JACK - Jack in the Box Inc. Reports Fourth Quarter and Full-Year 2022 Earnings

Jack in the Box same-store sales of +4.0% in Q4 2022, +0.9% for FY 2022

Del Taco same-store sales of +5.2% in Q4 2022, +3.9% ⁽¹⁾ for FY 2022

Systemwide sales of +4.1% ⁽²⁾ for Jack in the Box and +4.2% ⁽²⁾ for Del Taco in Q4 2022

Jack in the Box to open 25-30 restaurants, expects positive net unit growth in FY 2023

Jack in the Box completes refranchising of Nashville and Oregon evolving market restaurants, with development commitments for 42 new restaurants

Management provides company-wide and brand-specific annual guidance measures for FY 2023

Jack in the Box Inc. (NASDAQ: JACK) announced financial results for the Jack in the Box and Del Taco segments in the fourth quarter, ended October 2, 2022.

“I am very pleased with the momentum of our top line performance to close 2022, which we have seen continue into the first several weeks of Q1, and the consistency we showed throughout the year in driving sales and improving traffic, as we continue to remain careful on the price we are taking to maintain a consistent value equation for our guests,” said Darin Harris, Jack in the Box chief executive officer. “We continue to navigate operational headwinds, but Jack and Del Taco franchisees and operators showed their ability to be resilient and manage through them effectively all throughout 2022. While we will continue to attack the inflationary impact on margins, our top line fundamentals, operational focus, and expectation for positive net unit growth for Jack all demonstrate that 2023 will be a big year for our company and another positive step in the transformation of the Jack brand. The investments we are making in digital, technology and training, plus the continued integration and refranchising of Del Taco, have me enthusiastic for our future."

Jack in the Box Performance

Same-store sales increased 4.0% in the fourth quarter, comprised of an increase in Company-operated same-store sales of 11.4% and an increase in franchise same-store sales of 3.2%. Higher average check, driven mostly by pricing, and an increase in traffic drove the increase for company-operated while higher average check was partially offset by a decrease in traffic for franchise. Systemwide sales ⁽²⁾ for the fourth quarter increased 4.1%.

As of the fourth quarter, and since the launch of the development program in mid-2021, the Company currently has 68 signed agreements for a total of 267 new restaurants. Under these agreements, 22 restaurants have opened, leaving 245 remaining for future development. Net restaurant count was down 26 in the fourth quarter, with 7 franchise openings and 33 restaurant closures. Most of these closures were related to one-time and strategic factors such as Evolving Markets and portfolio optimization within the St. Louis market as it exited bankruptcy process. The 33 restaurant closures included 10 Company-operated restaurants as part of refranchising Evolving Markets, 22 with an early termination including 10 in the St. Louis market, and one franchise location with an agreement expiration.

Restaurant-Level Margin ⁽³⁾ , a non-GAAP measure, was 16.2%, a decline from a year ago driven by increases in food and packaging costs; wage inflation of 11.3%; and increases in utilities and maintenance and repair costs, partially offset by menu price increases. Commodity costs increased in the quarter by approximately 14.9%, primarily due to increases in proteins, sauces and oil. When removing the temporary Evolving Markets, Restaurant-Level Margin was 19.5% for the quarter. During the fourth quarter, the Company completed the refranchising of two restaurants within the Nashville market, which also included four restaurant closures. This will remove all Nashville locations from the Evolving Markets portfolio beginning in Q1 2023, and also included development agreements for the first new franchisee for Jack in the Box in nearly a decade to open 7 restaurants in Baton Rouge, 16 restaurants in the Carolinas, and 14 in the Nashville area.

Franchise-Level Margin ⁽³⁾ , a non-GAAP measure, was 42.4%, an increase from a year ago, driven by higher same-store sales as well as higher early termination fees in the current year.

