New prototype, ghost kitchens underway as the chain prepares for unit growth
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Jack in the Box attracted higher-income customers as the pandemic started, and the quick-service chain has retained many of them, which contributed to a 20.6% boost in same-store sales, executives at the San Diego-based chain said Wednesday as they announced quarterly earnings.
“When we measured churn of customers compared to last year at this time … we're seeing that it implies that Jack has been able to successfully hold onto these new higher-income customers that we acquired at the start of the pandemic,” CEO Darin Harris told investors in an earnings call for its 2nd quarter, ended April 11.
Jack in the Box has seen sales increase during most of the pandemic, and it closed out the latest quarter with a 19% increase in revenue, to $257.2 million. Net earnings were $35.9 million, or $1.58 per share, up from $11.5 million, or 50 cents per share, a year earlier.
Much of that success came from a 19.9% increase in the average check, which Harris said was the result of a shift to premium entrées — such as chicken strips, the Bacon and Swiss Buttery Jack and the Supreme Croissant — as well as an increase in the number of items per order, reflecting larger parties. He said the higher checks remained even in markets with few pandemic-related restrictions, such as Texas, which boded well for post-pandemic sales patterns.
Premium limited-time offers such as the Cluck Sandwich early in the quarter and the Triple Bonus Jack later in the quarter also helped boost sales, he said.
“Stimulus payments also contributed to our strong performance during the last four weeks of the quarter," he said.
Chief financial officer Tim Mullany said that, although all dayparts saw increases in sales, late night was the strongest performing one, accounting for two-thirds of year-over-year improvement.
Additionally, digital transactions grew by 150% and accounted for more than 7% of total second-quarter sales.
Although 19 franchised restaurants closed during the quarter, and another four units were purchased by the company, six franchised units opened and, with disputes with franchisees now resolved, more openings are anticipated in the coming years.
Franchisees sued Jack in the Box in late 2018 alleging, among other things, lack of vision from leadership. Since then Harris took the reins a year ago, the lawsuit has been settled, and the CEO has been reshaping the executive suite with, among others, a new chief financial officer and chief marketing officer. Harris said Wednesday that he was “in the final stages” of recruiting a chief operating officer.
Mullany said the restaurant closures were, in fact, the result of improving dialog with franchisees.
“A lot of that is due to the improved relationship, frankly, with the franchise system and corporate where we're dialoguing very frequently with them and allowing them to exit out of underperforming locations in anticipation of our expansion into new offsetting units within existing markets,” he said.
Harris said that more than two-thirds of current franchisees had expressed interest in expanding, and agreements have been signed for existing franchisees to build 23 new units in the coming years.
The chain filed an updated franchise disclosure document in March and set up a new web site, jackintheboxfranchising.com, Harris said.
“These steps are also beginning to bear fruit: Through the first four months of 2021 we received double the number of inbound franchise leads compared with last year at this time,” he said.
Jack in the Box is also finalizing work on its modular “Restaurant of the Future” design that would allow franchisees to open drive-thru-only restaurants, endcaps and narrower sites, as well as non-traditional location such as airports, convenience stores and college campuses. He said initial construction costs of drive-thru-only locations would be around 20% lower than traditional restaurants.
The company also has finalized an agreement with Reef Kitchens to open up to eight ghost kitchens in three states this summer, he said, without elaborating.
Also during the 2nd quarter, Jack in the Box rolled out in-app ordering and its first-ever loyalty program, which Harris said would allow the company to expand its database of customer data, which has grown by more than 60% over the past 18 months.
Jack in the Box ended the quarter with a total of 2,228 locations — 148 company-owned and 2,080 franchised — compared to 2,246 locations, of which 144 were company-owned and 2,102 franchised, at the end of the first quarter of 2020.
Contact Bret Thorn at [email protected]
Follow him on Twitter: @foodwriterdiary
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