Thank you for standing by. My name is Dina, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Jack Third Quarter 2023 Earnings Webcast. [Operator Instructions] Thank you..

Now I would like to turn the call over to Chris Brandon, Vice President, Investors Relations. .

Thanks, operator, and good morning, everyone. We appreciate you joining today's conference call, highlighting results from our third quarter 2023. With me today are Chief Executive Officer, Darin Harris; and our Interim Chief Financial Officer, Dawn Hooper.

Following their prepared remarks, we will be happy to take questions from our covering sell-side analysts..

Note that during both our discussion and Q&A, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in the earnings release, which is available on our Investor Relations website at jackinthebox.com..

We will also be making forward-looking statements based on current information and judgments that reflect management's outlook for the future. However, actual results may differ materially from these expectations because of business risks.

We therefore, consider the safe harbor statement in the earnings release and the cautionary statements in our most recent 10-K to be part of our discussion.

Material risk factors as well as information relating to company operations are detailed in our most recent 10-K, 10-Q and other public documents filed with the SEC and are available on our Investor Relations website..

And with that, I'd like to turn the call over to our Chief Executive Officer, Darin Harris. .

Thank you, Chris. I want to begin by thanking our restaurant-level team members, our franchisees and the Jack and Del Taco corporate staff who continue to make us proud of their dedication to serve our guests and the results being achieved from the execution of our strategy.

We are very pleased with the performance of our business in Q3 and we continue to see the execution of our strategy deliver results..

In the quarter and year-to-date, we have demonstrated continued top-line and margin momentum that has resulted in impressive adjusted EBITDA and operating EPS growth. I believe our performance reflects 3 items; strong operations execution, the right promotions at the right time and effective communication and engagement with our core users.

This quarter was also an exciting milestone for entering new markets and our future growth with a very successful start to our entry into Salt Lake City and strong sales results right from the start..

We are also pleased to reiterate our guidance from last quarter, while increasing our share repurchase outlook as a result of the accelerated refranchising of Del Taco restaurants. As you saw this morning, we are very excited to announce that Brian Scott has accepted the role of Chief Financial Officer at Jack in the Box.

Brian brings tremendous experience to the Jack family, including a decade-long tenure as CFO of AMN Healthcare, helping take the company public and grow it into a $3.5 billion leader within its industry. We look forward to introducing you to him..

And lastly, I'd like to give a special thanks to Dawn Hooper, who has done an outstanding job the past 8 months as our Interim Chief Financial Officer. Part of this morning's announcement included the addition of Dawn to our executive leadership team.

I, along with our management team, am excited to be continuing to work closely with her and she will make a great addition to our team going forward..

Now let's briefly dive into each of our strategic pillars. We begin with building brand loyalty and our efforts to grow sales and accelerate transactions with our great marketing strategy.

Jack same-store sales grew 7.9% led by continued staffing and operating hours improvement, especially in our late-night daypart, enabling us to flex promotionally and we did just that..

To mark the 10-year anniversary of the original Munchie Meal, we teamed up with Snoop Dogg to introduce the limited edition Snoop's Munchie Meal in addition to the build-your-own Munchie Meal platform.

Snoop's version featured a few new items like our spicy sauced and loaded chicken sandwich, a baked brownie and a Snoop Air Freshener for those that were lucky enough to get one prior to selling out.

Our Jack in the Box restaurant in Inglewood, California, also got simplified Snoopyfied with a Dog in the Box takeover from June 29 to July 2 in celebration of this partnership. We dropped it like it was hot, creating a guest experience unlike ever before at Jack and our guests and fans loved it..

But all kidding aside, the promotion had some important signals related to our business and investor story. First, that our restaurants are in much better shape related to staffing and hours and to the point where a national late-night activation such as this was even possible.

Second, it helped those within our system that had yet to reopen late night to do so in a more rapid fashion. And lastly, it enhanced our belief that Jack can truly own late-night.

And while this collaboration was certainly a key sales and transactions driver, it can also be seen as our first big opportunity since COVID to replan our flag into this all-important daypart..

Our hook and build strategy continues to drive add-on purchases and ticket, helped by the return of fan favorites, French toast sticks and mozzarella sticks. And early in the quarter, our Pineapple Express Shake and Pineapple Express Red Bull Infusion drove incremental sales and provided customers with a new occasion.

On to the premium side of our barbell menu, we continued with new product innovation, introducing 2 Ribeye Steakhouse Burgers..