Del Taco Performance ⁽¹⁾

Systemwide sales ⁽²⁾ for the fiscal fourth quarter increased 4.2% driven by positive results in both franchise and company-operated same-store sales. Same-store sales increased 5.2% in the fourth quarter, comprised of franchise same-store sales growth of 6.4% and Company-operated same-store sales growth of 4.1%. Sales performance was boosted by the successful launch of the Epic Tortas platform, the 20 Under $2 value menu, higher average ticket and menu price, partially offset by menu mix and transaction declines. Del Taco had a fourth quarter net restaurant decrease of three restaurants, comprised of one company-operated closure and two franchise closures.

Restaurant-Level Margin, a non-GAAP measure, was 15.9% while Franchise-Level Margin, a non-GAAP measure, was 42.5%.

Company-Wide Performance

Fourth quarter diluted earnings per share was $2.17. Operating Earnings Per Share ⁽⁴⁾ , a non-GAAP measure, was $1.33 in the fourth quarter of fiscal 2022 compared with $1.73 in the prior year quarter. Fourth quarter operating EPS was negatively impacted by the 53rd week in 2021 by $0.12. Total revenues increased 44.6% to $402.8 million, compared to $278.5 million in the prior year quarter.

Net earnings increased to $45.9 million for the fourth quarter of fiscal 2022, compared with $38.9 million for the fourth quarter of fiscal 2021.

Adjusted EBITDA ⁽⁵⁾ , a non-GAAP measure, was $77.9 million in the fourth quarter of fiscal 2022 compared with $74.3 million for the prior year quarter.

SG&A expense for the fourth quarter, which now includes Del Taco, was $37.5 million, an increase of $16.4 million compared to the prior year quarter, driven primarily by mark-to-market changes in the cash surrender value of company owned life insurance ("COLI") policies, net of changes in our deferred compensation obligation supported by these policies, resulting in a year-over-year increase of $2.9 million, an increase of $2.3 million in incentive compensation and an increase of $13.3 million from the acquisition of Del Taco; partially offset by a decrease in litigation matters of $2.7 million and the 53rd week in the prior year of $1.8 million.

The effective tax rate for the fourth quarter of fiscal year 2022 was 29.1% compared to 25.4% in fiscal year 2021. The year-over-year increase in tax rate was primarily driven by non-deductible COLI losses in the current year as opposed to non-taxable gains in the prior year. The full year effective tax rate was 28.5%.

Capital Allocation

The company repurchased 0.3 million shares of our common stock for an aggregate cost of $25.0 million in the fourth quarter. As of October 2, 2022, there was $175.0 million remaining amount under the Board-authorized stock buyback program. In addition to a previously announced one-time legal settlement, paying down debt and continuing to invest in the growth of the business, the company plans to execute up to $50 million in share repurchases in FY 2023.

On November 18, 2022, the Board of Directors declared a cash dividend of $0.44 per share, to be paid on December 22, 2022 to shareholders of record as of the close of business on December 7, 2022. Future dividends will be subject to approval by our Board of Directors.

Guidance & Outlook

The following guidance and underlying assumptions reflect the company’s current expectations for the current fiscal year ending October 1, 2023:

