Q2 2025 Jack in the Box Inc Earnings Call

Thank you for standing by my name is Rebecca and I will be your conference operator today at this time I would like to welcome everyone to the Jack in the box second quarter 'twenty 25 earnings webcast conference call. All lines have been placed on mute to prevent any background noise.

Rebecca: Thank you for standing by. My name is Rebecca and I will be your conference operator today.

Rebecca: At this time, I would like to welcome everyone to the Jack in the Box second quarter 2025 earnings webcast conference call. All lines have been placed on 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 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 star one again. Thank you.

Speaker Change: After the Speakers' 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 Star. One again. Thank you I will now turn the call over to Chris Brendan Vice Pres.

Chris Brandon: I will now turn the call over to Chris Brandon, Vice President of Investor Relations. Please go ahead. Thanks, Operator. And good afternoon, everyone.

<unk> of Investor Relations. Please go ahead.

Chris Brendan: Thanks, operator, and good afternoon, everyone. We appreciate you joining today's conference call highlighting results from our second quarter 2025.

Chris Brandon: We appreciate you joining today's conference call highlighting results from our second quarter 2025.

Chris Brandon: With me today, our Chief Executive Officer, Lance Tucker, our Interim Chief Financial Officer, Dawn Hooper, and our Chief Customer and Digital Officer, Ryan Ostrom. Select second quarter results were pre-announced on April 23rd as part of our Jack on Track plan announcement. Feel free to refer to the press release and conference call, which took place that day, for additional commentary related to the pre-announced message.

Speaker Change: With me today are Chief Executive Officer Lance Tucker.

Chris Brendan: Our interim Chief Financial Officer, Don Hooper.

Ryan Ostrom: And our chief customer and digital Officer, Ryan Ostrom.

Ryan Ostrom: Select second quarter results were pre announced on April 23rd as part of our Jack on track plan announcement.

Ryan Ostrom: Feel free to refer to the press release and conference call, which took place that day for additional commentary related to the pre announced metrics.

Chris Brandon: For this reason, today's prepared remarks will be fairly brief.

Ryan Ostrom: For this reason today's prepared remarks will be fairly brief.

Chris Brandon: Following the prepared remarks, we will be happy to take questions from our covering self-cite analysts.

Ryan Ostrom: Following the prepared remarks, we will be happy to take questions from our covering sell side analysts.

Ryan Ostrom: Note that during both our discussion and Q&A, we may refer to certain 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.

Chris Brandon: Note that during both our discussion and Q&A, we may refer to certain non-GAAP items. Please refer to the non-GAAP reconciliations provided in the earnings release, which is available on our investor relations website at jackinthebox.com. We will also be making forward looking statements based on current information and judgments that reflect management's outlook for the future. However, actual results may differ materially from these expectations because of business risk.

Ryan Ostrom: 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.

Chris Brandon: We therefore consider the Safe Harbor Statement in the earnings release and the cautionary statements in our most recent 10k to be part of our discussion. material risk factors, as well as information relating to company operations are detailed in our most recent 10k 10q and other public documents filed with the SEC and are available on our investor relations website.

Ryan Ostrom: 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.

Ryan Ostrom: 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.

Lance Tucker: And with that, I'd like to turn the call over to our Chief Executive Officer, Lance Tucker. Thanks, Chris, and I appreciate everyone joining us today. I will be brief as we provided several key metrics as pre-announcement items within our Jack on Track plan three weeks ago. First, I'd like to reiterate my excitement around the changes we're making at Jack in the Box, namely becoming a simpler, asset-light company that drives sustainable and healthy long-term growth for our franchisees, as well as our investors. While our transformation won't happen overnight, we strongly believe the actions we're taking will meaningfully change the company's directions for the better in the near future.

Ryan Ostrom: And with that I'd like to turn the call over to our Chief Executive Officer Lance Tucker.

Lance Tucker: Thanks, Chris and I appreciate everyone joining us today.

Lance Tucker: I will be brief as we provided several key metrics as pre announcement items within that with Jack contract plan three weeks ago.

Lance Tucker: First I'd like to reiterate my excitement around the changes, we're making at Jack in the box, namely, becoming a simpler asset light company that drives sustainable and healthy long term growth for our franchisees as well as our investors.

Lance Tucker: While our transformation won't happen overnight, we strongly believe the actions, we're taking will meaningfully change the company's directions for the better in the near future.

Lance Tucker: Yes.

Lance Tucker: Turning to our second quarter results, there are a couple of main themes I'd like to highlight that impacted the quarter. First, the top line environment. It's well known that there is significant pressure on multiple income cohorts, and we've seen the results in our negative traffic. There are definitely more headwinds and tailwinds at the moment for most within our industry. To combat these challenges, we remain focused on our barbell strategy, digital growth, and innovative LTOs to differentiate ourselves. These elements are all fundamental to the Jack brand, and each can meaningfully draft top-line momentum. While the team has a number of high-priority, jack-on-track actions we're working through, allow me to emphasize that driving safe store sales is, and always will be, our top priority.

Lance Tucker: Turning to our second quarter results. There are a couple of main themes I'd like to highlight that impacted the quarter.

Lance Tucker: First the topline environment, it's well known that there is significant pressure on multiple income cohorts and we've seen the results in our negative traffic.

Lance Tucker: There are definitely more headwinds and tailwind at the moment for most within our industry.

Lance Tucker: To combat these challenges we remain focused on our barbell strategy digital growth and innovative LTE owes to differentiate ourselves. These.

Lance Tucker: These elements are all fundamental to the Jack brand and each can meaningfully drive topline momentum.

Lance Tucker: While the team has a number of high priority Jack on track actions, we're working through allow.

Lance Tucker: Allow me to emphasize that driving same store sales is and always will be our top priority.

Lance Tucker: Second our tech modernization and digital evolution continues to take shape.

Lance Tucker: Second, our tech modernization and digital evolution continues to take shape. helped by continued increases in first party activity and flip kiosks. We are now at 18% digital sales system wide. As we stated when announcing Jack on Track, digital is an area where continued investment will be tremendously important, and we remain committed to becoming a digital leader within our category. The rollout of our new point of sale system is another key aspect of our technological advances. We have successfully implemented the new system in its accompanying flip kiosks in nearly 1,500 restaurants.