It was an active quarter for digital and our investments in martech continue to position Jack to be a more formidable digital competitor. Digital sales are now approaching 12%, up from 10.6% a year ago. And encouragingly, we saw a big jump in usage of our Jack e-commerce channels in Q3.

Notably, the new redesigned app and recently launched web ordering site, both of which are beginning to gain more traction since their launch a couple of quarters ago..

These channels provide customers with ease of ordering, while enabling us to capture important data that can be used to communicate with our guests more effectively and grow our Jack Pack Rewards database. We continue to focus on our Jack Pack loyalty program with membership up 34% since Q2.

And third-party delivery continues to perform well with a nearly 12% increase in sales contribution year-over-year, certainly helped by late night. This all led to higher average check and improving transactions from our digital guests and a 54% increase in web and app sales compared to Q3 last year..

Lastly on this pillar, I'd like to briefly update you on reimaging. We completed 2 franchise reimages during the quarter and are encouraged to see solid interest from our franchisees with 81 restaurants in the design and permitting stage.

We still expect about 5 industrial image remodels to be completed by the end of Q4 for both franchise and company-owned. And we look forward to updating you on the performance and sales lift of these stores as we gear up for 2024 to be a strong year for the Jack reimage program..

Now turning to our second pillar, driving operational excellence. Our laser focus on building the capability of our people, elevating the execution of standards and simplifying our operating system continues to result in a better and faster guest experience.

Over 95% of our system has now been trained and certified, which contributed to a 12-second improvement in speed of service, representing the fourth consecutive quarter of year-over-year speed improvement..

We returned to unannounced food safety evaluations in Q3 and continue to see year-over-year and quarter-over-quarter improvements in food safety and third-party assessed standards. All in all, we are operating at very high levels.

And I credit both the operations team and franchisees for their dedication to improve the guest experience and implement our new approach..

Both hours of operation and reopened dining rooms remain tailwinds to transactions. Franchisees have made greater strides over the past couple of quarters, doing so again in Q3. To their credit, we are nearing pre-COVID levels.

Lastly, we are very close to selecting our new POS provider, and implementation is still on track to begin in the first quarter of fiscal 2024 with completion by the end of fiscal 2025.

This modernized restaurant tech stack will create future cost saving opportunities through more enhanced back office systems plus automation and AI, which should also have a positive impact on the guest experience..

Success across our operational focus areas should lead to growing restaurant profits, our third strategic pillar. We have enhanced our restaurant-level margin in the past 2 quarters and are taking advantage of the improving operating environment by doing all we can to maximize franchise profitability in 2023.

Whether it is with new technology, equipment, processes or supply chain synergies, we identified initiatives that could result in potential annualized savings of $55,000 per restaurant or approximately 200 basis points of RLM..

Our progress to realizing the savings continues. We have now rolled out 50% of these programs and are beginning to see them take hold, as evidenced in our improving margins.

With inflation easing and value becoming even more important, we will continue to be surgical with our pricing actions using more sophisticated data and analytics tools to identify restaurant-level pricing opportunities.

Improved restaurant economics for franchisees and positive relationships within our system is now being reflected in our growth pipeline..

We are now seeing development agreements turn into sites and process and sites now having shovels in the ground, which of course, brings us to our fourth and all-important final pillar, expanding our reach. Since launching our Jack development program in mid-2021, we have signed a total of 77 new agreements for 340 restaurants.

Included in this was our first new Jack franchisee in over a decade, and now there are 5 total, along with new market development agreements for Florida, Arkansas, Montana and Wyoming.

Our upcoming entry to Montana and Wyoming comes from an incremental development agreement via Del Taco refranchising, which included commitments from a Del Taco franchisee to build both Jack and Del Taco restaurants..

Regarding our development within the Mexico border cities, we are making swift progress and will open the first Jack restaurant during the first half of fiscal 2024. We look forward to bringing a brand that is familiar, along with an operator that has proven to this market for the first time in over 30 years..

In Q3, we opened 6 Jack in the Box restaurants, the highest quarter of openings thus far in 2023 with 2 in Texas, 2 in California, 1 in Arizona and our first in Salt Lake City. This particular CRAVED image restaurant, a conversion of one of our competitors, they viewed with record-setting sales.

In fact, in Salt Lake City, the first month sales were 66% higher than the previous new market record at Jack..

We developed and we're able to implement our new market opening playbook created by our marketing and operations teams, which focuses on recruitment and training our team members, while maximizing the key marketing phases of operating success such as creating brand awareness in the market, a restaurant launch and then sustaining our guest base.

