Q4 2024 Earnings Summary
- Jack in the Box is making significant strides in digital capabilities, with digital sales reaching 14% to 16% and loyalty user growth up by 107%, indicating strong potential for sales growth through digital channels. The company is investing in a new app (including Android rollout) and enhancing its loyalty program, which is already driving incremental transactions and accelerated growth in first-party sales. , ,
- Innovative value offerings like the "Munchies Under $4" platform have led to a 120 basis point improvement in value trends and increased average check sizes due to add-on purchases. This focus on value and innovation has contributed to approximately 1% same-store sales growth in the first quarter to date, showing meaningful improvement from the prior quarter. ,
- Del Taco has successfully refranchised 80% of its restaurants, becoming an asset-light business, which can improve profitability and return on capital. There is continued demand for refranchising deals, with ongoing negotiations for 13 more restaurants. This strategic shift positions Del Taco for better margin management and growth potential.
- Jack in the Box's traffic declined by approximately 5% in Q4, indicating challenges in attracting customers and potential market share loss.
- Labor costs have increased significantly due to wage inflation of over 14% from implementing California's AB1228 minimum wage law, pressuring restaurant-level margins. ,
- The company anticipates increased competition as its largest competitor plans to release aggressive value deals in early 2025, which could further impact traffic and profitability.
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Margin Outlook
Q: What's the outlook for margins considering challenges like AB1228?
A: Margins are pressured due to AB1228, which increased labor costs by over 4 percentage points ,. Despite this, improvements in inventory management have enhanced food and packaging costs by almost 2 points. Driving top-line growth is essential, and new menu rollouts are showing substantial improvements both in top-line and bottom-line ,. -
2025 Guidance and Pricing
Q: Any thoughts on pricing into fiscal 2025?
A: For Jack, pricing is expected to be around 3% to 4%, with a 2% rollover and an additional 1% to 2% during the year ,. For Del Taco, pricing is expected to be 5% to 6%, with a 3% rollover and an additional 2% to 3% during the year, aligned with the new menu rollout. -
Franchisee Profitability
Q: How is franchisee profitability today and outlook for 2025?
A: Franchisee profitability is basically flat year-over-year , and the overall health of the system is good ,. However, AB1228 may impact P&L somewhat in 2025, with an estimated $15 million impact on company restaurants. Driving top-line growth is crucial for profitability. -
Development Pipeline
Q: Has the tough macro environment impacted franchisee appetite to build?
A: Franchisee appetite remains strong, with 101 development agreements for 464 restaurants. There are 18 restaurants under construction and 54 in design and permitting. New markets like Salt Lake City show promising Average Unit Volumes (AUVs) of $90,000. -
CapEx Guidance
Q: Can you break down CapEx guidance for next year?
A: Technology investments are around $40 to $45 million for digital and restaurant technology, including POS rollout to be completed by end of 2025. New restaurant openings account for $30 to $40 million, targeting markets like Chicago and Florida. The rest covers maintenance and reimages. -
Refranchising Del Taco
Q: Any updates on Del Taco refranchising milestones?
A: Del Taco is about 80% refranchised, achieving asset-light status. Deals are in works for 13 restaurants. Refranchising continues but is being evaluated considering AB1228's impact to maintain margins. -
Digital Initiatives
Q: How are digital efforts improving execution in 2025?
A: Focus is on enhancing guest experience through frictionless digital and back-to-basics programs ,. Investments in the digital stack and restaurant-level experiences aim to improve accuracy and reduce alerts. Digital sales are currently at 14% to 16%, with loyalty user growth up 107%. -
Value Strategy
Q: How did value mix trend this quarter, and are changes needed?
A: The "Munchies Under $4" value menu improved trends by 120 basis points in Q4. It also increased add-on purchases. Focus remains on growing value offerings amid competitive dynamics. -
Competitor Impact
Q: Did competitor issues benefit Jack's sales?
A: Improvements were already seen before competitors' challenges. While some share gain may have occurred, it wasn't the primary driver of better trends into the first quarter. -
California Performance
Q: Was softer performance due to California demand or share loss?
A: California performed relatively well, in line or slightly better than Q4 ,. Price strategy held up well. Industry-wide, QSR transactions are softer but expected to improve in 2025. -
Sales Acceleration
Q: What's driving the quarter-to-date sales acceleration?
A: Same-store sales are up approximately 1% at Jack, driven by innovation, value alignment, and leaning into digital. The rollout of the new app, including Android version, contributes to meaningful sales growth. -
Closures Impact
Q: Do you expect closures to subside and improve net openings?
A: Closures were accelerated in Q4 but the system's health is good. Going forward, closures are expected to align with industry norms of 16 to 18 per year or 1%. -
Capital Allocation
Q: What drives the share repurchase assumption for next year?
A: Priority is investing operating cash flow into strategic initiatives, with CapEx investments being priority one, followed by dividends ,. Share repurchases are modeled based on comfortable free cash flow levels. -
Traffic and Mix Metrics
Q: How did traffic and mix perform in Q4, and expectations for 2025?
A: Traffic was down about 5%, with slight improvement from Q3. Mix improved slightly, and price was lower than the previous quarter. For 2025, expect a combination of traffic and mix changes in line with pricing expectations.
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