Jack in the Box(JACK)2025-05-14 22:00Financial Data and Key Metrics Changes - Second quarter same store sales for Jack brand decreased by 4.4%, with franchise restaurant comp decrease of 4.5% and company-owned sales decrease of 4% [11] - Consolidated adjusted EBITDA was $66.5 million, down from $75.7 million in the prior year, primarily due to Del Taco refranchising and sales deleverage [18] - The company reported a consolidated GAAP diluted loss per share of negative $7.47 compared to diluted earnings per share of $1.26 in the prior year [18] Business Line Data and Key Metrics Changes - Jack brand's restaurant level margin percentage decreased to 19.6% from 23.6% a year ago, driven by lower sales and inflation [13] - Del Taco's system same store sales declined by 3.6%, with franchise sales decline of 4.2% and company-owned comp decrease of 1.7% [14] - Del Taco's restaurant level margin was 12.8%, down 400 basis points from the prior year, mainly due to lower sales and inflation [15] Market Data and Key Metrics Changes - Digital sales now account for 18% of system-wide sales, with a target of reaching 20% ahead of schedule [12] - The company experienced commodity inflation of 3.4% for Jack and 5.7% for Del Taco during the quarter [13][15] - Labor costs as a percentage of sales increased to 33.8% for Jack and 38.2% for Del Taco, primarily due to wage inflation [13][16] Company Strategy and Development Direction - The company is focused on becoming a simpler asset-light organization that drives sustainable growth for franchisees and investors [5] - The "Jack on Track" plan aims to strengthen the balance sheet, accelerate cash flow, and close underperforming restaurants [10] - The company is committed to technological advancements, including the rollout of a new point of sale system and modernization of legacy systems [9] Management's Comments on Operating Environment and Future Outlook - Management acknowledged significant pressure on multiple income cohorts leading to negative traffic and emphasized the importance of driving same store sales [6] - The company is facing challenges from cautious consumer behavior and self-inflicted issues related to technology integration [24] - Management remains optimistic about long-term growth despite current challenges, with a focus on core strengths and value offerings [26] Other Important Information - The company recorded a non-cash goodwill and intangible asset impairment of $203.2 million for the Del Taco reporting unit [18] - Capital expenditures for the quarter were $21.5 million, focusing on technology and digital initiatives [19] - The company has discontinued its dividend and did not repurchase any shares during the quarter [20] Q&A Session Summary Question: Current trends at Jack relative to the down 4.4% in 2Q - Management indicated that trends in the third quarter are in line with the second quarter, facing a challenging industry environment [24] Question: Company-specific headwinds affecting comp pressure - Management noted IT issues impacting 1% to 2% in same store sales and highlighted the brand's over-indexing on low-income consumers [29] Question: Key priorities for Del Taco during strategic alternatives exploration - Management emphasized the need for operational execution and revamping marketing strategies for Del Taco [36] Question: Allowance for doubtful accounts and potential bad debt expense - Management clarified that the increase is related to a specific franchise matter and does not anticipate it affecting the closure program [40] Question: Value positioning in the current environment - Management discussed the importance of perceived value rather than just low prices, focusing on core offerings and Munchie Meals [46] Question: Conversations with franchisees post Jack on Track rollout - Management reported positive feedback from franchisees, who are supportive of long-term changes [51] Question: Geographic concentration of upcoming closures - Management stated that closures will be spread throughout the system and will not concentrate in any specific area [56] Question: Strategic alternatives for Del Taco and potential divestiture - Management indicated significant interest in Del Taco and is exploring various options, with divestiture being a strong possibility [63] Question: Update on new unit development commitments - Management expressed excitement about new unit growth and mentioned ongoing developments in various markets [68] Question: Performance across different dayparts - Management noted even pressure across dayparts, with some successful promotions and partnerships [73]