It was not only our inaugural restaurant in this market, it was also our first restaurant to execute against this playbook, and it is working even better than we anticipated. Not only did we set the single-store monthly sales record, but top-line continues to grow week-over-week since opening in mid-June..

Note also that the restaurant is not fully open for late night nor have we activated digital, both of which support our commitment to serving our guests well and opening with simple operations upon entering a new market.

We plan to open 3 additional Salt Lake City locations by end of fiscal year, including our second drive-through-only concept prototype in the U.S. and at least 6 in 2024, which will be a combination of company and franchise restaurants. And in Q4, we anticipate opening our first 2 company-owned restaurants in Louisville..

We have an active fourth quarter ahead with 82 restaurants currently in the permitting, design or construction phases.

And while we still see a handful of closures occurring this year, we will reach positive net unit growth in 2023 for the first time in nearly 5 years and are on track to be at the lower end of the guidance range on our gross openings for 2023.

Net new restaurant growth is critical to increasing value and we are focused on this trend continuing in the future..

Let's now turn to Del Taco, which continues to be a value-driving addition to our company and I'm very excited about the growth potential of the brand. Del Taco is well positioned to meet varied customer needs with its strong value proposition and barbell menu strategy.

Same-store sales grew 1.7% during Q3 with results tightly aligned between company and franchise restaurants. Increased hours of operation remained a key growth driver, increasing 1.7 hours per store compared to 2022 as the brand is getting closer to pre-COVID levels..

The 20 Under $2 menu platform, which was introduced in 2022, is still holding steady at approximately 16% during non-promotional periods. However, during Q3, we featured $5 Del's deals, which added another value layer to our barbell menu.

This line consists of a variety of Del Taco fan favorites, along with Crinkle Cut Fries and a small drink and it's at a great value. We also brought back our very popular Carnitas menu for a limited time. We saw continued growth across all sales channels and digital now represents total sales of 11.3%, up from 11.1% in Q2..

Last month, Del Taco revamped its Del Yeah! Rewards by adding new branded member engagement features. Rewards members can now earn free food faster with decreased point level tiers and features like surveys and polls, shareable vanity badges and punch cards. There are currently 1.5 million members, up from 1.3 million last quarter.

And as we continue to grow membership, we will be able to drive incremental visits, frequency and average spend..

Turning to operations. There is a continued focus on recruiting and the expansion of labor hours to help drive same-store sales, aided by increases in labor availability and offering higher wages.

We have also been applying the same operational focus at Del Taco that we've had at Jack and are seeing traction to reduce turnover and alerts per store, which are both the lowest in more than a year. Since the Del Development program launched in 2021 and as of the end of Q3, Del Taco has now signed 20 agreements for a total of 153 restaurants.

We opened 2 franchise restaurants in Q3..

Through these first 3 quarters, we have refranchised 66 Del Tacos, including 50 in the quarter alone, and now expect to refranchise between 90 and 120 restaurants this fiscal year. This is led by tremendous demand from our proven operators and developers within Jack and Del Taco.

The combination of healthy valuations and incremental development agreements, plus using proceeds for share repurchases, make these transactions accretive as we move to a more asset-light model..

To wrap up, as we proceed with the execution of our strategic pillars, we are creating real value for all stakeholders; our team members, franchisees, guests, and of course, investors. We are proud of what we are accomplishing and we will remain focused on the areas important to continue the trend.

Thank you for your time and interest in the strategy we are executing and the growth story we are building..

I will now turn the call over to Dawn. .

Thanks, Darin, and good morning, everyone. I'm going to start by reviewing each of our 2 brands individually, followed by details on our consolidated performance and capital allocation..

Beginning with Jack in the Box, our third quarter system same-store sales growth was 7.9% consisting of company-owned comps of 6.9% and franchise comps of 8%. On a 3-year basis, same-store sales growth was 17.5%.

Jack's quarterly system-wide same-store sales growth of 7.9% includes an 8.7% increase in pricing, a 0.2% increase in mix and a 1% decrease in transactions. As a result, our overall average check increased since the prior year and we have also seen positive year-over-year mix shift for the second consecutive quarter.

And although down, our transactions were supported by the effective execution of our hook and build strategy and the successful marketing of our barbell menu with culturally-relevant messaging..

Additionally, we have had improvements in operations execution, including increasing the average operating and dining room hours, which remain tailwinds for the Jack in the Box system. And while company operations are leading the way, franchise operations are nearly caught up.

On product categories, notable contributions came from burgers, chicken and breakfast. All dayparts generated positive sales year-over-year. But once again, the late night daypart stood out the most with late night now posting positive transactions year-over-year for the third straight quarter..

