue to do that and take it over time, except for in California, We will ramp it up a little more aggressively.
Prior to April.
So we definitely will look at taking price at the right times across the board.
Last year, we took price more frequently typically we take it quarterly but we'll take it when we need to.
As we do that over the next year.
Thanks.
Our final question comes from the line of Jon Tower with Citi. Please go ahead.
Great. Thanks for squeezing me in.
I guess, just going back to the breakfast conversation earlier it does sound like.
Darrin, you're emphasizing the need for checks under $8 there.
And it sounds like in the period.
Some items being removed hurt the sales. So one was that specific to the fourth quarter, meaning it didn't happened in the prior periods.
Persist going forward and then two how do you think about balancing the need to drive traffic at that day part.
Without compromising profits at that day part is there something else you can do with respect to labor management.
During that.
Time of day in order to ensure that profit stone.
Continue to kind of sync during that day part.
Yes, I think thats one of the reasons why we removed items, we actually had a margin lift I, removing some of those items and even though we had a sales decline. So that's exactly part of the strategy. We're looking at I think we're taking a look at where some other ways that we can increase value during that day part I know often times when the market gets.
Economically breakfast is one of the first things that may disappear quickly and so we want to make sure. We're offering the right value offers at the right time and for US. We also saw last year. At this time, we ran for its <unk>, which is always a hit for us and we tried to do a new breakfast rollout with our breakfast Taco and quite frankly it didn't.
Okay. It really didnt move the needle and so between removing items, having the breakfast Taco.
And some innovation there we just didn't have the right offer at the right time, and so but margins did improve even though we were down or were flat and sales at the breakfast day part.
Great. Thank you.
I would like to thank our speakers for today's presentation and thank you all for joining us.
Today's call and you may now disconnect.
I would like to thank our speakers.