Lance Tucker: Helped by continued increases in first party activity and flip kiosks.

Lance Tucker: Were now at 18% digital sales system wide.

Lance Tucker: As we stated when announcing Jack on track digital is an area where continued investment will be tremendously important and.

Lance Tucker: And we remain committed to becoming a digital leader within our category.

Lance Tucker: The rollout of our new point of sale system is another key aspect of our technological advancement.

Lance Tucker: We have successfully implemented the new system and its accompanying flip kiosks in nearly 500 restaurants.

Lance Tucker: In our jack on track announcement, we mentioned that the rollout impacted second quarter sales. And I would like to briefly provide some additional color into what we are experiencing. As we integrate modern technology with our existing legacy systems, some of which are decades old, we've encountered a few challenges. These issues are unrelated to our new POS system or the partners involved in the integration. Rather, they highlight the necessity for Jack in the Box to continue overhauling its technology by investing in the rapid modernization of these legacy systems which is already in progress. Before I move on, please note that while the sales impacts we've seen are temporary in nature and are being resolved as they arise, they do continue to impact results as we move into the third quarter.

Lance Tucker: In our Jack on track announcement, we mentioned that the rollout impacted second quarter sales and I would like to briefly provide some additional color into what we are experiencing.

Lance Tucker: As we integrate modern technology with our existing legacy systems, some of which are decades old we've encountered a few challenges.

Lance Tucker: These issues are unrelated to our new Pos system or the partners involved in the integration.

Lance Tucker: Rather they highlight the necessity for Jack in the market to continue overhauling our technology by investing in the rapid modernization of these legacy systems, which is already in progress.

Lance Tucker: Before I move on please note that while the sales impacts we've seen are temporary in nature and are being resolved as they arise. They do continue to impact results as we move into the third quarter.

Lance Tucker: Okay.

Lance Tucker: And lastly, before I turn it over to Dawn, I'd like to spend a moment reiterating our Jack on Track plan element. First, a reminder that there will be much more detail to come in August. As discussed during our April 23 call, our objective is to position Jack in the Box for long term sustainable growth. which we will accomplish by implementing several significant actions as follows. We will strengthen our balance sheet to accelerate cash flow and pay down debt while preserving growth oriented capital investments related to technology and restaurant reimagining. We will also close underperforming restaurants to position ourselves for consistent net unit growth in competitive unit economics.

Lance Tucker: And lastly, before I turn it over to Don I'd like to spend a moment reiterating our Jack on track plan elements.

First a reminder, that there will be much more detail to come in August.

Lance Tucker: As discussed during our April 23rd call. Our objective is to position Jack in the box for long term sustainable growth.

Lance Tucker: But we will accomplish by implementing several significant actions as follows.

Lance Tucker: We will strengthen our balance sheet to accelerate cash flow and pay down debt, while preserving growth oriented capital investments related to technology and restaurant re images.

Lance Tucker: We will also close underperforming restaurants to position ourselves for a consistent net unit growth and competitive unit economics.

Lance Tucker: And we will return overall simplicity to the Jack in the box business model and our Investor story. The team is hard at work on all of these initiatives and I look forward to updating you on our progress with more specifics on our third quarter call.

Lance Tucker: and we will return overall simplicity to the Jack in the Box business model and our investor story. The team has started work on all of these initiatives and I look forward to updating you on our progress with more specifics on our third quarter call.

Dawn Hooper: Now I'll turn the call over to our interim chief financial officer, Dawn Hooper, for her remarks, after which we will take your questions. Dawn. Thanks, Lance. And good afternoon, everyone.

Now I'll turn the call over to our interim Chief Financial Officer, Don Hooper for her remarks, after which we will take your questions Don.

Lance Tucker: Thanks, Lance and good afternoon, everyone I will start by reviewing our two brands individually followed by details on our consolidated performance and capital allocation.

Dawn Hooper: I will start by reviewing our two brands individually, followed by details on our consolidated performance and capital allocation. Starting with our Jack brand, second quarter same store sales decreased 4.4% comprised of a franchise restaurant comp decrease of 4.5% and a company owned sales decrease of 4%. This result included a decrease in transactions and negative myths, partially offset by many price increases, which continue to moderate. As Lance mentioned, we continue to drive sales in our mobile and digital channels, which is essential in our efforts to increase active loyalty program membership and create personalized targeted promotions to this high value channel.

Lance Tucker: Starting with our JAK Bran second quarter same store sales decreased four 4% comprised of a franchise restaurant comp decrease of four 5% and a company owned sales decrease of 4%.

Lance Tucker: This result included a decrease in transactions and negative mix, partially offset by menu price increases which continue to moderate.

Lance Tucker: As Lance mentioned, we continued to drive sales in our mobile and digital channels, which is essential and our efforts to increase active loyalty program membership and create personalized targeted promotions to this high value channel.

Dawn Hooper: We are also excited by our kiosk implementation at both brands, both the freestanding kiosks at Dell and the flip kiosks now active in nearly 1500 DAC locations as part of our new POS rollout. We feel great about our ability to achieve the target of 20% digital sales ahead of schedule.

Lance Tucker: We are also excited by our kiosk implementation at both brands, both the freestanding kiosks at Dell and the flip kiosks now active in nearly 1500, Jack locations as part of our new Pos rollout we.

Lance Tucker: We feel great about our ability to achieve the target of 20% digital sales ahead of schedule.

Lance Tucker: Turning to restaurant count there were five restaurant openings and 12 restaurant closures in the quarter Jack is still expecting to open between 35 to 40 restaurants for fiscal 2025, including openings in Chicago.

Dawn Hooper: Turning to restaurant count, there were five restaurant openings and 12 restaurant closures in the quarter. Jack is still expecting to open between 35 to 40 restaurants for fiscal 2025, including openings in Chicago. Jack's restaurant level margin percentage in the quarter decreased to 19.6%, down from 23.6% a year ago, driven primarily by lower sales, continued inflation for commodities, wages, and utilities, as well as higher operating costs, partially offset by price increases and favorable beverage funding. More specifically, food and packaging costs as a percentage of sales declined 100 basis points from the prior year to 27.8% driven by an increase in beverage funding related to a new contract entered into last quarter, and many price increases, partially offset by commodity inflation of 3.4% in the quarter.