Turning to restaurant count. There were 6 Jack franchise openings along with 2 franchise closures. This resulted in a quarter-end restaurant count of 2,191 restaurants. As a reminder, Jack will be delivering positive net restaurant growth in fiscal year 2023 for the first time since fiscal 2019..

Moving on to our Jack restaurant-level margin. We expanded performance year-over-year by 600 basis points to 21.8%. Notably, this is inclusive of our 2 remaining evolving markets, Oklahoma and Kansas City.

Food and packaging costs as a percentage of company-owned sales declined 160 basis points to 31.4%, driven primarily by sales performance, led by menu price increases and a positive shift in sales mix, partially offset by an increase in ingredient costs..

Commodity inflation was 5.2% for the quarter with the greatest increases seen in potatoes, sauces, produce and beverages, partially offset by lower cost for pork, cheese and poultry.

Labor as a percentage of company-owned sales fell 310 basis points to 30.3% due to sales leverage, inclusive of price increases and the benefit of refranchising Oregon and Nashville within the last year. However, this was partially offset by wage inflation of 4.2% in the quarter compared to the prior year..

Occupancy and other operating costs decreased 130 basis points to 16.5% of company restaurant sales due to leverage from higher sales and the benefit of refranchising, partially offset by higher other operating costs, including utilities, delivery fees and security as compared with the prior year.

Franchise-level margin was $75.3 million or 41.1% of franchise revenues compared to $70.8 million or 41.4% a year ago. The $4.5 million increase was mainly driven by the flow-through of higher sales in the current year..

Turning now to Del Taco. System same-store sales rose 1.7% consisting of company-owned comps of 1.7% and franchise comps of 1.8%. Del Taco's quarterly system-wide same-store sales growth of 1.7% included an increase in pricing of 8.1%, partially offset by a decline in mix of 3.8% as well as a decline in transactions of 2.4%.

Average check is up year-over-year, although average items per check were slightly down. The dayparts that contributed the most to sales this quarter were led by snack and dinner. Staffing improvements resulted in operating hours running above 2022 levels with continued upside opportunity..

In Q3, there were 3 restaurant closures and 2 Del Taco franchise openings. The Del Taco restaurant count at the end of quarter was 594 restaurants. Del Taco restaurant-level margin was 17.4% compared to 17.6% in the prior year.

Food and packaging as a percentage of sales decreased 70 basis points to 27.7%, which was primarily due to menu price increases, partially offset by commodity inflation. Labor as a percentage of sales increased 110 basis points to 34%, primarily due to wage inflation, which was approximately 4.8% in Q3..

Occupancy and other operating expenses decreased 20 basis points to 20.9%, driven primarily by lower common area maintenance costs. Franchise-level margin was $5.5 million or 36.7% of franchise revenue compared to $5.1 million or 42.7% last year.

The decrease in the percentage was driven by higher franchise costs and the impact of refranchising transactions with pass-through rent, partially offset by franchise same-store sales growth..

Shifting now to our consolidated results. Consolidated SG&A for Q3 was $39.6 million or 10% of revenues as compared to $40 million or 10.1% a year ago. Excluding net COLI gains, G&A was 2.4% of total system-wide sales and within our long-term expectations.

Included in other operating expense net for the quarter is impairment of $5.4 million, which is primarily related to Del Taco locations in our Oklahoma and Atlanta markets..

Consolidated adjusted EBITDA was $79.4 million, up from $73.2 million in the prior year, due primarily to higher Jack franchise and restaurant-level margins. The consolidated GAAP diluted EPS was $1.41 compared to $1.08 in the prior year.

Operating EPS per share, which includes certain adjustments was $1.45 for the quarter versus $1.38 in the prior year. Note that the effective tax rate for the quarter was 32.6% compared to 28.8% for the same quarter a year ago. The operating EPS tax rate for the third quarter of 2023 was 26.8%..

Moving to capital allocation. During Q3, we repurchased approximately 0.3 million shares for $26.9 million, including the applicable excise tax as part of our ongoing share repurchase program. Year-to-date, we have repurchased $60.4 million.

We now plan to execute at least $80 million in share repurchases this fiscal year and currently have $152 million (sic) [ $115 million ] remaining under our Board authorized buyback program.

As of quarter end, we had available borrowing capacity of $172 million, net of letters of credit, which is comprised of $109.8 million under our variable funding notes as well as $62.2 million under our Del Taco credit facility..

