Jack In The Box Inc.

Good day, everyone, and thank you for standing by. Welcome to the Jock in the Box 4th Quarter Fiscal 2021 Earnings Conference Call. My name is Peter, and I will be your conference operator today. At this time, all participants are in a listen-only mode. After the prepared remarks, the management from Jock in the Box will conduct a question-and-answer session, and the conference participants will be given instructions at that time. As a reminder, this conference is being recorded. A replay of the call will be available on Jock in the Box corporate website starting today. I would now like to turn the call over to Chris Brandon, Vice President of Investor Relations. Please go ahead.

Thanks, Peter, and good morning, everyone. We appreciate you joining today's discussion highlighting our fourth quarter and full year 2021 results. Joining us today are Chief Executive Officer Darren Harris and Chief Financial Officer Tim Mulaney. Following their prepared remarks, we are happy to take some questions from our sell-side coverage analysts. During our prepared remarks and the Q&A portion of today's call, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in today's earnings release, which is available on the investor relations website at jackinthebox.com. We may also make forward-looking statements that reflect management's current expectations for the future, which are based on current information and judgments. Actual results may differ materially from these expectations based on risks to the business. The safe harbor statement in today's news release and the cautionary statement in the company's most recent 10-K are considered a part of today's discussion. Material risk factors as well as information relating to company operations are detailed in our most recent 10-K 10Q and other public documents filed with the SEC and are also available on the investor relations section of our website. A few brief housekeeping items before we get started. First, a quick review of our 2022 guidance updates included in this morning's earnings release. 2022 SG&A of 92 to 97 million. This includes this excludes net coley gains and losses and now includes selling and advertising expense. 2022 commodity outlook up six to 7% compared to 2021. In 2022 Labor costs outlook up eight to 10% compared to 2021. And, as we previously stated during last quarter's earnings. 2022 capex and other investments of 65 to 75 million dollars which includes both capital expenditures and franchise tenant improvement allowances and incentives our three to five year outlook related to comps unit growth and system-wide sales metrics which all factor into that outlook beginning this year remains the same as previously stated also this morning for additional visibility We provided a company-owned store funding outlook for 2022 and 2023, as well as, due to the unique operating environment expected to continue next year, a one-time restaurant-level margin outlook for 2022. Tim will speak to this further in his prepared remarks. Lastly, please make sure to mark your calendars for our management and franchisee Q&A event, open to investors and the general public via webcast. With sell side coverage analysts, welcome to join and ask questions of the group. The event will take place on Tuesday, December 14th at 2 p.m. Eastern time, 11 a.m. Pacific. And we look forward to virtually seeing you there. And with that detail out of the way, let's get started. I will now turn the call over to our chief financial officer, Tim Mullaney. Thanks, Chris. And good morning, everyone.