Lance Tucker: Jack's restaurant level margin percentage in the quarter decreased to 19, 6% down from 23, 6% a year ago, driven primarily by lower sales continued inflation for commodities wages and utilities as well as higher operating costs, partially offset by <unk>.

Lance Tucker: This increases and favorable beverage funding.

Lance Tucker: More specifically food and packaging costs as a percentage of sales declined 100 basis points from the prior year to 27, 8% driven by an increase in beverage funding related to a new contract entered into last quarter and menu price increases partially offset by <unk>.

Lance Tucker: <unk> inflation of three 4% in the quarter.

Lance Tucker: Labor cost as a percentage of sales were 33, 8%, increasing 320 basis points from the prior year.

Dawn Hooper: Labor costs as a percentage of sales were 33.8%, increasing 320 basis points from the prior year. Wage inflation was 10.6% for the quarter, and mainly due to wage increases to comply with California's minimum wage law, which lapped its one-year mark on April 1. Occupancy and other operating expenses increased 170 basis points, driven primarily by higher rent, utilities and other operating expenses, including third party delivery fees. Franchise level margin was 68.3 million or 40% of franchise revenues compared to 71.7 million or 40.4% a year ago. The decrease in dollars was mainly driven by lower franchise same store sales, and the resulting decrease in royalty and rent revenue.

Lance Tucker: Wage inflation was 10, 6% for the quarter and mainly due to wage increases to comply with California's minimum wage law, which lapped it's one year Mark on April 1st.

Lance Tucker: Occupancy and other operating expenses increased 170 basis points, driven primarily by higher rent utilities and other operating expenses, including third party delivery fees.

Lance Tucker: Franchise level margin was $68 3 million or 40% of franchise revenues compared to $71 7 million or 44% a year ago.

Lance Tucker: The decrease in dollars was mainly driven by lower franchise same store sales and the resulting decrease in royalty and rent revenue.

Lance Tucker: Now turning to del Taco system same store sales declined three 6% with a franchise sales decline of four 2% and our company owned comp decrease of one 7%.

Dawn Hooper: Now turning to Del Taco, system same store sales declined 3.6% with a franchise sales decline of 4.2% and a company owned comp decrease of 1.7%. The lower sales were the result of a decline in transactions partially offset by an increase in price. As mentioned last quarter, 100% of our company owned restaurants have kiosks installed, and we are continuing to see franchisees increasing their adoption rate as well. including kiosks, along with third party delivery and mobile digital mix now makes up over 18% of system wide sales. We are also seeing positive momentum from the Menu Optimization Initiative, which launched system-wide in the first half of Q1, driving improvements in both product mix and average check.

Lance Tucker: The lower sales were the result of a decline in transactions, partially offset by an increase in price.

Lance Tucker: As mentioned last quarter, 100% of our company owned restaurants have kiosks installed and we are continuing to see franchisees increasing their adoption rate as well.

Lance Tucker: Including kiosks, along with third party delivery and mobile digital mix now makes up over 18% of system wide sales.

Lance Tucker: We are also seeing positive momentum from the menu optimization initiative, which launched system wide in the first half of Q1 driving improvements in both product mix and average check.

Lance Tucker: Del Taco restaurant level margin was 12, 8% down 400 basis points from the prior year.

Dawn Hooper: Del Taco restaurant level margin was 12.8%, down 400 basis points from the prior year. The decline was driven mainly by lower sales and commodity and wage inflation, partially offset by many price increases. Food and packaging costs as a percentage of sales decreased 100 basis points to 24.6% due to favorable beverage funding, partially offset by commodity inflation of 5.7%. Labor costs as a percentage of sales increased 330 basis points to 38.2%, primarily due to wage inflation, which was 11.7% for the quarter, mainly due to increases to comply with California's minimum wage law. Occupancy and other operating costs increased 160 basis points, driven primarily by higher utility and maintenance and repair costs.

Lance Tucker: The decline was driven mainly by lower sales and commodity and wage inflation, partially offset by menu price increases.

Lance Tucker: Food and packaging costs as a percentage of sales decreased 100 basis points to 24, 6% due to favorable beverage funding, partially offset by commodity inflation of five 7%.

Lance Tucker: Labor cost as a percentage of sales increased 330 basis points to 38, 2%.

Lance Tucker: Primarily due to wage inflation, which was 11, 7% for the quarter, mainly due to increases to comply with California's minimum wage law.

Lance Tucker: Occupancy and other operating costs increased 160 basis points, driven primarily by higher utility and maintenance and repair costs.

Lance Tucker: Franchise level margin was 24, 4% of franchise revenues compared to 28, 9% last year.

Dawn Hooper: Franchise level margin was 24.4% of franchise revenues compared to 28.9% last year. The decrease in franchise-level margin percentage was driven by refranchising and the associated impact of pass-through rent, marketing, and purchasing fees.

Lance Tucker: The decrease in franchise level margin percentage was driven by Refranchising and the associated impact of pass through rent marketing and purchasing fees.

Lance Tucker: Del Taco restaurant count at quarter end was 591 with six openings and foreclosures during the quarter.

Dawn Hooper: Del Taco restaurant count at quarter end was 591 with six openings and four closures during the quarter.

Lance Tucker: Moving on now to our consolidated results SG&A for the quarter was $35 5 million or 10, 5% of revenues as compared to $37 5 million or 10, 3% a year ago.

Dawn Hooper: Moving on now to our consolidated results. SG&A for the quarter was $35.5 million, or 10.5% of revenues, as compared to $37.5 million, or 10.3% a year ago. The decrease of 2 million was primarily due to lower share based and incentive based compensation, partially offset by fluctuations in the cash surrender value of our company owned life insurance policy. Excluding net COLE gains and losses, as well as advertising costs, G&A was 26.2 million or 2.2% of total systemwide sales down 4.4 million versus the prior year. Consolidated Adjusted EBITDA was $66.5 million, down from $75.7 million in the prior year due primarily to the impacts from Del Taco refranchising and sales de-leverage and inflation experienced by both brands, partially offset by lower G&A.

Lance Tucker: The decrease of 2 million was primarily due to lower share based and incentive based compensation, partially offset by fluctuations in the cash surrender value of our company owned life insurance policies.