Beyond share repurchases, we will also continue investing in our brands, while returning cash to shareholders through dividends. To that end, on August 4, 2023, the Board of Directors declared a cash dividend of $0.44 per share to be paid on September 18, 2023 to shareholders of record as of the close of business on September 6, 2023.

Of course, future dividends will be subject to Board approval..

For guidance, we would like to reiterate our expectations from our prior earnings call in May with the exception of 2 items. First, we now plan to refranchise 90 to 120 Del Taco restaurants in fiscal 2023, up from our previous guidance of 65 to 85 restaurants.

This will not impact our operating EPS guidance of $5.90 to $6.10 for fiscal 2023, which remains the same as previously stated. Second, we now plan to execute at least $80 million in share repurchases in fiscal 2023..

While we do not typically provide quarterly commentary, we do want to provide some additional color on the fourth quarter given the operating environment over the last year.

In the fourth quarter, we are beginning to lap some of the stronger price increases taken last year, which is likely the case with others in our industry as well as improvements in hours of operations..

Additionally, we would also like to remind you that we will be rolling over 2 items from the prior year. First, you will recall, we experienced higher than normal early termination fees in the prior year due to some accelerated closures, the level of which will not recur this year. And second, we received a chicken-related legal settlement.

Both of these items benefited operating EPS by $0.30 in Q4 last year. That said, we are leaning into value, beginning with our Jack Pack Combos in Q4 and our long-term top line fundamentals remained strong..

In summary, we are very pleased to have delivered another quarter of robust performance and are on track for the remainder of the year. Thank you to both the Jack and Del Taco teams for what they are doing on behalf of our brands..

And with that, we'd be happy to take some questions. Operator, please feel free to open the line for Q&A. .

[Operator Instructions] Your first question comes from Brian Bittner, Oppenheimer. .

Congratulations on the strong quarter. You did have a very strong third quarter with your EPS. It was well above consensus expectations despite the fact that you had a $0.19 impairment charge that none of us were modeling.

And I think that shows that the underlying business was tracking well above consensus forecast, but the full year guidance has an implication for the fourth quarter. It has an EPS range for the fourth quarter that's well below the Street.

And I know you have a lot of refranchising, you talked about the labs from last year, but we kind of all have those in our model. So all things considered, the only way to get to the fourth quarter implied EPS range is to have a pretty measurable deterioration in the underlying business..

So I guess, the question is, is there some costs coming in the fourth quarter that maybe we're not aware of? Or is your guidance for the fourth quarter perhaps [ tilting ]? Is it little bit conservative? Any color you can provide on all that would be helpful. .

Yes, I think there are several factors that you need to consider, one of which I mentioned in my prepared remarks, and that's a non-recurring benefit that we received in Q4 last year that won't be recurring and that relates to some outsized early termination fees related to accelerated closures and then a chicken settlement.

As you noted, we did record $0.19 of impairment..

The other items to take into consideration is the increased refranchising that we've accelerated due to the strong interest in multiples we've received in addition to the acceleration in our development pipeline as it related to the development agreements we've been able to sign with those refranchising transactions..

And lastly, I think like others in our industry, we're going to be lapping some of our peak pricing that we took a year ago. In fact, Q4 for both brands was the strongest performing quarter of last year. And just from a pricing standpoint, we're going to be rolling over or rolling off about 400 basis points of price in Q4.

And then lastly, we really saw an increase or an uptick in our hours of operations recovery last year, and we're rolling over that. So when you take all that into consideration, we're reaffirming the operating EPS guidance for the year. .

So Brian, I think Dawn did a good job of capturing our sentiment. We feel that generally the business is performing extremely well. You're seeing it quarter-after-quarter. We anticipate that continuing into the fourth quarter. All year we've been guiding conservatively for this fourth quarter because of these one-time events.

And as most of us in the industry trying to figure out what the fourth quarter will look like overcoming such price. .

That makes sense. And just, Darin, if I could follow-up with you. You made an interesting comment in your prepared remarks as it relates to value becoming much more important for driving the business.

Can you just unpack that comment a little bit? Is that a comment on the macro? Are you seeing something in the macro that's causing you to believe that value is becoming incrementally vital or anything else you can add to your comments around value?.

I think for us, what we're noticing within our business and within the industry is that balancing between premium and value is critical to driving transactions. And so we're just paying closer attention, not that anything has shifted yet. We're anticipating that small shift.

And so we're balancing more of our promotional items through the back half of the year with some focused value opportunities. .

Your next question comes from Gregory Francfort, Guggenheim Securities. .

Maybe, Darin, I think maybe 8, 9 months ago, we were speaking and you were talking about low-hanging fruit around rightsizing pricing by market.

