Q1 2025 Jack in the Box Inc Earnings Call
Thank you for standing by and good day everyone. My name is Arzi and I will be your conference operator today. At this time, I would like to welcome everyone to the Jock-in-the-Box First Quarter 2025 Earnings Webcast.
All lines have been placed in mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. If you would like to ask questions during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you.
Speaker Change: I would now like to turn the call over to Chris Brandon, Vice President of Investor Relations. Please go ahead.
Chris Brandon: Thanks, Operator, and good morning, everyone. We appreciate you joining today's conference call, highlighting results from our first quarter 2025. With me today is our new Interim Principal Executive Officer, Lance Tucker, as well as Don Hooper, who will again serve as our Interim Principal Financial Officer.
Chris Brandon: On the heels of recent company events related to yesterday's leadership announcement, we will be taking a limited number of questions from our covering cell site analysts than usual following our scripted remarks.
Chris Brandon: Note that during both our discussion and Q&A, we may refer to certain non-GAAP items.
Chris Brandon: please refer to the non-GAAP reconciliations provided in the earnings release which is available on our investor relations website at jackinthebox.com
Chris Brandon: We will also be making forward-looking statements based on current information and judgments that reflect management's outlook for the future.
Chris Brandon: However, actual results may differ materially from these expectations because of business risks.
Chris Brandon: 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.
Chris Brandon: 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.
Chris Brandon: And with that, I'll turn the call over to Lance Tucker. Lance.
Thanks, Chris, and I appreciate everyone joining us today.
Chris Brandon: As Chris said, this will be a fairly abbreviated earnings call relative to what you're used to.
Chris Brandon: and what will be our typical call going forward. But here's what I'd like to accomplish.
First, a few thoughts on yesterday's announcement regarding Darin's departure.
Chris Brandon: Second, a high-level recap of the first quarter and what we are seeing thus far in Q2.
Chris Brandon: And lastly, some remarks about our future as a brand and my commitment to continuing to build off of a strong foundation of growth while assessing and evaluating how to best maximize our long-term potential.
Speaker Change: To start, I'd like to say a very genuine thank you to Darin Harris and note a few of the major accomplishments from his tenure.
Chris Brandon: Over the past four years, under Darin's leadership, the company has navigated the COVID-19 pandemic,
Chris Brandon: made much-needed investments in the company's tech stack, making both brands much more formidable digital competitors, developed the needed resources to grow the new unit pipeline.
Chris Brandon: strengthened the company's relationship with its franchisees and built an extremely talented leadership team.
Speaker Change: The Foundation is now in place with a major reason I wanted to return to Jack in the Box.
Speaker Change: and we are very well positioned to deliver the long-term shareholder value our investors expect and we know the brands are capable of.
Speaker Change: On behalf of the Jack-in-the-Box and Del Taco families, I wish Darin the best as he moves on to the next chapter of his career and have no doubt he will find continued success.
Speaker Change: Before I provide some additional thoughts on our future, let's spend a couple of moments on the first quarter as well as an early look at what we are seeing quarter to date.
Speaker Change: I am pleased with Jack's Q1 results as we were able to battle through a difficult macro environment affecting the category as a whole.
Speaker Change: I credit our outstanding franchisees and operators for their continued perseverance through a challenging backdrop to deliver positive same-store sales and sequential traffic and mixed improvements for Jack in the Box.
Speaker Change: Jack ran same store sales of positive 40 basis points for the quarter.
Speaker Change: Despite the California wildfires and unusual weather in the Texas and Midwest regions in the final two weeks of our first quarter.
Speaker Change: The combination of these had an approximate 20 basis point negative impact on our Q1 safe store sales.
and Chris Brandon. Thank you. Thank you.
Speaker Change: As with others in the industry, traffic and macro pressures persist, so it likely won't come as a surprise to hear that there are more headwinds than tailwinds for us thus far in the second quarter.
Speaker Change: We are running negative quarter to date and expect a negative Q2 same-store sales result for both brands.
Speaker Change: With that said, we have a strong marketing calendar and will stay the course in executing on our barbell strategy, value leadership, and digital evolution to drive sales.
Speaker Change: Back to Q1, there were five restaurant openings and six closures in the quarter. Jack is still expecting to open between 35 and 45 restaurants for fiscal year 2025, including openings in Chicago this summer and Florida later in the year.