Lance Tucker: Excluding that coli gains and losses as well as advertising costs G&A was $26 2 million or two 2% of total system wide sales down $4 4 million versus the prior year.

Lance Tucker: Consolidated adjusted EBITDA was $66 5 million down from $75 7 million in the prior year due primarily to the impacts from del Taco Refranchising and sales deleverage and inflation experienced by both brands, partially offset by lower G&A.

Dawn Hooper: During the quarter, the company recorded non-cash goodwill and intangible asset impairment of $203.2 million for the Del Taco Reporting Unit. This charge resulted from the lower current performance and other assumption updates impacting our long term forecast and related cash flows. Due to the non-cash goodwill and intangible asset impairment charge in the quarter, we reported a consolidated gap diluted loss per share for the second quarter of negative $7.47. compared to diluted earnings per share of $1.26 in the second quarter of the prior year. Operating earnings per share, which includes adjustments for certain items, was $1.20 for the quarter versus $1.46 in the second quarter of the prior year.

Lance Tucker: During the quarter the company recorded noncash goodwill and intangible asset impairment of $203 2 million for the del Taco reporting unit.

Lance Tucker: This charge resulted from the lower current performance and other assumption updates impacting our long term forecast and related cash flows.

Lance Tucker: Due to the noncash goodwill and intangible asset impairment charge in the quarter.

Lance Tucker: We reported a consolidated GAAP diluted loss per share for the second quarter of negative $7 47.

Lance Tucker: Compared to diluted earnings per share of $1 26 in the second quarter of the prior year.

Lance Tucker: Operating earnings per share, which includes adjustments for certain items was $1 20 for the quarter versus $1.46 in the second quarter of the prior year.

Lance Tucker: The effective tax rate for the quarter was 19, 5% compared to 26, 5% for the same quarter a year ago.

Dawn Hooper: The effective tax rate for the quarter was 19.5% compared to 26.5% for the same quarter a year ago. The lower tax rate was primarily due to non-deductible goodwill impairment and non-deductible COLE losses. The adjusted tax rate used to calculate the non-GAAP operating earnings per share this quarter was 24.8%.

Lance Tucker: The lower tax rate was primarily due to nondeductible goodwill impairment and non deductible coli losses.

Lance Tucker: Adjusted tax rate used to calculate the non-GAAP operating earnings per share this quarter was 24, 8%.

Dawn Hooper: On the investing front, our capital expenditures were $21.5 million for the quarter and included investments in our restaurant technology and digital initiatives, as well as development of new company restaurants. We did not repurchase any shares of stock during the quarter, and as previously announced, we discontinued our dividends. As of quarter end, we had available borrowing capacity of $96.5 million under our variable funding notes, net of letters of credit issued. Our total debt outstanding at quarter end was $1.7 billion and our net debt to adjusted EBITDA leverage ratio was 5.5 times.

Lance Tucker: On the investing front, our capital expenditures were $21 5 million for the quarter and included investments in our restaurant technology and digital initiatives as well as development of New company restaurants.

Lance Tucker: We did not repurchase any shares of stock during the quarter NSS as previously announced we discontinued our dividend.

Lance Tucker: Okay.

Lance Tucker: As of quarter end, we had available borrowing capacity of $96 5 million under our variable funding notes net of letters of credit issued our total debt outstanding at quarter end was $1 7 billion and our net debt to adjusted EBITDA leverage ratio was five five times.

Lance Tucker: Okay.

Dawn Hooper: Lastly, we'd like to reiterate that all guidance measures remain the same as provided on April 23rd as part of the Jack on Track plan announcement. Thanks again for your time this afternoon.

Lance Tucker: Lastly, we'd like to reiterate that all guidance measures remain the same as provided on April 23, as part of the Jack on track plan announcements.

Lance Tucker: Thanks again for your time this afternoon operator, please open the line for questions.

Rebecca: Operator, please open the line for questions. 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. Please limit to one question. We'll pause for just a moment to compile the Q&A roster.

Speaker Change: 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. Please limit to one question, we'll pause for just a moment to compile the Q&A roster.

Lance Tucker: Okay.

Speaker Change: Your first question comes from the line of Chris <unk> with Stifel.

Patrick: Your first question comes from the line of Chris O'Cole with Stifle. Thanks, guys. This is Patrick on for Chris.

Speaker Change: Thanks, guys. This is Patrick on for Chris Lance I wanted to ask you about the current trends of Jack relative to $4 40, just ran into Q and Tricia just curious if you can provide any color around maybe where you exited the quarter I know it is widely known in the industry February was soft and maybe how thats held up as you've moved into the third quarter and then as.

Lance Tucker: Lance, I wanted to ask you about the current trends at Jack relative to the down 4-4. You just ran a 2Q.

Lance Tucker: And Chris, I'm curious if you can provide any color around maybe where you exited the quarter I know is widely known in the industry, February was soft, and maybe how that's held up as you've moved into the third quarter. And then as you look at the comp performance in the quarter, I was curious if there are any geographic differences that were notable, particularly maybe in markets that over index with certain This is Lance.

Speaker Change: If you look at the comp performance in the quarter I was curious if there are any geographic differences that were notable particularly maybe in markets over index with certain customer demographics.

Speaker Change: This is lance I'll start on that and I'll get some input from run as well.

Lance Tucker: I'll start on that, and I'll get some input from Ryan as well. So starting with the third quarter, we're basically running in line with what we saw in the second quarter, which pretty well matches up with the guidance we've given. It remains a challenging industry environment. And as we've spoken to, we do continue to see some challenges. They're a little bit self-inflicted. Certainly the consumer remains cautious.

Speaker Change: So starting with the third quarter were basically running in line with what we saw in the second quarter pretty.

Speaker Change: Pretty well matches up with the with the guidance we've given it remains.

Speaker Change: Challenging industry environment.

Speaker Change: And as we've spoken to we do continue to see some challenges.

Speaker Change: They are a little bit self inflicted.

Speaker Change: Certainly the consumer remains cautious.