We're excited to discuss our fourth quarter and full year results with you today. Our solid fourth quarter top line results demonstrate the progress we're making against our strategic plan, putting us on a clear path to deliver best-in-class unit economics for our franchisees and achieve the long-term growth targets that we laid out at our investor day. We remain as focused as ever on getting our fundamentals in place to achieve these goals. Overall, our franchisees and operators, particularly our restaurant managers, continue to drive solid financial performance in Q4. leading to a diluted EPS of $1.80, or a 9.8% increase from the prior year. In a few moments, I'll provide more detail on the components of these earnings. We achieved system-wide sales growth of 8.6% as compared to Q4 2020, and same-store sales growth of 12.3% on a two-year basis. Breaking down our Q4 positive comp of 0.1% Our franchise business increased 0.6%, while our company-operated stores were down 4.4%. The difference was primarily due to franchisees taking more aggressive action on price increases faster than company-owned locations, as well as franchisees demonstrating greater success with hourly worker hiring and retention. Our performance this quarter was heavily driven by price, while average check held constant. I'd like to provide some further detail on how labor and the current operating environment impacted our same store sales for the quarter. We conservatively estimate that limited operating hours due to staffing challenges negatively impacted our comp by roughly 3%. Also, supply chain challenges driven by labor issues within distribution channels impacted our comp negatively by an additional 1%. While we don't typically provide quarter-to-date trends, Within this unique top-line environment, we wanted to note that we are seeing a very good start to Q1. And in the first six weeks, we are trending at a low double-digit two-year stack with comps in the low to mid single-digit range. We continue to believe that our top-line fundamentals are in solid shape. and are taking action to ensure we successfully execute on our day parts and maintain the reliable, wide menu offerings and operating hours our guests have come to expect from Jack in the Box. Shifting to unit count, we opened four restaurants during the quarter and closed five as part of our broader initiative to make our system and store base more efficient. These closures included one company-owned and four franchisee restaurants. For this quarter, there were no offsetting agreements due to the nature of these closures. However, keep in mind that most of our closed locations continue to pay both royalty and rent contributions. We remain very confident in our growth strategy and believe our best-in-class economic opportunity for franchisees will enable us to have Jack in the Box in 40 states by the year 2030. Turning to revenues, we reported $278 million up 23 million, or 9%, year over year. The increase was largely due to higher system-wide sales, helped by the 53rd week in 2021, as well as positive same-store sales. For our company-owned stores, which make up about 7% of total store count and less than 10% of system-wide sales, restaurant-level margin was 20.1%, while franchise-level margin improved 8.7%, or 6.1 million. Our franchise-level margin performance was driven by the 53rd week and higher franchise fees, while our company-owned store decline was largely a result of the cost pressures that are impacting us and the broader industry as a whole. G&A expenses increased approximately $4.9 million compared to Q4 2020. This excludes the 53rd week in 2021, which accounted for about $1.5 million in the fourth quarter. Excluding net COLE gains of $200,000 in Q4 versus a $1.3 million gain last year, G&A increased by $3.8 million. Our reported effective tax rate as a percentage of earnings from continuing operations before income taxes was 25.4% for the quarter as compared to 23.6% in Q4 2020. This was primarily due to a one-time benefit of favorable federal and state audit findings recorded in the prior year. When you combine all of these elements, net earnings increased to $38.9 million for the fourth quarter compared to $37.8 million a year ago. Additionally, adjusted EBITDA was just over $74 million in the fourth quarter compared to just over $78 million the prior year. Our diluted EPS in Q4 was $1.80, an increase of 9.8% or 16 cents. Here's a breakdown of that 16 cents. A lower diluted share count driven by share repurchases benefited us by 10 cents. I'll provide more detail on share repurchases in a moment. Earnings from operations impacted us negatively by 6 cents. Net interest expense positively impacted us by 2 cents. Our effective tax rate negatively impacted us by $0.02, and lastly, the 53rd week positively impacted us by $0.12. Shifting to cash. Our economic model remains strong and resilient, and it continued to generate significant free cash flow throughout the quarter. For full year 2021, we generated attractive net cash provided by operating activities of approximately $200 million. After deducting for CapEx, we have generated strong free cash flow of approximately 160 million. We spent approximately 41 million on CapEx, primarily toward lease right-of-first refusal transactions, remodel refresh of company-operated restaurants, and digital and technology initiatives. During the fourth quarter, we repurchased approximately 677,000 shares for 70 million. or approximately $103 per share on average, bringing our total 2021 year-to-date repurchases to $200 million. On November 19th, our Board of Directors approved a new stock buyback program, providing authorization for an additional $200 million expiring in November 2030. This new authorization further demonstrates the Board's confidence in our long-term capital allocation strategy. In Q4, we returned $9.4 million to our shareholders in the form of a $0.24 quarterly dividend payment, bringing our full year 2021 dividend payment to approximately $37 million. I also wanted to briefly elaborate on the guidance and outlook measures we provided earlier this morning. First on the guidance, it is clear the business will continue to face external cost pressures And due to this unique environment, we thought some additional one-time visibility into our company-owned restaurant-level margin for next year would be helpful. As noted in our release, we expect our company-owned restaurant-level margin to be between 20 and 21% for 2022, which includes mid to high single-digit price increases. In addition to just the cost and pricing elements, keep in mind the impact of the 20 stores we took we took on in 2021 in Oregon, Kansas, and Oklahoma, will add pressure to the margin in the near term, as well as our ability to maintain full hours of operation as we work to improve performance of those restaurants. We hope to improve these stores as soon as possible and will actively look to re-franchise them once they are in a sound operating state. While there are likely few surprises on the expense and capital front, with the latter being previously disclosed, It is clear we are committed to continuing to make necessary investments in our business to fuel growth. This includes investing in our digital and tech priorities that will have a direct impact on both our top-line capabilities and our store-level profitability. One additional area of guidance for this morning's release was our company-owned restaurant funding outlook. We plan to fund up to five company-owned restaurants in 2022 and between seven and 15 in 2023. We wanted to provide visibility into possible capital impacts within existing 2022 guidance and give you more insight into our evolving game plan to open company-owned stores along with franchisee locations and other markets where appropriate. And as an adjustment, the $200 million board authorization expires in 2023, not 2030. To wrap up our financials before handing it over to Darren, our solid performance results, despite a challenging fourth quarter environment, demonstrated the strength of our economic model at both the company and store level. We've made meaningful progress on all fronts of our four pillar strategy, and we're in a great position to continue to successfully execute on each of those pillars heading into fiscal 2022. And most importantly, we are seeing our priorities and strategic initiatives having a meaningful positive impact on franchisees as their economics, profitability, and store level cash on cash returns have maintained best in class status within the industry. We are confident that we can build on this momentum as a unified system to advance our growth strategy and expand our reach into new markets. And we will drive significant shareholder value by continuing to focus on operating efficiently investing wisely, and building our fundamentals for long-term growth. Thank you again for joining the call today, and now I'll turn it over to Darren. Thank you, Tim, and good morning, everyone.