Speaker Change: Jack's restaurant level margin percentage in the quarter was essentially flat year over year at 23.2% helped by the completion of our new beverage partner contract.
Speaker Change: While we do expect this to be a tailwind for the remainder of the year, about 3 million dollars or 200 basis points of the positive impact you saw on restaurant level margin in Q1 should be viewed as a one-time benefit.
Speaker Change: For Del Taco, there's another challenging quarter with pressured same-store sales results, and Del is also expected to post negative same-store sales in the second quarter. With that said, we have seen an encouraging start to the menu optimization initiative, which rolled out system-wide in the middle of the first quarter and has driven higher attach rates and better average track.
Speaker Change: Del Taco restaurant count at quarter end was 589 with one opening and six closures during the quarter. Del Taco expects to be within our original guidance of opening 15 to 20 restaurants this fiscal year. We refranchised 13 restaurants in the first quarter bringing Del Taco to approximately 80% franchise owned.
Speaker Change: Operating earnings per share, which includes adjustments for certain items, was $1.92 for the quarter versus $1.95 in the prior year.
Speaker Change: During the quarter we repurchased 124,000 shares of our common stock for five million dollars. As you saw in our annual guidance updates in the earnings release, we do not anticipate further repurchase activity for the year and will instead use excess funds to reduce leverage.
And on that note.
Speaker Change: I would like to make a couple of comments about our 2025 guidance.
Speaker Change: Despite the more difficult start for Q2 same-store sales, we are maintaining our annual same-store sales, operating EPS, and adjusted EBITDA guidance based on our solid Q1 results.
Speaker Change: There are, however, two items that are being updated. First, the aforementioned share repurchase allocation that was previously $20 million will now be $5 million in total for the fiscal year, all of which was executed in the first quarter.
Speaker Change: and second, an updated capital expenditure range of $100 to $105 million for the year, representing a slight reduction as part of our ongoing assessment of capital investment.
Speaker Change: As many of you will recall from ICR, my first order of business upon returning to Jack-in-the-Box was to evaluate our capital allocation.
Speaker Change: With just over a month under my belt, I am mid-process in my evaluation and anticipate announcing further free cash flow acceleration opportunities in the near future, likely on our next earnings call in May. So stay tuned on that front.
Speaker Change: In closing, and before we take your questions, I want to briefly make a few observations from my brief time back here at Jack in the Box so far.
Speaker Change: First and foremost, I believe we have the right leadership team and tremendous upside to drive the company forward. I feel so fortunate to be stepping into this situation surrounded by an extremely talented and driven team.
Speaker Change: Second, we are fundamentally well positioned to draw sales and expand our brands while efficiently allocating our capital in a way to draw our shareholder value.
Speaker Change: And lastly, while there is certainly work and assessment to do at both brands to maximize what they can ultimately become, the foundational investments made over the past several years were the right steps to set up the company for future success.
Speaker Change: It's been great getting back in touch with many of you within the investment community, including several sell-side analysts that I've gotten to know quite well over the years.
Speaker Change: I'm looking forward to working with you again. I'd also like to thank the Board of Directors Jack-in-the-Box for the opportunity to return and play a significant leadership role within Jack at a time when I believe our upside and ability to create shareholder value is tremendous.
Speaker Change: And lastly, thanks to all of our restaurant and corporate team members, along with our franchise partners across both brands, for the passion that they bring every day to serving our guests.
Speaker Change: Thanks again for your time this afternoon. Operator, please open up the line for questions.
Speaker Change: 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, and we advise to please limit your question into one. We will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Brian Bittner from Oppenheimer. Please go ahead.
Brian Bittner: Thanks, thanks for taking the question. Lance, I just wanted to kick off the Q&A with a high level strategic.
Speaker Change: question for you. As you came into the role of CFO, you
Speaker Change: You suggested you were going to bring a sharpened focus to capital allocation and cash flow, and I noticed a slight reduction to CapEx guidance for this year.
Speaker Change: Is that just a sign of more to come in your journey to improve free cash flow? And secondly, can you help us understand
Speaker Change: your priorities for capital allocation and where debt reduction stands. It just seems like you talked a lot about creating shareholder value and with equity value as a percentage of where it is today, it seems like paying down debt could be a big unlock moving forward.
Speaker Change: Thanks for the question Brian. You know I'd say a few things on this front and you said it exactly right when when I came into the role at CFO job one was to look at capital allocation where are we spending our dollars.
