Jack in the Box(US:JACK)2024-08-07 00:59Financial Data and Key Metrics Changes - The third quarter system same store sales for Jack in the Box declined by 2.2%, with franchise restaurant comps decreasing by 2.4% and company-owned sales up by 0.1% [25][26] - Del Taco's system same store sales declined by 3.9%, with franchise sales down by 4.1% and company-owned comps decreasing by 3.5% [30] - Consolidated adjusted EBITDA was $78.9 million, down from $81.6 million in the prior year, primarily due to Del Taco re-franchising and decreased sales [33][34] - The company recorded a non-cash goodwill impairment of $162.6 million for the Del Taco reporting unit, resulting in a consolidated gap diluted loss per share of $6.26 compared to earnings per share of $1.41 in the prior year [34] Business Line Data and Key Metrics Changes - Jack in the Box's restaurant level margin percentage decreased year-over-year by 80 basis points to 21%, driven by higher labor costs [28] - Del Taco's restaurant level margin was 13.4%, down 400 basis points from the prior year, mainly due to increased labor and utility costs [30] - Notable sales contributions for Jack in the Box came from chicken and burgers, with Smash Jack driving burger sales [27] Market Data and Key Metrics Changes - Jack in the Box opened three restaurants and closed three during the quarter, expecting to open between 25 and 35 restaurants for the fiscal year [28] - Del Taco had five openings and three closures, with expectations to hit the higher end of the guidance of opening 10 to 15 restaurants this fiscal year [32] - New market performance for Jack in the Box showed strong results, with Salt Lake City locations averaging over $100,000 in weekly AUVs [17][76] Company Strategy and Development Direction - The company is focusing on reconnecting with lower-income, value-oriented guests through initiatives like the Munchies Under $4 platform and Jack's Big Deal Meal [9][11] - There is a commitment to digital growth, aiming to increase sales from 14% to 20%, with first-party sales up 80% year-over-year [14] - The company plans to enter the Chicago market aggressively in 2025, with a strategy to open up to 10 company locations [42] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging consumer environment but expressed confidence in their strategies to drive transactions and sales growth [9][24] - There are early signs of improved sales performance at Del Taco, with a new leadership team making progress on marketing and operational changes [20][21] - Management remains optimistic about the long-term growth potential of both brands despite short-term challenges [24][68] Other Important Information - The company plans to continue its refranchising efforts, with 27 Del Taco restaurants recently re-franchised and a development agreement for 25 additional locations [66] - The re-image program for Jack in the Box has received strong interest from franchisees, with over 600 requests submitted for remodeling [19][72] - The company declared a cash dividend of $0.44 per share to be paid on September 19 [36] Q&A Session Summary Question: How is the company positioning the brand to succeed in the Chicago market? - The company plans to aggressively enter the Chicago market by converting existing locations and surrounding them with additional franchisees to ensure quick market penetration [42] Question: Can you explain the improving momentum heading into the fourth quarter? - Management noted that the Munchies Under $4 initiative increased ticket sizes, and they expect easier comps in the fourth quarter to support improved performance [44][46] Question: Did a competitor's $5 Meal Deal impact trends? - Management indicated that while competitive pressure is felt, there was no significant impact from any single competitor, but rather a general challenge in breaking through the noise of value offerings [50] Question: What is the sentiment among franchisees regarding development timelines? - Franchisee interest remains strong, with many sites in permitting and construction, and no significant decline in development interest noted [87] Question: How is the company addressing the value proposition amidst rising prices? - Management is continuously assessing market data to ensure pricing remains competitive while focusing on driving transactions through value offerings [82][84]