Ryan Ostrom: From other comments, I'll throw it over to Ryan here for a minute and let him jump in on anything I may have missed there. I think you hit it right on the head. I think as we look, you know, moving forward, we're really going to be focused on our core strengths and equities as a brand. So you'll see us really focus on driving ticket through to munchie meal executions, as well as driving innovation on our iconic curly fries next window. And you'll see us pulse in a lot of core value to drive the value, Guestin, to move forward.

Speaker Change: From a.

Speaker Change: Other comments I'll throw it over to Ron here for a minute and let him jump in on anything I may have missed there.

Ron: You hit it right on the head I think as we look.

Ron: Moving forward Youre really going to be focused on our core strengths in equities as a brand so youll see us really focus on.

Ron: Driving ticket through some months you meal execution as well as driving innovation on our iconic Curly fries next window and you will see as Paul has been a lot of core value to drive the value guys 10 to move forward.

Speaker Change: Your next question comes from the line of Lauren Silberman with Deutsche Bank.

Lauren Silberman: Your next question comes to the line of Lauren Silberman with Deutsche Bank. Thank you very much. My question is a little bit of a follow up to the prior one. How much do you think of the comp pressure you're seeing right now is driven by company specific headwinds? You talked about the POS situation, but beyond that, is there a shortfall in the marketing strategy, your approach to value, given the industry is going to remain challenging? I guess what are you doing differently in the back half that you didn't do in the first half of the year to reaccelerate comps?

Lauren Silberman: Thank you very much my question is a little bit of a follow up to the prior one how much do you think of the comp pressure Youre seeing right now is driven by company specific headwinds you talked about the Pos situation, but beyond that is there a sharp shortfall on the marketing strategy or approach to value given the industry is going to remain challenging I guess what are you doing different.

Lauren Silberman: In the back half that you didn't do in the first half of the year.

Lauren Silberman: To Reaccelerate comps thank you.

Lance Tucker: Thank Thanks, Lauren. Lance, I'll start again and again turn it over to Ryan. Relative to company-specific issues, I mean, we've mentioned some of the IT issues that we think are probably 1% to 2% in same-store sales. We also over-index on the low-income consumers, so I'm not sure if I'm going to put a percentage on that, but certainly we feel like that's probably hitting us a little harder than it is others.

Speaker Change: Thanks, Lauren Lance I'll start again, and again turn it over to Ron relative to company specific issues. We've mentioned some of the key issues that we think are probably 1% to 2% same store sales. We also over index on the low income consumer so im not sure if I can.

Lauren Silberman: To put a percentage on that.

Speaker Change: But certainly we feel like Thats, probably hitting us a little harder than it is others don't.

Ryan Ostrom: I don't know that I see anything that was a particular shortfall on the marketing side, but I'll let Ryan talk to what we're doing to get things accelerated in the second half of the year. Yeah, I think if you look in, a year ago we had some strong comps as we were rolling over to launch with Smash Jack, and so rolling over the execution of that is something we really have to focus on in the next few windows because we're really comping over the high mix of a premium burger, so that's where you'll see us really focus on that munchie meal and the trade-up strategy with our T-Pain execution in the next window.

Don't know that I see anything that was a particular shortfall on the marketing side, but I'll, let Ron talk to what we're doing.

Speaker Change: Good things accelerated in the second half of the year.

Speaker Change: Yes.

Speaker Change: If you look in.

Speaker Change: A year ago, we had some strong comps as we were rolling over to launch its mass Jack and so rolling over the execution of that is something we really have to focus on in the next few windows because.

Speaker Change: Really comping over the high mix of premium burgers, So thats, where youll see us really focus on that once you meal and the trade up strategy with our key paint execution in the next window.

Ryan Ostrom: It really does really well for us owning the late night, owning munchie meal and driving ticket. We've seen box meals do really well in some of our competitors, and so we're going to lean into that equity. As mentioned before, really driving the transaction side is focusing on our curly fries, and we have two new flavors coming out. First was kind of in the industry of chili crisp as well as barbecue chip-flavored seasoned curly fries. These are our iconic seasoned fries. Now we have new flavors, which should drive excitement for people to come in and just add on ticket, but also make that extra visit to try something new and innovative.

Speaker Change: Really does really well for us only in the late night owning months, you meal and driving ticket we've seen box meals do really well and some of our competitors and so we're going to lean into that equity as mentioned before really driving that trend.

Speaker Change: Transaction side is focusing on our curly fries and we have two new flavors coming out first of its kind in the industry.

Chris: Chile, Chris as well as the barbecue chip flavored season, Curly Fries you Gerard.

Chris: Seasoned fries now, we have new flavors, which should drive excitement for people to come in and just add on ticket, but also make that extra visit to try something new and innovative and then on top of that we are really focusing on that value guys, saying, how do we look at our core offering and put out some strong core value to drive that guest and ongoing basis.

Ryan Ostrom: And then on top of that, we are really focusing on that value-guessing. How do we look at our core offering and put out some strong core value to drive that guest in on an ongoing basis?

Chris: Yes.

Chris: Okay.

Speaker Change: Your next question comes from the line of Brian Mullan with Piper Sandler.

Brian Mullan: Your next question comes from the line of Brian Mullan with Piper Sandler. Hey, thank you. Just a question on Del Taco understanding you're exploring strategic alternatives. Can you just speak to the key priorities for that brand while that process is ongoing?

Brian Mullan: Hey, Thank you just a question on del Taco understanding you're exploring strategic alternatives can you just speak to the key priorities for that brand while that process is ongoing.

Lance Tucker: And Lance with some fresh eyes on this brand, there are one or two things in particular where you see some some opportunity that maybe can get addressed, you know, as this process unfolds. Yeah, thanks, Brian. That's a good question. I would tell you a couple of things, relative to Del Taco. First, you know, we've got to continue to execute operationally, and Tom Rose, the brand president over there and his team are working on that. We're also have been revamping our marketing some, and so you're going to see a little bit different tone coming out of our marketing as we move throughout the rest of the year.

Speaker Change: With some fresh eyes on this brand.

Speaker Change: One or two things in particular, where you see some some opportunity then maybe you can get addressed.

Speaker Change: As this process unfolds.

Speaker Change: Sure.

Speaker Change: Yes, Thanks, Brian that's a good question I would tell you a couple of things relative to del Taco first.