And I'm wondering if you could maybe first address what you think are the biggest pieces of low-hanging fruits from here going forward? And two, as you think about pricing, do you think you should outsize the industry or underprice the industry going forward, just given that that may still be a continued opportunity?.

Yes. I think for us, we continue to feel really good about late night and that business growing. And I also think we have opportunity to continue to perform at the breakfast daypart. Those are the 2 areas I think that we have from a daypart standpoint. And then digital, digital continues to grow for us.

It continues to be a substantial growth part of our business. We saw an 18% -- a little over 18% increase in digital alone leading to 2% of the comp. So we're seeing our overall business perform across both daypart and different delivery modes..

The other thing on pricing, what we're seeing is, we've implemented internal discipline with analytics tools that enable us to go in and pick specific regions, stores and find unique opportunities across our whole menu. And so we're focused more on a surgical approach than a blanket approach.

And we look at those opportunities market-by-market and store-by-store. .

Your next question comes from Brian Mullan, Piper Sandler. .

Just a question on the Del Taco refranchising process. It's great to see it progressing so quickly now. We now have visibility into what the system should look like at the end of this fiscal year.

Can you just give us your current thinking on how you expect this to evolve throughout fiscal '24? I understand it's probably hard to be precise, but just any kind of guardrails or ranges around how you expect it to look would be great. .

Yes, not at this time. We'll continue to focus on the guidance of $90 million to $120 million for this year. We'll revise our guidance as we head into '24. But overall, you're seeing us make substantial progress getting incremental development agreements for Jack and Del. We're putting restaurants in the hands of our best operators at Jack.

That was part of our thesis going into this transaction, we knew there was pent-up demand and our Del Taco operators. So overall, what you can definitely see is that we're continuing to up our share repurchases. These transactions are accretive based upon the multiple valuations that we're getting.

And so we'll continue to execute on that strategy as aggressively as we have in '23. .

Next question is from Andrew Charles, TD Cowen. .

Darin, I have a 2-part questions on the value prioritization.

So first, is hook and build going to be the preferred route that you guys offer value through? I know the $6 Jack Pack is something you have, but are you planning to lean into value more that way or just given the digital traction, is that going to be more of a preferred route as you look to do kind of more targeted and personalized value offerings? So curious on the format of how we should think about value going forward? And then secondly, on the value.

I mean, is this also the timeframe of the planned launch, [ The Hero ] menu item that you guys previously talked about is launching at some point early in fiscal 2024?.

So related to value, I think value is what you get for what you pay. And so we look at channel. So on digital, we're more aggressive with our value offers and our discounting.

As we think about menu items, it's items that will drive traffic similar to the $6 Jack Pack or we also have Jack's Deals now that are in test and we feel good about that offering. Very similar to what you would see at Del Taco with our 20 Under $2.

We were able to learn from what they've done there and we're replicating something for that that we would rollout later into 2024. So we have multiple levers to play in value now that maybe Jack didn't have previously. And so we focus those on the right channels at the right time.

And then as far as The Hero menu item, we're testing that item or a few different items related to that. And we anticipate rolling that out in 2024. .

Next question comes from David Tarantino from Baird. .

My question, Darin, is about the performance you're seeing in Salt Lake City, which seems pretty encouraging. I was wondering if you could share more details on -- I know you mentioned that the volumes are a lot higher than what you normally expect in a new market, but I don't think you've ever shared what you expect in a new market.

So I was wondering if you could share more details on what the volumes are tracking towards? And what that would mean for a return profile, because it sounds like a pretty good early data point? And I might have a follow-up. .

Yes. We're not going to quote exact sales, but I can tell you, this is an all-time record for the brand and 66% higher than any of our previous store openings for monthly sales. And what's encouraging about that, we're not open at late night yet. We're just starting to open the digital channel. We're implementing our playbook for new markets.

And this store is on track to be, if not the highest volume restaurant in our system, but one of them..

So we feel good about the franchise operator there, how he's executed. We feel good about the playbook we implemented. And we're just now getting to the point of starting to deliver media in the market. What's even more exciting about that is we have 3 more openings in Salt Lake City in fiscal year '23 and another 6 planned for fiscal year '24.

And so we're encouraged by what we're seeing with the 3 unit opening. And beyond that, what we didn't comment is on the other openings within the system. We're definitely seeing them outperform system average. And so we think we're on to something, especially with the new CRAVED image. .

Great.

