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Operator
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.
Peter
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.
Peter
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.
Jack
As I look back at our quarter four and full fiscal year results, I am extremely proud of the ability of this brand to remain strong in our performance during these interesting times. The energy and perseverance of our restaurant staff and our franchise operators excelled during a challenging time in our industry. I'm truly grateful for the unwavering strength and agility with which our team members and company and franchise restaurants operate. It's in large part thanks to them that we continue to see growth in sales and progress within our four strategic pillars. While our industry does have headwinds, we are laser focused on mitigating their impact while we remain disciplined and centered on the long-term health of the business and our strategy. Now, diving into the results for the fourth quarter. We are pleased to report positive same-store sales for the quarter and a strong 12.3% comp on a two-year basis, as we navigated nicely through a unique and volatile top-line environment within the industry. While we generated most of our sales from ticket, we remain focused on driving a balance of traffic and average check for the long term. I am confident that we are well-positioned to achieve this objective, as our operating environment normalizes given our proven ability to offer both craveable food and value to customers that are seeking it. We are very fortunate to be a brand known for variety, which enables us to be agile with our promotional calendar and navigate the supply challenges many are facing in the industry. On the unit count front, we continued our process to selectively close stores as we optimize our footprint and position Jack for more profitable unit growth. We expect to close less stores in 2022 than we did this year. And as Tim mentioned, we continue to gain economics from many of the restaurants we close via rent or an agreed to royalty contribution. We are confident that our unique pricing power enables us to meet margin pressure head on. And as we keep advancing on our strategic pillars, we will continue to be well equipped to take on any macroeconomic headwinds. Between our varied menu, best practice sharing among our franchisees, and the market share we have in our top markets, we believe we have the pricing power to operate from a position of strength. I will, as usual, categorize my comments within our strategic pillars. And in the fourth quarter, our teams certainly continue to make impressive progress on each. This is what will truly position us to unlock the brand's true potential. Beginning with building brand loyalty, our updated brand positioning and craved marketing strategy is significantly improving our brand awareness and perception, helping us achieve our highest creative metrics since 2019. From a product and promotional standpoint, both triple bacon cheesy jack and bacon barbecue cheeseburger promotions performed well, driving what was a very good quarter for our burger category. And while burger performance was strong, you can never count out our tacos. As spicy tiny tacos in quarter four was our highest volume LTO of the year, and showed strong attachment and upsell into the loaded version. Finally, our all-day breakfast message, a good example of learnings from our guest feedback, helped reinforce a brand strength and drove another solid performance from our breakfast day part, which included strength from the stacked croissant LTO as well as our core breakfast menu items. Our menu diversity, price point, and guests have allowed us to remain resilient and flexible to shifts in customer behavior, helping to diminish the impact of the recent volatility. Our ability to stay flexible and innovate systems while building a long-term product pipeline has me very confident that menu innovation remains one of our core strengths. Our progress within the e-commerce and loyalty space has enabled digital to become central to our guest experience and brand fabric. We had a tremendous year of digital growth, achieving a 90.6% increase in digital sales in 2021 versus the prior year. We achieved a digital run rate milestone during quarter four by exceeding 9% of sales via digital channels. Part of the success can be attributed to our first full quarter with our Jack Pack Rewards Loyalty Program, leading to a 61% increase in app downloads this quarter versus a year ago. We will continue to lean in on investing and executing in this area of the business in 2022 via exclusive offers and experiences while optimizing the digital guest journey. This includes launching mobile web ordering and offering our loyalty program in store during the front half of 2022. Now onto our next pillar, driving operational excellence. While we saw some continued improvement in our breakfast day part, we continue to feel the impact of challenges related to staffing and hours of operations, as Tim mentioned. These factors have particularly impacted our late night business. That said, I still remain very confident that late night represents a tremendous opportunity for Jack, and we continue to see strong demand. As these headwinds alleviate, we have an opportunity to not only take share and lead, but dominate this day part versus the competition. It was Tony Darden's first full quarter leading operations, and his experience and insight has refocused us on three main areas where we see the strongest opportunity for near-term improvements. First, we've been rolling out our new guest experience and brand standards, significantly raising the bar on the expectations we place on ourselves and servicing our guests. Second, investing in our ops services team and tactics, which include refining process systems and technology to drive financial performance. We will also continue to enhance our restaurant-level technology and MarTech stack capabilities, and down the road, automation to help with labor optimization. This will provide our guests with convenient interaction with the brand, especially for off-premise ease of use. And third, strengthening our training infrastructure, which will not only help us execute better, but it will help us