Speaker Change: We've got to continue to execute operationally and Tom Rose to brand President over there and his team are working on that we're also have been revamping, our marketing firm and so youre going to see a little bit different tone coming out of our marketing as we move throughout the rest of the year.

Lance Tucker: And then Tom and team have some kind of exciting menu additions. I don't think I'm going to share those exactly right now, but some things are working on on the menu, kind of looking backwards to some things we may have done in the past that I think are going to be exciting for the brand. So, you know, continue to drive marketing, bring out innovation, and drive operations.

Speaker Change: And then Tom and team have some kind of exciting menu additions.

Speaker Change: I think I'm going to share those exactly right now, but some things are working on on the menu.

Speaker Change: Kind of looking backwards just some things you may have done in the past and I think theres going to be exciting for the brand. So.

Speaker Change: She has continued to drive marketing bring out innovation.

Speaker Change: And drive operations.

Speaker Change: Your next question comes from the line of Andrew Charles with TD Cohen.

Andrew Charles: Your next question comes to the line of Andrew Charles with T.D. Cohen. Great, thank you. It looks like there was a step up in the allowance for doubtful accounts. And I'm curious, as you go through the upcoming store closure program, if there's risk for elevated bad debt expense that might hit the adjusted EBITDA.

Andrew Charles: Great. Thank you it looks like there was a step up in the allowance for doubtful accounts and I'm curious as you go through the upcoming store closure program.

Andrew Charles: Risk for elevated bad debt expense that might hit the adjusted EBITA.

Don Hooper: Yeah. This is Don the step up is similar to the step up or the charge that you saw in Q1, it's related to one specific franchise matter on the del Taco side I don't anticipate the closure program would accelerate or increase it anyway.

Dawn Hooper: Yeah, this is Dawn. The step up is similar to the step up or the charge that you saw in Q1. It's related to one specific franchise matter on the Del Taco side. I don't anticipate the closure program would accelerate or increase it in any way.

Don Hooper: Yeah.

Dennis Geiger: Your next question comes from the line of Dennis Geiger with UBS. Great, thanks, guys. I wanted to circle back just on value and you guys gave some some good color on it. Anything more that you can say just kind of on where you think value is positioned right now, whether it's on scores or value incidence.

Dennis Geiger: Your next question comes from the line of Dennis Geiger with UBS.

Dennis Geiger: Great. Thanks, guys I wanted to circle back just on value and you guys gave some good color on it anything more that you can say just kind of on where you think value is positioned right now whether it's on scores or value incidence and then as we look ahead I'm not sure how much more you can kind of add on some of the value plans.

Ryan Ostrom: And then as we look ahead, I'm not sure you know how much more you can kind of add on some of the value plans that are coming, but anything more to share it at a high level on on how you're thinking about where you should be positioned on value now relative to maybe where where you have been given the environment and given the the competitive set. Thank Yeah, I think, you know, you look at our values, so value in our businesses is very important. And I think it's trying to find that balance of what is the right value for the dollar.

Dennis Geiger: That are coming but anything more to share it at a high level.

Dennis Geiger: How youre thinking about where you should be positioned on value now relative to maybe where where you have been given the environment given.

Dennis Geiger: The competitive set thank you.

Dennis Geiger: Yes, I think if you look at our value scores value in our business is very important I think is trying to find that balance of what is the right value for the daughter dollar I think that.

Ryan Ostrom: I think that value has changed, though. I don't think it's all about low price. It's about guests feeling satisfied is what they purchased. So even though, you know, I mentioned munchie meal, we're seeing in the industry where $9 and $10 is considered a value because it's food by the pound, and it's valuable for the guests. And so, as you see us really focus on an owner equitable equity of munchie meal, we think there is value in that as we move forward. You also like, as I mentioned, we will be looking at our core offering and say, what are those right items that we can drive the lower value guests in at the right price point, we do think we have value on the menu, we still have our amazing two tacos on the menu, we still have a lot of items under our munchies under four, which we're leaning into.

Dennis Geiger: Value has changed though I don't think it's all about low price it's about.

Speaker Change: Guess feeling satisfied as what they purchase so even though I mentioned munchy meal.

Speaker Change: We're seeing in the industry were $9 $10 is considered a value because it's skewed by the pound and it's valuable for the guests and so as you see us really focus on an honorable equity of months you meal. We think there is value in that as we move forward.

Speaker Change: You also like as I mentioned, we will be looking at our core offering and say what are those items that we can drive the lower value guest in at the right price point, we do think we have value on the menu, we still have our amazing two tacos on the menu, we still have a lot of items under our monkeys under four which we're leaning into so we have that wide variety, it's just making sure that.

Ryan Ostrom: So we have that wide variety, it's just making sure that that message resonates and gets people to come to the store.

Speaker Change: That message resonate and gets people to come into the store.

Unknown Executive: For more information visit www.FEMA.gov Your next question comes to the line of Logan Reich with RBC Capital Markets. Hey, good afternoon, guys. Thanks for taking my question.

Okay.

Speaker Change: Your next question comes from the line of Logan Ranch with RBC capital markets.

Hey, good afternoon, guys. Thanks for taking my questions.

Logan Reich: I guess just in a few weeks following the rollout of the Jack on Track, I'm just curious what the conversations with franchisees have been like and sort of how they're feeling about everything that's been going on. And then just separately, I was wondering if you can share how much price you guys have rolling off for the rest of the year. Thanks.

Speaker Change: I guess just in a few weeks following the rollout of the Jack on track I'm, just curious what the conversations with franchisees have been like and sort of how they're feeling about everything that's been going on and then just separately I was wondering if you can share how much price you guys have been rolling off for the rest of the year.

Hello, again, I will start with the first part and I'll, let Ron cover the price question there.

Lance Tucker: Hi Logan, I'll start with the first part and I'll let Ryan cover the price question there. But actually the conversations with the franchisees have gone quite well. In my few months on board here, they have been tremendously supportive. When you think about specific to some of the jack-on-track stuff, they've generally been behind it. And I think the reason for that is those guys are all in this for the long term. These are long-term business owners that have been in the jack system for a long time, want to be in the system a lot longer and turn them into generational businesses.

Speaker Change: Actually the conversations with the franchisees have gone quite well.

Speaker Change: A few months onboard here they have been tremendously supportive.

Speaker Change: When you think about specific to some of the JAK contract stuff.