And on the playbook, can you just elaborate on what you did to create so much excitement around this new restaurant in Salt Lake City versus maybe what you've done before in newer markets, just to give us some context on how you're going to market?.

Yes. Overall, from -- we want to make sure operations are executing at the highest level. So we staff at a very high level. We've trained our team for multiple months being ready to launch in the market. And so with that, then we kicked into marketing and we're at the early stage of our marketing.

So after simplifying operations, making sure they were in order, then we started communicating locally within the market about Jack in the Box entering. And a lot of that was through social and digital channels. And we're just now getting to the point where we're ready to launch our overall awareness within campaign. .

Next question is from Dennis Geiger, UBS. .

Great.

As you continue to make progress against restaurant development growth, can you talk a little bit more about franchisee sentiment right now on development, particularly as it relates to the environment across any macro pressures or industry timing issues that we're hearing from some of your peers? All sounds good and positive, but just curious if any updates there, Darin? And maybe if there's any early thoughts kind of into next year's development considerations to high-level touch on today?.

Yes, we're excited. We just left a franchise conference where franchisees are really feeling good about where the brand is, especially from a top-line standpoint. Their margins are coming back. You see what's happened with our margins on the corporate side, improving 600 basis points year-over-year.

Our initiatives to drive margin with the 200 basis point focus, we're 50% rolled out of those initiatives. And they're not even taking hold yet, though in the back half of the year, we anticipate those starting to take hold. So sentiment from the franchisee standpoint is very positive..

And to come back to where you're talking about our development, I think that our pipeline continues to grow. We now have 82 restaurants in permitting, design or construction. That's the most in well over a decade. That's grown since last quarter. We continue to sign new franchisees. That's just on the Jack side.

On the Del side, we're having the same thing. We have a substantial number of agreements signed as a result of refranchising and that was part of our strategy. And that's also with Jack in the Box franchisees and Del Taco franchisees. So the sentiment is positive. The development pipeline is starting to take hold.

And now it's about putting shovels in the ground, as we said in our comments, and that's beginning to happen. .

That's great. And if I could have a quick follow-up just on Brian's question earlier. I think you spoke to it to a large extent, Darin. But if there's anything to add on what you're seeing from customers? I know you mentioned kind of the number of items per ticket down. That may just be a continuation of what you and maybe the industry has seen.

But any other behavior changes to call out, income demographic behaviors, anything like that?.

On the Jack side of the business, when we look across all of our income deciles, we're seeing the best performance coming from the higher income. Some of that is our strategy and what we've been promoting from a premium standpoint.

Some of it is just the response we're getting since we did segmentation research and identified a customer base that we targeted since myself and Ryan joined the company. And then the last thing is just a balance -- we're seeing balanced sales improvement across all deciles..

On the Del Taco business, what we're seeing is, we're seeing strength again across all income levels. We see some opportunity as we tried to change our value offerings to continue to drive value with some of our lower income guests.

But overall, especially because Del we've taken so much pride, so we have some opportunity to drive our business with our lower income guests there. But overall, a pretty balanced look at demographics within both businesses. .

Next question is from Alex Slagle from Jefferies. .

I wanted to see if you could clarify the incremental refranchising actions.

Are those neutral to EPS this year or dilutive? Just wanted to get an idea on that, if you have any thoughts on potential for it to be accretive to EPS or EBITDA going forward?.

Yes. I think if you look back to our ICR presentation that will help support that these transactions are accretive to earnings based upon our share repurchases. And so when we -- obviously, we're losing EBITDA, we're taking in royalties, but we're also driving them at decent valuations.

And so through upping our share repurchases, that will help these be accretive. .

Okay.

And then could you provide some additional color on the Del Taco performance in Atlanta, Oklahoma? What the challenges are in those markets? And sort of plans to readjust or remedy those issues?.

Yes. I think it's with -- many of us in the industry have a few markets that at times if we have leadership changes, we may have some challenges within operations. So we went in with a plan to help turn those markets around and improve them.

We have a couple of those markets at Jack in Oklahoma and Kansas City that we implemented a playbook in Kansas City and Oklahoma. We're seeing double-digit comps in Oklahoma, close to 20% comps, and over 12% comps in Kansas City.

So we're implementing the playbook and it starts with staffing and training and then eventually starting to market the business and eventually focus on the margin improvement. I would say, for Del Taco, the same holds true in Atlanta and in Oklahoma. .

Next, Brian Harbour, Morgan Stanley. .

Yes. Just on SG&A, so we have some sense of the fourth quarter. Do you think you'll be kind of in the mid-range of your annual guide, low end? Just any comments on that? And then my second question was just following up on the franchisee sentiment question.