Company-wide Guidance

• FY 2023 CapEx & Other Investments Guidance of $75-90 million
  • Capital expenditures (located within cash flows from investing activities)
  • Franchise tenant improvement allowances and incentives (located within cash flows from operating activities)
• FY 2023 SG&A Guidance of $160-170 million
  • Excludes net COLI gains/losses, and now includes selling/advertising expense
  • Synergies from the Del Taco acquisition are not all direct reductions to expense, and appear in other areas of the P&L and margins, including store-level franchisee margins
  • Areas of cost mitigation include Restaurant Level Margin, Franchise Level Margin, Purchasing, Reduced Commodity Inflation, Marketing Activity and Spend
  • Does not include anticipated Del Taco refranchising savings
• FY 2023 Company-owned Commodity Guidance up 9-11% vs. 2022
• FY 2023 Company-owned Wage Rate Guidance up 3-6% vs. 2022
• FY 2023 Operating EPS Guidance of $5.25-5.65, includes Unique and One-time Items of Note
  • $0.08 negative impact associated with the reduction in rental revenue from real estate sales (additional detail below in Real Estate Sales section)
  • $0.22 negative impact associated with store-level technology investments (additional detail below in Franchise Level Margin section)
  • As mentioned within Capital Allocation section, the company plans to execute up to $50 million in share repurchases in FY 2023
  • Excludes any dilutive impact from refranchising Del Taco restaurants, and we will provide updates throughout the year as this initiative progresses
• Further Detail on Real Estate Sales
  • Jack in the Box has identified real estate assets in its portfolio that, due to current cap rates, can be monetized at more attractive valuations than the current trading multiple. The company can use the net proceeds from these real estate transactions to pay down debt, provide additional liquidity or other corporate purposes including investments in growth initiatives and potential share repurchases
  • For planned real estate sales of franchised properties, there is a reduction in rental revenue partially offset by a modest reduction in occupancy expense
  • Given trends in interest rates, this is a limited opportunity for the company in the near term
  • In total, there is an anticipated $2.2 million impact on adjusted EBITDA and an expected $0.08 negative impact on Operating EPS associated with the reduction in rental revenue
• Further Detail on Del Taco Refranchising
  • Cypress Group is currently assisting with refranchising of Del Taco locations with three main intentions. First, to create a company-wide asset-light model that will benefit from mitigating exposure to macroeconomic pressures; second, to generate incremental development agreements throughout the refranchising process that provide for a more robust unit growth pipeline than otherwise achievable; and third, a more efficient G&A structure
  • Our objective is to be asset light as we navigate market forces in the near term – and we will adjust the rate, pace and sequence of refranchising efforts to balance impact to earnings, as we await accelerated new unit openings from incremental development agreements and natural G&A reductions
  • We will provide updates throughout 2023, and plan to execute deals with existing Jack in the Box franchisees early in the year – as well as assess further deals patiently to ensure we maximize development potential as well as transaction value

Brand Segment Guidance

• Jack in the Box expects positive net unit growth in 2023, led by 25-30 gross openings
• Del Taco expects 8-12 gross openings in 2023
• FY 2023 Same Store Sales of Low Single Digits for both Jack in the Box and Del Taco
• FY 2023 Restaurant Level Margin Outlook
  • Jack in the Box Restaurant Level Margin is expected to be 18-20%, which includes high single digit price increases and is impacted negatively by 125 bps due to the remaining Evolving Markets
  • Del Taco Restaurant Level Margin is expected to be 14-16%, which includes high single digit price increases
• FY 2023 Franchise Level Margin Outlook
  • Jack in the Box Franchise Level Margin is expected to be 40-41%, which includes digital and restaurant level technology investments such as a new POS system as well as other technology platforms and applications to support future sales growth, operations and unit-level profitability. These investments are expected to pressure Operating EPS by $0.22 in FY 2023.
  • Del Taco Franchise Level Margin is expected to be ~41%

Conference Call

The Company will host a conference call for analysts and investors on Tuesday, November 22, 2022, beginning at 10:00 a.m. PT (1:00 p.m. ET). The call will be webcast live via the Investors section of the Jack in the Box company website at http://investors.jackinthebox.com . A replay of the call will be available through the Jack in the Box Inc. corporate website for 21 days. The call can be accessed via phone by dialing (888) 330-2508 and using ID 4115265 .

About Jack in the Box Inc.

Jack in the Box Inc. (NASDAQ: JACK), founded and headquartered in San Diego, California, is a restaurant company that operates and franchises Jack in the Box®, one of the nation's largest hamburger chains with more than 2,180 restaurants across 21 states, and Del Taco®, the second largest Mexican-American QSR chain by units in the U.S. with approximately 600 restaurants across 15 states. For more information on both brands, including franchising opportunities, visit www.jackinthebox.com and www.deltaco.com .
Category: Earnings

