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01/11 16:04
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights a mixed picture: there are positive developments such as digital sales growth and strong franchisee support, but challenges remain with same-store sales and significant debt. The Q&A section reveals management's cautious optimism and some lack of clarity on critical metrics, which tempers enthusiasm. The lack of a new partnership announcement or significant positive catalyst, combined with ongoing operational challenges, suggests a neutral stock price reaction in the short term.
Jack in the Box system same-store sales Decreased 7.1% year-over-year, with franchise restaurant same-store sales down 7.2% and company-owned same-store sales down 6.4%. The decline was due to a decrease in transactions and mix negativity, partially offset by price increases.
Jack in the Box restaurant-level margin Decreased to 17.9% from 21% a year ago, primarily driven by sales deleverage. Food and packaging costs as a percentage of sales declined 60 basis points to 28.6%, driven by beverage funding and menu price increases, partially offset by 4% commodity inflation. Labor costs increased 220 basis points to 34.5%, driven by a California unemployment payroll tax adjustment and wage inflation of 1.5%.
Del Taco system same-store sales Declined 2.6% year-over-year, with franchise same-store sales down 2.7% and company-owned same-store sales down 2.2%. The decline was due to a decrease in transactions and mix, partially offset by price increases.
Del Taco restaurant-level margin Decreased to 9.7%, down 370 basis points from the prior year. The decline was driven by lower sales, higher costs including utilities, labor, and commodity inflation of 4.7%. Food and packaging costs increased 100 basis points to 26.6%, and labor costs increased 100 basis points to 39.6%, driven by higher insurance and a California unemployment payroll tax adjustment.
Consolidated adjusted EBITDA Decreased to $61.6 million from $78.9 million in the prior year, primarily due to the impact of sales deleverage.
Consolidated GAAP diluted earnings per share Reported at $1.15 compared to a net loss per share of $6.26 in the prior year. Operating earnings per share were $1.02 compared to $1.65 in the prior year.
Bonus Jack combo reintroduction: Reintroduced at a compelling introductory price point to attract customers.
Spicy Chicken Strips: Launched with a new hot and honey flavor to appeal to core guests.
Sauced and Loaded Potato Wedges: Brought back for a limited time to drive customer interest.
Munchie Meals: Enhanced with culturally relevant collaborations, including Coca-Cola Starlight.
New market entries: Jack in the Box opened restaurants in Chicago, and Del Taco entered Durham, North Carolina, both with high initial volumes.
Operational excellence focus: Refocusing on service quality, consistent menu item delivery, and employee training.
Technology modernization: Achieved 18.5% digital sales mix, installed new POS systems in over 2,000 restaurants, and planned further enhancements to digital platforms and loyalty programs.
Restaurant reimaging: Planned multiyear initiative to modernize at least 1,000 restaurants.
JACK on Track program: Includes restaurant closures, real estate sales, and a strategic process for Del Taco to improve financial health.
Debt reduction priority: Focused on reducing leverage to mitigate interest expense and improve financial flexibility.
Macroeconomic Environment: The macro environment remains difficult, with consumers being cautious. Hispanic guests, a significant customer base for Jack in the Box, face uncertainty and have reduced spending, impacting sales. Lower-income cohorts have also pulled back spending, aligning with industry trends.
Pricing and Wage Pressures: Significant price increases in 2024 and California minimum wage hikes have negatively impacted year-over-year growth. Wage inflation and payroll tax adjustments have further increased labor costs.
Sales and Margin Decline: System same-store sales decreased by 7.1% for Jack in the Box and 2.6% for Del Taco. Restaurant-level margins have declined due to sales deleverage, higher labor costs, and increased operating expenses such as rent and utilities.
Operational Challenges: Operational excellence and service quality need improvement. The guest experience has suffered due to inconsistent service quality and outdated restaurant infrastructure. Temporary downtime from technology modernization has also impacted operations.
Franchise Health and Closures: The JACK on Track program involves closing underperforming restaurants, with 80-120 closures expected by the end of 2025. These closures aim to improve franchisee portfolio health but may result in short-term disruptions.
Commodity and Utility Costs: Commodity inflation of 4% and higher utility costs have increased operating expenses, further pressuring margins.
Debt and Leverage: The company has a high net debt to adjusted EBITDA leverage ratio of 5.7x. While cash flow supports the debt, the company aims to reduce leverage to mitigate interest expense increases in a high-rate environment.
Revenue Expectations: Jack in the Box expects same-store sales to be negative low- to mid-single digits for fiscal year 2025.
Margin Projections: Restaurant-level margin is expected to be 19% to 21% for Jack in the Box, including the full-year impact of AB1228, higher utility costs, and low- to mid-single-digit commodity inflation.
Capital Expenditures: Total capital expenditures for fiscal year 2025 are projected to be $85 million to $90 million.
Adjusted EBITDA: Adjusted EBITDA is expected to be $270 million to $275 million for fiscal year 2025, including $5.5 million in incremental marketing spend in Q4.
Operating EPS: Operating EPS is projected to be $4.55 to $4.73 for fiscal year 2025.
Restaurant Openings and Closures: 30 to 35 gross restaurant openings are expected for Jack in the Box in fiscal year 2025. Additionally, 80 to 120 restaurant closures are planned by the end of calendar year 2025 as part of the JACK on Track program.
Del Taco Strategic Process: The company is progressing through the strategic process for Del Taco and expects to share updates by the end of calendar year 2025.
Technology Enhancements: The new point-of-sale system is expected to be fully rolled out across the Jack system by the end of August 2025. Future enhancements to digital platforms, loyalty programs, and data capabilities are planned.
Restaurant Modernization: A multiyear reimage initiative is planned to touch at least 1,000 additional restaurants beyond the current program, with more details to be shared in November 2025.
Dividend Program: As previously announced, we discontinued our dividend.
Share Repurchase Program: We did not repurchase any shares of stock during the quarter.
The earnings call summary indicates mixed signals: modest improvements in same-store sales and effective marketing spend are positive, but negative sales projections and planned restaurant closures are concerning. The strategic focus on technology and innovation is promising, yet the lack of strong guidance and financial pressures on franchisees temper optimism. The Q&A reveals cautious macro assumptions and supportive franchisee sentiment, but also highlights financial challenges. Overall, these factors suggest a neutral stock price movement, with no strong catalysts for significant change.
The earnings call highlights a mixed picture: there are positive developments such as digital sales growth and strong franchisee support, but challenges remain with same-store sales and significant debt. The Q&A section reveals management's cautious optimism and some lack of clarity on critical metrics, which tempers enthusiasm. The lack of a new partnership announcement or significant positive catalyst, combined with ongoing operational challenges, suggests a neutral stock price reaction in the short term.
The earnings call revealed several negative factors: declining same-store sales, reduced margins, and a substantial noncash goodwill impairment leading to a significant GAAP loss. Despite maintaining guidance and some operational initiatives, the Q&A highlighted industry challenges, IT issues, and a cautious consumer base. The strategic alternatives for Del Taco and lack of clarity on closures add uncertainty. These factors, combined with reduced share repurchases and high debt, suggest a negative sentiment for the stock price in the near term.
The earnings call reveals several concerning factors: declining same-store sales, reduced margins, significant goodwill impairment, and a GAAP loss per share. Despite maintaining guidance, the financial health is weak with high debt levels and reduced share repurchase plans. The Q&A highlights industry challenges and company-specific headwinds, with management providing vague responses. The combination of these factors suggests a strong negative market reaction, potentially exacerbated by the lack of market cap information to gauge the impact.
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