achieve a critical goal of developing our people and store-level culture. We have seen within the industry that it will take more than just money to acquire and retain talent. In addition to competitive pay, we will focus on better training, And most important, a strong culture and career path opportunity that will excite people more than ever to work in a Jack in the Box restaurant. Our third pillar, growing restaurant profits, is certainly a highlight of 2021. And I'm excited about our upcoming investor event on December 14th, where in addition to management and franchisees taking your questions, we will provide insight into our unit economics performance in 2021. If you haven't already marked your calendars, please do. It'll be a great opportunity for you to hear from some of our franchisees directly. And lastly, our final pillar of expanding Jack's reach. We continue to get much closer to a consistent level of positive net unit growth, and we are confident that we are well on our way to reaching our long-term net unit growth goal of 4% by 2025. As you have seen, and I credit Tim Linderman and team for their hustle and progress against our top objective, We signed 23 development agreements committing to 111 future restaurant openings, which is a record for JAT. Our 31 completed site approvals are the most since back in 2017, especially considering we spent a good part of the year repairing our franchisee relationship, mapping markets, and rebuilding a store pipeline. And now we are ready to succeed. We also spent time getting our franchise development program up and running, which didn't really happen until late in the year. So I'm extremely pleased with the progress so far. Now, we know this doesn't translate to immediate openings on paper, but make no mistake, it is a clear leading indicator that our franchisees are as excited as ever about growing within this brand. And we will continue to keep you informed in these new development agreements with both existing and new franchisees throughout 2022. Closing out my thoughts on the quarter, a year like 2021 really makes me appreciate our franchisees company leaders, and everyone in our restaurants working so hard to represent the brand and serve our guests. I feel extremely lucky to represent this management team, our corporate teams and operators, and our franchisees out there making it happen each and every day. Our people, franchisees, and the culture we are creating at Jack in the Box more than anything is what gives me tremendous excitement about our future. And one of my favorite highlights of 2021 won't show up on an income statement, but it's something we're extremely proud of. tied to the critical objective of improved franchisee relations. A recent Franchise Relationship Institute survey showed that our overall satisfaction score of franchisees improved 15.5 points compared to 2020. It is now at 72 percent, which is significantly above the sector benchmark. With more franchises than ever, before noting that they are strongly satisfied with the relationship and 92% saying that they feel optimistic about the future of the brand. This is what it's all about, serving others. And it gives me tremendous confidence that we are taking the steps that matter in accomplishing our strategy while helping Jack reach the potential that we all know exists. I look forward to further executing on this potential and on these goals in 2022. We appreciate you joining us today and we are happy to take your questions.
Operator
As a reminder, to ask a question, you will need to press star one on your telephone. Again, that is star, then the number one. To withdraw your question, you may press the pound key. Please be reminded to limit your question to one and one follow-up only. Please stand by while we compile the Q&A roster. And your first question will come from Andrew Charles. You may ask your question.
Andrew Charles
Thanks, guys. So, you know, sorry to violate the one rule off the bat, one question off the bat, but just a quick clarification because I'm getting some investor impounds. Is the low double digit to your comps they've disclosed for, you know, 1Q quarter to date, is that in line with the 12.3 that you saw in 4Q or is 1Q perhaps tracking, you know, somewhere a little bit above or a little bit below that level? And then just my main question was on pricing. Darren, you expressed your confidence in the ability for the brand to take an elevated level of price. But just given the industry is running the highest percentage of pricing in the last 30 years, can you just be a little bit more specific around your confidence that consumers can digest mid to high single digit price in 2022? I recognize that you'll continue to innovate around add-ons and snacking items to help promote value. But of course, you still need to drive traffic with premium items at compelling price points to help make those margins.
Jack
Yeah, I'll answer the second question first, and then I'll turn it to Tim. One is if we look over the data from last year, we took less price than others in the industry. That's one of the points that gives me clarity about our ability to take price. And then in our test that we're taking related to price, we're seeing upside opportunity in our core menu, where historically we took a lot of our price in our promotional menu. So the data suggests that we have opportunity with price, It's how fast can we take it to overcome some of the margin pressure. And, Tim, any answer?
Peter
Yeah, on the first one, you know, as we reported, just first in Q4, we reported a 12.3 two-year stack. And what we're saying is in the first six weeks, we are trending at a low double-digit two-year stack, which, you know, is consistent with Q4 performance, with single-year comps in the low to mid-single-digit range.
Andrew Charles
Okay, got it. Consistent with that 12-3. Okay, guys, thank you very much.
Operator
Thank you, Andrew. And your next question will come from Lauren Silberman. Your line is open.
Andrew
Thanks so much. I wanted to ask about the development commitments, the 111 you signed. What markets are those units in? Anything you can expand there, whether there was new or existing franchisees or any additional color that could be helpful? And then what's your visibility into the timing of the opening of those locations? Thank you.