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “goals,” “guidance,” “intend,” “plan,” “project,” “may,” “will,” “would” and similar expressions. These statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate. These estimates and assumptions involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Factors that may cause our actual results to differ materially from any forward-looking statements include, but are not limited to: the success of new products, marketing initiatives and restaurant remodels and drive-thru enhancements; the impact of competition, unemployment, trends in consumer spending patterns and commodity costs; the company’s ability to achieve and manage its planned growth, which is affected by the availability of a sufficient number of suitable new restaurant sites, the performance of new restaurants, risks relating to expansion into new markets and successful franchise development; the ability to attract, train and retain top-performing personnel, litigation risks; risks associated with disagreements with franchisees; supply chain disruption; food-safety incidents or negative publicity impacting the reputation of the company's brand; increased regulatory and legal complexities, risks associated with the amount and terms of the securitized debt issued by certain of our wholly owned subsidiaries; and stock market volatility. These and other factors are discussed in the company’s annual report on Form 10-K and its periodic reports on Form 10-Q filed with the Securities and Exchange Commission, which are available online at http://investors.jackinthebox.com or in hard copy upon request. The company undertakes no obligation to update or revise any forward-looking statement, whether as the result of new information or otherwise.

JACK IN THE BOX INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION

The following table presents certain income and expense items included in our consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated. Percentages may not add due to rounding.

JACK IN THE BOX INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS
(Unaudited)

To supplement the consolidated financial statements, which are presented in accordance with GAAP, the company uses the following non-GAAP measures: Operating Earnings Per Share, Adjusted EBITDA, Restaurant-Level Margin and Franchise-Level Margin. Management believes that these measurements, when viewed with the company's results of operations in accordance with GAAP and the accompanying reconciliations in the tables below, provide useful information about operating performance and period-over-period changes, and provide additional information that is useful for evaluating the operating performance of the company's core business without regard to potential distortions.

Operating Earnings Per Share

Operating Earnings Per Share represents diluted earnings per share on a GAAP basis excluding acquisition, integration, and restructuring costs; COLI losses (gains), net, refranchising gains, gains on the sale of real estate to franchisees and pension and post-retirement benefit costs. Operating Earnings Per Share should be considered as a supplement to, not as a substitute for, analysis of results as reported under U.S. GAAP or other similarly titled measures of other companies. Management believes Operating Earnings Per Share provides investors with a meaningful supplement of the company’s operating performance and period-over-period changes without regard to potential distortions.

Below is a reconciliation of non-GAAP Operating Earnings Per Share to the most directly comparable GAAP measure, diluted earnings per share. Figures may not add due to rounding.

Adjusted EBITDA

Adjusted EBITDA represents net earnings on a GAAP basis excluding income taxes, interest expense, net, gains or losses on the sale of company-operated restaurants, other operating expenses (income), net, depreciation and amortization, amortization of favorable and unfavorable leases and subleases, net and the amortization of franchise tenant improvement allowances and other. Adjusted EBITDA should be considered as a supplement to, not as a substitute for, analysis of results as reported under U.S. GAAP or other similarly titled measures of other companies. Management believes Adjusted EBITDA is useful to investors to gain an understanding of the factors and trends affecting the company's ongoing cash earnings, from which capital investments are made and debt is serviced.

Below is a reconciliation of non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net earnings (in thousands).

Restaurant-Level Margin

Restaurant-Level Margin is defined as company restaurant sales less restaurant operating costs (food and packaging, labor, and occupancy costs) and is neither required by, nor presented in accordance with GAAP. Restaurant-Level Margin excludes revenues and expenses of our franchise operations and certain costs, such as selling, general, and administrative expenses, depreciation and amortization, pre-opening costs, other operating expenses (income), net, gains or losses on the sale of company-operated restaurants, and other costs that are considered normal operating costs. As such, Restaurant-Level Margin is not indicative of the overall results of the company and does not accrue directly to the benefit of shareholders because of the exclusion of corporate-level expenses. Restaurant-Level Margin should be considered as a supplement to, not as a substitute for, analysis of results as reported under GAAP or other similarly titled measures of other companies. The company is presenting Restaurant-Level Margin because it believes that it provides a meaningful supplement to net earnings of the company's core business operating results, as well as a comparison to those of other similar companies. Management utilizes Restaurant-Level Margin as a key performance indicator to evaluate the profitability of company-operated restaurants.

Below is a reconciliation of non-GAAP Restaurant-Level Margin to the most directly comparable GAAP measure, earnings from operations (in thousands):