Q3 2024 Earnings Summary
- Strong new market performance and expansion plans: Jack in the Box is experiencing significant success in new markets like Salt Lake City and Louisville, with Salt Lake City averaging over $100,000 in weekly sales across five locations after 40 weeks, and Louisville's two locations averaging between $60,000 and $70,000 in weekly sales after nine months. This strong performance supports aggressive expansion plans into new territories, including up to 10 company-owned units in Chicago in 2025, as well as continued growth in Florida and Mexico. ,
- Robust pipeline of development agreements driving unit growth: The company has signed numerous new development agreements, adding 28 more restaurants for Jack in the Box and 33 for Del Taco during the quarter, leading to a total of 18 new franchisees at Jack in the Box with commitments for 156 restaurants. Management remains confident in achieving their long-term unit growth targets and staying on track with their 2027 roadmap, indicating sustained future growth. , ,
- Successful product innovation boosting sales and margins: Initiatives like the Smashed Jack burger platform are performing exceptionally well, contributing over 5% of sales and adding incremental margin. The company plans to leverage this platform for future innovation. Additionally, menu simplification tests at both Jack in the Box and Del Taco are showing promising results, with improvements in sales, margins, and speed of service, pointing towards positive impacts upon system-wide rollout. ,
- Continued negative same-store sales performance and guidance indicate ongoing sales challenges. Jack in the Box reported a system same-store sales decline of 2.2% in Q3 2024, and management's guidance implies continued negative same-store sales in Q4.
- Del Taco's declining sales and margins may hinder refranchising efforts and growth prospects. Del Taco same-store sales declined 3.9% in Q3 2024, with a restaurant level margin decrease of 400 basis points to 13.4%, potentially affecting the timing and economics of refranchising the remaining company-owned units.
- Significant goodwill impairment at Del Taco indicates challenges with the acquisition. The company recorded a non-cash goodwill impairment of $162.6 million for the Del Taco reporting unit due to lower current performance and updated assumptions impacting long-term forecasts.
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Same-Store Sales Outlook
Q: What's the outlook for same-store sales in Q4?
A: The company expects Q4 same-store sales to be flat to slightly down, improving from Q3's performance. Quarter-to-date, sales are slightly negative but better than the third quarter, with opportunities to improve due to easier comps and ongoing initiatives. -
Franchisee Profitability
Q: How are franchisee profits relative to last year?
A: Franchisee profitability is up about 2 percentage points year-over-year and over the trailing 12 months. Although AB 1228 has impacted labor costs by 1–2%, pricing actions have offset some of this. Franchisees are optimistic due to initiatives like new POS systems and technology improvements to drive margins. -
Refranchising Del Taco Units
Q: Does Del Taco's sales decline affect refranchising plans?
A: The company continues with refranchising plans and has closed deals post-quarter, including a transaction for 27 locations and a development agreement for 2025. They have letters of intent in process and see strong interest, with performance improvements in California aiding optimism. -
Net Unit Growth and Development
Q: Are you still anticipating net unit growth?
A: Yes, the company expects to be net unit positive and is within their guidance. They are on track for their long-term goal of 2% unit growth by 2027, with over 103 sites in permitting and construction and continued signing of new development agreements. -
Underperforming Regions
Q: Where are you seeing underperformance?
A: Underperformance is heavier in Texas and the Northwest, while California and the Midwest are performing better. The impact in underperforming regions is partly due to aggressive pricing earlier, limiting current pricing flexibility and affecting traffic. -
Value Proposition and Pricing
Q: Is pricing affecting value perceptions?
A: The company assesses pricing by item and market to maintain value perceptions. They focus on everyday value offerings like the $5 Big Meal Deal and Munchies Under $4 to drive transactions, especially among lower-income guests. Pricing discipline allows them to adjust as needed without hurting the brand's value image. -
Menu Simplification Initiatives
Q: Any plans for menu changes?
A: Both brands are testing menu simplification to improve sales and margins. Early results at Del Taco show improvements in sales, margins, and speed. If positive trends continue, they plan to roll out these changes in 2025. Jack in the Box is also seeing promising early results. -
New Market Performance
Q: How are new markets performing?
A: The new market playbook is working well. In Salt Lake City, five locations average over $100,000 per week after 40 weeks. Louisville locations average between $60,000 and $70,000 per week after nine months. The company is signing new franchisees and has strong commitments for future openings, indicating sustained performance. -
Impact of New Products
Q: How have new products been received?
A: The Smashed Jack burger platform is performing well, mixing over 5% of sales and adding incremental margin. The late-night Cube Meal drove positive transactions with a 13.6% increase at late night. While these products are successful, they haven't fully offset challenges with lower-income guests and breakfast dayparts. -
Remodel and Refresh Uptake
Q: What's the uptake on remodel initiatives?
A: There is substantial demand for remodels. After introducing the CRAVED image, over 600 forms were submitted by franchisees expressing interest in reimaging. Completed industrial remodels have seen a 15–16% sales lift. The system is excited, and the company is prioritizing locations for incentives. -
California Performance
Q: How did California perform in Q3?
A: California fared better than the overall system. Strategic pricing adjustments by menu item and store helped offset transaction declines. Franchisees worked with the company to implement these changes effectively, leading to better-than-expected performance in the state. -
Competitive Impact on Trends
Q: Did competitors' $5 meal deal affect trends?
A: The company didn't see a major impact from any single competitor. Industry-wide competitive pressure makes it tougher to stand out, but no dramatic change was observed due to competitors' promotions. The lower-income guest segment feels more of the overall competitive pressure. -
Positioning in Chicago Market
Q: How are you positioning for Chicago's 2025 entry?
A: The strategy involves aggressively entering Chicago with up to 10 locations, leveraging conversions for rapid penetration. This mirrors successful approaches in markets like Louisville and Salt Lake City, combining company builds with franchisees to quickly impact the market.