They've generally been behind it and I think the reason for that is those guys are all in this for the long term. These are these are long term business owners that have been in the JAK system for a long time, we want to be in the system a lot longer than.

Speaker Change: I will turn them into generational businesses and the changes we're making the Jack on track really are.

Lance Tucker: And the changes we're making with jack-on-track really are more made to drive the business going forward for the next 10, 15, 20 years than necessarily what it's going to do next quarter.

Speaker Change: More may two to drive the business going forward for the next 10, 15 20 years than necessarily what it's going to do next quarter.

Lance Tucker: So overall, I've been extremely pleased with the feedback I've gotten from the franchisees, from the reception I've gotten from the franchisees, and frankly from their support as we wound up to do a lot of things that are going to change the business for the better.

Speaker Change: Overall I've been extremely pleased with the feedback I've gotten from the franchisees from the reception I have gotten from the franchisees.

Speaker Change: And frankly from their support as we round up to do a lot of things that are going to change the business for the better so I'll turn it over to Don actually and let her talk about the price we see rolling off yeah. So in November we had talked about our pricing between three and 4% carryover is a little over 2%.

Dawn Hooper: So I'll turn it over to Dawn actually and let her talk about the price we see rolling off. Yeah, so in November we had talked about our price being between 3% and 4%. The carryover is a little over 2%.

Brian Harper: Your next question comes from the line of Brian Harper with Morgan Stanley.

Brian Harbour: Your next question comes to the line of Brian Harbour with Morgan Stanley. Yeah, thanks. Lance, maybe to that point where Where exactly are the closures going to be? Concentrated, like geographically, I guess. Smaller number of friends. Broad. Thank you.

Brian Harper: Yes, thanks, good afternoon.

Lance maybe to that point, where.

Brian Harper: Where exactly are the closure is going to be.

Brian Harper: And traded geographically I guess and then.

Brian Harper: A smaller number of franchisees or is it pretty broad.

Brian Harper: And how do you have a different view of kind of new markets.

Brian Harbour: And how do you have a different view of kind of new market? are those still gonna you've obviously signed plan. Are you still adding them during.

Brian Harper: Are those still good you've obviously signed a bunch of.

Brian Harper: Deals in new markets are those still going to proceed as planned or are you still open to adding them. During this time, how will that play out.

Brian Harper: Hey, Brian first of all as it relates to the closure program and we're going to give a lot more detail in August as to exactly what that's going to look like but at a high level.

Brian Harbour: All right, Brian. First of all, as it relates to the closure program, and we're going to give a lot more detail in August as to exactly what that's going to look like. But at a high level, it's going to be spread throughout the system. So there's not going to be You know, what I would think to be a huge concentration in any one given area. I think as far as is it concentrated to a set number of franchisees, you know, we're going to do our best to Spread it actually among a fairly broad number of franchisees.

Brian Harper: It's going to be spread throughout the system. So there is not going to be.

Brian Harper: What I would think to be a huge concentration in any one given area.

Brian Harper: I think as far as is it concentrated to a set number of franchisees.

We're going to do our best to.

Brian Harper: Right it actually among a fairly broad number of franchisees that is largely going to be driven on economics.

Lance Tucker: It is largely going to be driven on economics and, you know, sometimes you're going to have a given franchisee who may have more closures than others. Certainly that's going to be the case, but with that said, we are going to try to keep it pretty broad among the franchise base. And then finally, with regard to new markets, I do expect we'll continue to grow in new markets. We think we've got a lot of white space. We think we've got a lot of ability to grow. I think the big, the big, bigger change from my perspective would be we want it to be more franchisee led than corporate led.

Brian Harper: Sometimes youre going to have a given franchisee who has who may have more closures. Another certainly thats going to be the case, but with that said we are going to try to keep it pretty broad among the franchise base.

Brian Harper: And then finally with regard to new markets.

I do expect we'll continue to grow in new markets. We think we've got a lot of white space. We think we've got a lot of ability to grow I think the big the big bigger change from my perspective would be we wanted to be more franchisee led <unk> corporate led so we will continue to meet the obligations. We have made as far as building a longtime franchisees and some of these markets.

Lance Tucker: So we will continue to meet the obligations we've made as far as building a long term franchisees in some of these markets. We'll just take a little bit less active role at how many of those are actually restaurants that we own versus restaurants we'll be asking the franchisees to build. And absolutely, we want to keep going on those new markets.

Brian Harper: I'll, just take a little bit less active role in how many of those are actually restaurants that we own versus restaurants will be asking the franchisees to build.

Brian Harper: But absolutely we want to keep going on those new markets.

Speaker Change: Your next question comes from the line of Jeffrey Bernstein with Barclays.

Jeffrey Bernstein: Your next question comes from the line of Jeffrey Bernstein with Barclays. Great. Thank you very much, Lance.

Brian Harper: Okay.

Brian Harper: Yeah.

Brian Harper: Great. Thank you very much.

Lance Tucker: Just hoping I talk a little bit more about Del Taco. I know you mentioned a variety of strategic alternatives, including possible divestiture. I'm just wondering what the other options would be. It would seem like if you're looking to simplify the portfolio, the divestiture would be, I guess, your preferred route, but just curious to hear your thoughts there. whether you're pleased with any kind of early interest or how you think about the potential divestiture and timeframe for such.

Brian Harper: Lance just hoping that.

Brian Harper: Talk a little bit more about del Taco.

Speaker Change: I know you mentioned.

Speaker Change: Variety of strategic alternatives, including possible divestiture I am just wondering what the other options would be it would seem like if youre looking to simplify the portfolio. The divestiture would be I guess your preferred route but just curious to hear your thoughts there.

Speaker Change: Whether you're pleased with any kind of early interest or how you think about the potential divestiture.

Speaker Change: And the timeframe for such thank you.

Lance Tucker: Thank you. I think overall, you know, I can't get too deep into Del Taco, as you would guess, at least the potential sales process. What I would tell you, though, is we've had a lot of reach out. We haven't even gone to official marketing yet on the thing. We're still, you know, directionally a few weeks out on that without going into a lot of depth. And we have had significant reach out and interest in the brand. So as you, you know, that's probably about as far as I can go on that when you think about other alternatives.

