Jack in the Box Inc., also owner of Del Taco Inc., saw 2023 as “pivotal” year for its efforts to refresh the image of both restaurants and make inroads into become a more heavily franchised, asset-light company, executives said Tuesday
Darin Harris, Jack in the Box CEO, and Brian Scott, the company’s chief financial officer, presenting at the ICR Conference 2024 in Orlando, Fla., in a session moderated by Lauren Silberman, equity research analyst with Deutsche Bank Securities, said the quick-service company plans to increase capital expenditures this year to accommodate the refranchising shift and growth.
“We continue to have a tremendous opportunity in front of us for growth, and that's really the key for us,” Harris told attendees. “We're starting to fill the funnel for growth of both brands into the future.”
The CEO of the San Diego, Calif.-based company said “2023 was a very pivotal year for our growth story. For the first time in nearly five years we had net new unit growth, and that's a big thing for our brand and going into the future.”
Jack in the Box and Del Taco have nearly 2,800 restaurants and nearly $6 billion in combined sales, Harris said. At the end of the fourth quarter on Oct. 1, Jack in the Box had 2,186 total restaurants, with 2,044 franchised and 142 company-owned. Del Taco had 592 restaurants, with 421 franchised and 171 company-owned.
During the fiscal year, it refranchised 111 Del Taco units, which Jack in the Box acquired in March 2022.
“We moved from about 50% franchise-owned to 70% in the first year of having the brand,” Harris said, “and will continue to update you on our expectation to get to 90% at some point.”
Scott said fiscal-year 2024 spend will include about $30 million for about eight to 10 new company restaurants and initial build costs for 2025 openings, $15 million for remodeling of company-owned restaurants in the new CRAVE image, $35 million for new point-of sale, restaurant operating systems and other digital investments, $20 million for maintenance and other purchases, and $15 million for a recently added Del Taco franchise remodel program as well as for Jack in the Box franchise incentives.
“When we brought the companies together,” Scott told ICR attendees, “we knew there was a lot of opportunity to gain cost synergies.”
Scott said the original target was around $15 million of synergies. “We are well on track to exceed that number,” he said. “In fiscal ‘23 we achieved about $8 million of reported EBITDA [earnings before interest, taxes, depreciation, and amortization] synergies,” he said, and exited the year with synergy savings of more than $10 million.
“We're going to be about $20 million in synergies in fiscal ‘24 and exiting it a little bit above that number,” Scott said, adding that saving were coming from the supply chain, reducing some redundant cost operating as one public company rather than two.
“We're north of $30 million of direct synergies that our franchise have benefit from from supply-chain purchasing power and other avenues,” Scott said. “We think there's more synergies in future years.”
Harris said those savings have allowed the company to devote marketing power to products, such as the Smashed Jack that debuted for a limited time Jan. 1.
“We've already had tremendous feedback from our guests on how much they love it,” Harris said. “It substantially outperformed our forecast. … It's at least doubled our forecast to the point we're going to sell out of the product in the next week.”
Jack in the Box plans to build inventory and introduce it more broadly in March, supported with media, Harris said.
“We're excited about the launch of this product and what it could do for the future of Jack in the Box,” he said.
Harris said Jack in the Box and Del Taco are both working to provide a balance of premium and value products as the consumer shows some economic concerns.
“I think what you're hearing at this conference is that the consumer reaction is mixed,” he said. “I think they're seeing a lot of pricing out there in the marketplace I think we're seeing very good results with our premium products, but we're still fighting for the dollars and market share with the lower-end consumer and making sure we have a good balance between both a premium offering and a value offering. … Typically in these environments you see breakfast slow down, and it's a meal often that slows down during any kind of headwind related to the economy.”
Jack in the Box has scheduled an Investor Day for noon eastern time on Jan. 24.
For the fourth quarter ended Oct. 1, Jack in the Box reported net income declined to $21.9 million, or $1.08 a share, from $45.9 million, or $2.17 a share, in the same period a year ago. Revenues declined 7.5% to $372.5 million from $402.8 million in the prior-year period.
In the quarter, Jack in the Box reported same-store sales increased 3.9%; Del Taco same-store sales declined 1.5%
The company has Jack in the Box units in 21 states and Del Taco units in 16 states.
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