Jack in the Box Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Observations: Lance Tucker noted challenging macro environment in QSR, Hispanic guests and lower income cohorts impacting sales, but confidence in teams and brands.
• Third Quarter Results: Faced challenges from macro environment, Hispanic guest spending pullback, lower income cohorts, and tough comps from prior year promotions and minimum wage increases.
• Strategies: Reintroduced Bonus Jack combo, Spicy Chicken Strips, Sauced and Loaded Potato Wedges, and pulsed Munchie Meals with Coca-Cola Starlight collab. Focus on Jack's Way: improve service quality, serve high-quality food at value, modernize restaurants.
• Technology: Digital mix reached 18.5% of sales, new POS installed in over 2,000 restaurants, anticipating full rollout by end of month.
• JACK on Track: Restaurant closure program, expectation of selling at least $100 million in real estate, and progress on Del Taco strategic process.

Segment Performance

• Jack Brand:
  • System same-store sales decreased 7.1%, with franchise same-store sales down 7.2% and company-owned down 6.4%. Restaurant-level margin was 17.9% (down from 21% year ago). Food and packaging costs as a percentage of sales were 28.6% (favorable, down 60 basis points). Labor costs as a percentage of sales were 34.5% (up 220 basis points). Occupancy and other operating expenses increased 160 basis points. Franchise level margin was $66.2 million (39.3% of franchise revenues) compared to $74.6 million (41.1% a year ago). There were 6 restaurant openings and 21 closures in the quarter, with 13 associated with the JACK on Track closure program.
• Del Taco:
  • System same-store sales declined 2.6%, with franchise down 2.7% and company-owned down 2.2%. Restaurant-level margin was 9.7% (down 370 basis points from prior year). Food and packaging costs as a percentage of sales increased 100 basis points to 26.6%. Labor costs as a percentage of sales increased 100 basis points to 39.6%. Franchise global margin was $6.4 million (27% of franchise revenues) compared to $5.8 million (27.1% last year). There were 3 restaurant openings and 9 closures in the quarter.

Guidance

• Total capital expenditures expected $85M-$90M for fiscal 2025, no share repurchases, dividend discontinued.
• Expected adjusted EBITDA $270M-$275M, operating EPS $4.55-$4.73.
• Jack in the Box same-store sales expected negative low- to mid-single digits, 30-35 gross restaurant openings, restaurant level margin 19%-21%.

Risks

• Macro environment challenges impacting sales.
• Hispanic guest spending uncertainty affecting Jack's sales.
• Lower income cohorts pulling back spending.
• Difficult comps from prior year promotions and minimum wage increases.

Question and Answer

Q: Is the guidance for Jack in the Box same-store sales down low- to mid-single digits for the fiscal year, it does imply a very wide range for the fourth quarter. Any help on the rate of change we should be expecting relative to 3Q's performance?

A: Lance Tucker said they're pivoting to better value with LTOs like Bonus Jack combo, Spicy Chicken Strips, and Munchie Meals with Coca-Cola Starlight collab, and trends improving in last couple of weeks.

Q: How did you decide on the $100 million real estate sales figure without knowing Del Taco strategic review outcome?

A: Lance Tucker said $100 million is at least, using real estate sales as balancer, will see where Del Taco process lands and other factors.

Q: How to get franchisees to buy into ongoing everyday value menu beyond LTO windows?

A: Lance Tucker mentioned fresh look at menu architecture, engaging third party, and balancing value with higher-end products to align franchisees.

Q: How sensitive is Jack's restaurant margin to 1% change in comps?

A: Dawn Hooper said it's 10 basis points based on 1% change in comps.

Q: Impact of environmental events on Jack's same-store sales?

A: Lance Tucker said impact has been relatively constant for Jack, attributable to footprint in California, Texas, Southwest.