Speaker Change: So, you know, obviously only having been on board a little bit over a month, there were kind of a couple of fairly quick decisions that could be made to slow CapEx down just a little bit, move away from additional share repurchases right now, when in my mind we should have some higher priorities.
Speaker Change: So, we've done those things, but I guess to put a little finer point on it, yes,
Speaker Change: There will be more to come, most likely in May, as I said in my remarks already, around other things we're going to do to try to unlock free cash flow and speaking directly to leverage.
You know, I agree with you, there's...
Speaker Change: places we can put our capital, we'll make sure we're investing in the right places and in the right amounts to drive growth and make the foundational investments we need to. But with that said, bringing the debt down a little bit most certainly would be an unlock that we're going to be looking at very hard.
Speaker Change: Your next question comes from the line of Lawrence Silberman from Deutsche Bank. Please go ahead.
and then.
Lawrence Silberman: Thank you so much. So I just wanted to follow up on Brian's question and then I have a regular question. The capital allocation...
Brian Bittner: Jack had previously talked about ramping company store openings in certain markets. How are you assessing that strategy and whether that's the right use of capital?
Brian Bittner: and then my actual question on the consumer environment. It's obviously been a challenging start to the year. Can you just talk about how you're thinking about the sales strategy for the rest of the year across both value and menu innovation and your ability to reaccelerate comps in the back half of the year? Thank you.
and Chris Brandon. Thank you. Thank you.
Brian Bittner: Sure. So, on company store builds, I do think there is a place for company store builds and there are some places where we're going to be investing alongside franchisees, particularly in new markets. With that said, I think we, you know, we're an asset-light company.
Brian Bittner: and the plan is not to be leading the growth with corporate bills, the plan is to do them
Brian Bittner: You know, more as a complement to some of what's happening out there with the franchisees. So I don't want to get too far ahead of myself as far as giving numbers so I'm not going to do that but what I will tell you is I would expect
Brian Bittner: company bills to be more of a strategy we use to really seed a little bit and complement what the franchisees are doing, not as the way that's going to be the leader of the growth, the jack-in-the-box. If we're doing that, asset-light's not really what we're doing.
relative to sales and the consumer.
Brian Bittner: Obviously we're seeing the same things that everybody else in the industry is seeing right now with the consumer, but I do think we're well positioned as we look at the rest of the year. We've got a good calendar, we've got good innovation.
Brian Bittner: We've got value where we've always been a leader. Our digital capabilities are growing literally by the day with the investments that we're making and the work that Doug Cook and his team are doing on the IT side. So I certainly believe as we look towards the rest of the year.
Brian Bittner: The goal really becomes, let's re-establish the fairly positive momentum we had coming into the year and try to get this thing going positive again.
Thank you.
Speaker Change: Your next question comes from the line of Gregory Frankfort from Guggenheim. Please go ahead.
Speaker Change: Hey Lance, thanks for the question. I guess I'm curious, you've got a lot of experience in the restaurant industry.
Speaker Change: I'm curious what your thoughts are on kind of the environment that we've seen so far to start 2025. And my impression is that Jack is actually maybe outperforming, even if you guys are down, maybe outperforming the industry. Is that true? And maybe what would you attribute that to, if that's true?
Speaker Change: It'd be hard for me to say whether we're outperforming in history or not, what I can tell you is that I think we're seeing some of the same pressures and I
Speaker Change: I think without going into tremendous detail, the consumer is showing you that.
Speaker Change: They are a little bit nervous. I mean even the consumer confidence report that came out this morning Very much emphasize that the consumers just being a little bit cautious So I think that's really what we're seeing more than more than anything else I mean, there's certainly smaller things probably but from a jack-in-the-box standpoint
Speaker Change: You know our fundamentals are good. We have the right menu. We have the right levers that we can pull And I think that's why you're seeing us
Speaker Change: Again, without comparing ourselves too much to others, that's why you're seeing this.
Speaker Change: continue to compete and do about as well as anybody else does.
Speaker Change: Again, if you would like to ask a question, press star 1 on your telephone keypad. Your next question comes from the line of Anirudh Charles from TD Cowen. Please go ahead.
Hello, Andrew, are you still there? Maybe you're on mute.
Speaker Change: That's all for our Q&A session and we appreciate your participation.