These are not new issues, but any newer comments on real estate availability, interest rates just permitting? Has anything changed with those topics?.

I think what you've heard with our peers within the industry, I think we've all faced a little bit of challenges with permitting and the time it takes to get permitting to occur on a development standpoint. So we've seen some of our pipeline lengthen.

I think also from a standpoint of just labor like we face in our industry development, the same thing. Construction labor is a little bit more challenging. And so those are just lengthening the pipeline. It's not stopping the building of our pipeline, which is where I made the comment earlier is, we now have 82 restaurants in the pipeline.

That's more than we've had in over a decade. And so now we have a pipeline to work with. And we'll continue to fill that up with sites and eventually get them under construction. .

And on the operating EPS, I think we're just going to say we're reiterating our guidance, and it's between $5.90 and $6.10. .

Next question comes from Jon Tower from Citi. .

So just I wanted to zero in on the celebrity meal deals or tie-ins of partnerships that you guys have been having at the core Jack in the Box brand. And then there's been what appeared to be a home run for the brand so far at driving sales in a great way to get your check lift and having some brand awareness.

But I'm just curious, how you're thinking about leading more of these into future plans for the company? And/or how you plan on lapping, say, the Mint Mobile promotion from this year or this Snoop Dogg promo that really looked like it helped comp quite a bit?.

Yes. As part of our marketing strategy, we'll continue to focus on partnerships where they make sense. Overall, the key here is elevating Jack in the Box, the character Jack Box and his presence as his own celebrity. And I think a lot of his friends you're seeing him partner with to do these promotions.

And we'll continue to do that when and where it makes sense. .

I was just going to ask, are they structured differently than, say, just signing up a normal celebrity and paying them a fixed fee or whatever it is annually?.

Yes, definitely. We do different type of partnerships. With the Mint Mobile promotion, I think that was interesting, because both of us benefited from that relationship. Mint Mobile got some benefit of our advertising. We got the benefit of Ryan Reynolds celebrity endorsement of our brands. So we both won in that situation.

I think the same holds true for our partnership with Snoop. And Snoop has been a long time fan of the brand. And so he wanted to participate with us in this promotion, especially when we relaunched late night and our Munchie Meals, which we have a lot of fans for our late night business. .

Next question comes from Chris Carril, RBC Capital Markets. .

So maybe just following up on the commentary around the 4Q comparisons.

Maybe to help us as we're thinking about the 4Q and just considering the wide range implied by the same-store sales guide, can you maybe expand a bit more on the Jack trends that you saw over the course of the 3Q? And then in particular, what you saw as you exited the quarter? I mean, if I'm looking at the multi-year trends versus 2019, they again accelerated for the third -- for the full third quarter.

But curious if you could expand on what you saw throughout the quarter?.

Yes. Throughout Q3, we saw sales continue to improve from period 8 through period 10. And I think a lot of it was what we did with our promotional windows. And so we'll continue to do that. I think coming into the fourth quarter, you look at our 4-year geometric stack, it accelerated in Q3 50 basis points.

And then we now are going to be lapping some heavy price. So overall, we feel good about the momentum in our business and sales. It's just now how do we forecast overcoming that price and also hours of operation. But overall, the business is sustaining. .

Next question comes from Jeffrey Bernstein from Barclays. .

Great. I had 2 questions. One, I was just hoping you could talk a little bit about the traffic at Jack in the Box. I think it eased a little bit in the third quarter from the second quarter. And I know you made some cautious comments like you just said about the compares going into the fourth quarter.

So I'm just wondering if you can offer some thoughts on when you think you can turn that traffic to the positive side? And what the key drivers would be on that front? And then I had one follow-up. .

Yes. I think for the most part, we held steady on traffic throughout the quarter. And I think late night accelerated. It was up, transactions were up 3.1%. And so obviously, year-over-year. And so that continues to improve.

I think opportunity for us is continuing to find success within our breakfast daypart and our lunch daypart and driving value transactions in that area. .

Got you. And do you break out the sales mix of the breakfast late night and however you define value? It seems like those are important areas.

Just trying to get a sense for a benchmark of where you are now, maybe where you were before or what you're anticipating?.

No, we don't. And reason why I speak a little bit about breakfast is, we probably had the most acceleration of price through our franchisees at the breakfast daypart. So we know there's some opportunity for us to recapture some value at the breakfast daypart. And so that's why I speak of value during the breakfast component. .

Ladies and gentlemen, that concludes today's call. Thank you all for joining. And you may now disconnect..