Speaker Change: I think overall I can't I can't get too deep into del Taco as you would as you would guess at least the potential sales process. What I would tell you. Though is we've had a lot of retail we haven't even gone to efficient marketing yet on the thing.

Speaker Change: So directionally in a few weeks out on that without going into a lot of debt and we have had significant reach out and interest in the brand.

So as you know that's probably.

Speaker Change: Probably about as far as I can go on that when you think about other alternatives.

Lance Tucker: I think given the early returns on the interest we seem to be getting, I feel pretty solidly that that would be the option we would go down.

Speaker Change: I think giving given the early returns on the interest we seem to be getting.

Speaker Change: I feel pretty solidly there that would be the option we would go down.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Jake Bartlett with Trust Securities.

Jake Bartlett: Your next question comes from the line of Jake Bartlett with Trist Security. Great, thanks for taking the question. I'm going to just build on one of the earlier ones about a new unit development, and I guess, Lance, your excitement and level of commitment to that strategy.

Jake Bartlett: Great. Thanks for taking the question I'm going to just build on one of the earlier ones about new unit development and I guess.

Speaker Change: Your excitement.

Speaker Change: And level of commitment to that strategy.

Lance Tucker: Maybe if you could also just give us an update on how many restaurant commitments you have, outstanding, how many development agreements, it's something that had been disclosed pretty regularly, and I just want to see where the progress is. Sure, so first of all, on new units. I mean, we are excited to continue growing, first of all. I think the key with what we're doing on the jack-on-track stuff is really make sure we're set up with a good, healthy franchise base that can grow from a position of strength. So while we are going to have some closures here coming down the road, as you've seen from our announcements.

Speaker Change: Maybe if you could also just.

Speaker Change: Just give us an update on how many restaurant commitments you have outstanding how many development agreement something that had been disclosed pretty regularly and I just wanted to see where the progress is there.

Speaker Change: Sure. So first of all on new units.

Speaker Change: I mean, we are excited to continue growing first of all I think I think the key with what we're doing on the Jack contracts stuff is really make sure. We're set up with a good healthy franchise base that can grow from a position of strength.

Speaker Change: So.

Speaker Change: While we are going to have some closures here, you're coming down the road as you've as you've seen from our announcements.

Lance Tucker: I think where that's really going to net us is franchisees that are, you know, not dragging along some units, frankly, that probably need to close. It's going to free up dollars. We expect some of those dollars to flow into new unit builds. And then to piggyback on the new market question from a few minutes ago as well, we've got Chicago where we expect to convert, you know, around eight, I believe it is, by the end of the fiscal year. We've got builds happening in other markets, whether it's Louisville, Salt Lake City, we're getting ready to be opening some units in Florida, so there's a lot going on there, too.

Speaker Change: Where that's really going to notice is franchisees that are.

Speaker Change: Not dragging along some units frankly.

Speaker Change: Probably need to close is going to free up dollars. We expect some of those dollars to flow into new unit builds and then and then to piggyback on the new market question from a few minutes ago as well, we've got Chicago, where we expect to convert.

Speaker Change: Around eight I believe it is by the end of the fiscal year.

Speaker Change: <unk> got bills happening in other markets, whether it's Louisville Salt Lake City.

Speaker Change: We're getting ready to be opening some units in Florida. So there's a lot going on there too so.

Lance Tucker: So, you know, I think from a new unit standpoint, the picture still looks good. We've just got to get it through a few closures here before you'll start to see it in the net numbers.

Speaker Change: I think from a new unit standpoint.

Speaker Change: The picture still looks good we just got to get through a few closures here before youll start to see it in the net and the net numbers.

Lance Tucker: As it relates to the development numbers, I don't have those in front of me at the moment, so that'll be something we'll need to circle back on.

Speaker Change: As it relates to the to.

Speaker Change: The development numbers I don't have those in front of me at the moment, so that'll be something we'll need to circle back on.

Speaker Change: Yeah.

Speaker Change: Your final question comes from the line of Christine Cho with Goldman Sachs.

Christine Cho: Your final question comes from the line of Christine Cho with Goldman Sachs. Thank you for taking the question. So would you be able to share some observations on the various state park performances in the quarter? Are you seeing any particular pressure on breakfast or late night? And how are you seeing the market share progressing? Thank you. Now, when we look across Daypart, I think we've kind of seen a little bit, especially at the lunch and dinner time, but it's kind of been spread out evenly across, you know, we had some success over the last, this past window that we really are trying to build off where we actually quickly sold out of our Nashville hot mozzarella sticks, we had a great partnership with Red Bull that moved really well.

Christine Cho: Thanks for taking the question. So would you be able to share some observations on the various sweetheart performance fees in the quarter.

Christine Cho: Are you seeing any particular pressure on breakfast and late night and how are you seeing market share. Okay. Thank you.

Christine Cho: Yes.

When we look across day part I think we've kind of seen a little bit, especially at the lunch and dinner time, but it's kind of been spread out evenly across.

Christine Cho: We've had some success over the last this past window that we really are trying to build off where we actually quickly sold out of our Nashville Hot Mozzarella sticks, we had a great partnership with Red Bull that moved really well. So we've had success and certain executions and add ons that were willing to start building up moving forward.

Ryan Ostrom: So we've had success at certain executions and add-ons that we're willing to start building off moving forward. And our goal, as we mentioned before, is really focused on that, that barbell strategy with a balance of driving ticket with some of our core equities while also introducing some more value to drive trends.

Christine Cho: And our goal as we mentioned before is really focused on that that barbell strategy with a balance of driving ticket with some of our core equities. We're also introducing some more value to drivetrains.

Christine Cho: And I'll just quickly chip in with I think you were looking for the.

Ryan Ostrom: And I'll just quickly chip in with, I think you were looking for the development agreement or restaurant commitment number and it's since mid 2021, which is kind of where we've kept a running total going.

Christine Cho: Development agreement a restaurant commitment number and it's since mid 2021, which is kind of where we've kept a running total going.

Rebecca: It's for at Ladies and gentlemen, this concludes today's conference call.

Christine Cho: At 440.

Speaker Change: Ladies and gentlemen. This concludes today's conference call you may now disconnect.

Rebecca: You may now disconnect.

Christine Cho: Yeah.