Jack
Yeah, Lauren, our focus as we rolled out our franchise development program was in the back half of the year. And we initially went to our existing base of franchisees and said, that's who we want to give the first opportunity for growth. And we're still working through that pipeline of interest. So most of the franchise agreements were in existing markets outside of what I would say some new areas of the new area, which was Salt Lake City that we've talked about on previous calls. And we've had two agreements signed in Salt Lake City, which will help us expand into an adjacent market, what we've called our wagon wheel approach. So we're excited about the company investing along franchisees in Salt Lake City as an example to grow. The rest came from existing markets. And from a standpoint of timing, we're building a pipeline that is fueling the next two years of growth. By the time we sign, by the time they find real estate and open, it's pretty consistent with what we've talked about on these calls that it takes about 24 months to really start to see those openings come to fruition.
Lauren
Thank you.
Operator
Your next question will come from John Glass. Your line is open.
John Glass
Yes. Hi, guys. This is Brian. I'm for John. Maybe just one of the supply chain challenges, if you could provide more detail on that. Was it kind of specific items where availability was low? And I guess, are you getting past those issues? And what have you been doing to kind of get over that hurdle?
Jack
Yeah, unfortunately, we had a challenge with one of our large DCs where they had a staff walkout. And so for about eight to 12 weeks of the quarter, we were working tirelessly with our franchisees to make sure that we could supply our existing restaurants. So we definitely felt that was the biggest challenge during the quarter, which we think is a one-time event, not a thing that is normal. It's related to this whole environment we're in. And with that, both our partner at the D.C. and us, we learned about ways to mitigate that for the future, and we put multiple layers of protection in place so we didn't have to go through that challenge again. But it was definitely something we didn't anticipate, and now we're prepared for beyond a shadow of a doubt.
Peter
Yeah, and Brian, just to add to that, I mean, obviously the industry is undergoing supply chain pressures and challenges. As Dara noted, we're just, given the breadth of our menu, the flexibility of our menu, we're able to handle this in a much more advantageous way than a lot of our peers said. And a lot of the pressure here in the quarter was really driven by this distribution challenge more so than call it a product challenge. You know, high level as we look proactively to face this particular headwind, you know, our primary strategy is to build capacity and increase specification flexibility. So there's a couple of things that we're really doing head on to address that. You know, one is that we're increasing the use of our reverse auction system more so than traditionally. And what this does is it allows us to, you know, have much faster RFP cycle time as we evaluate, you know, opportunities. And then secondly, we implemented a new technology that provides automation and allows us to more efficiently manage spec compliance. So as there's, let's say, pressure on a certain product that we're having challenges getting, we're able to evaluate alternate suppliers and new production line approvals much faster to get that supply back into the system. So we've had great success with that. Point being, we're taking some pretty aggressive action on supply chain overall.
John Glass
Thank you.
Operator
Your next question will come from Jeff Farmer. Your line is open.
Jeff Farmer
Great, thank you. Your mid to high single-digit menu price guidance for 2022 is in line or sits just below that level of commodity and wage rate inflation that you pointed to for the year. So I guess my question is, You're guiding to a 400 basis point restaurant level margin sort of pressure level. You mentioned the acquisition of franchise restaurants as one of the pressure points there. But again, the main question here is, given that your menu pricing is not too far off from the inflation you're seeing on both commodity and wage rates, why are you seeing almost a 400? Why do you expect to see almost a 400 basis point headwind on the restaurant level margin?
Peter
Yeah, so, you know, there's primarily two things here. One is, as you rightly noted, that, you know, there's the acquisition of certain markets that have depressed margins that we're bringing into the restaurant level margin. So it's having a depressive effect. Also, outside of pricing, you know, restricted hours are a component that goes into that as well. So, you know, until we start seeing a loosening of the labor market, we're including that in a calculus of our comp forecasting. and margin forecasting. So there's an effect being driven just by reduced labor hours. And just, you know, just on that point while we're there, just to point out how we're attacking that as well, you know, we're hoping that there's upside with a few things we're putting in place, certainly in the company stores is, you know, we've had Successful experiences with using mobile and app-based application portals. That allows us to speed up the processing and selection of employees in lieu of having our restaurant managers take time out of their day to review applicants. As you can imagine, the application process is ramping up much more so than pre-COVID, so this tool has been effective and efficient for us. Two, we're actively utilizing social media and online channels to get greater impression and reach. So we're really casting our net wide in the hopes of attracting employees into the stores or restaurant workers into the stores. And then we've also been successful in utilizing shift differential pay. So we're trying to attract and retain employees, particularly in our late night day parts, to have greater success in fully staffing our restaurant. So as we use these three levers in the future, we're hoping that to the point that you're making, we're able to have greater success in closing that margin gap.
Jack
Yeah, and let me add one thing to that, Tim. We implemented daily pay as well. And with the premium differential pay, we are in process of rolling across all company restaurants. But where we did, we saw a 25% increase in operating hours, and we're starting not only to see it stabilize but improve. And during the quarter, our staffing was impacted most in the northwest and the midwest. and least impacted in California and Texas. So, you know, we're seeing some light and some improvement in that, specifically in our late night hour challenge with staffing.
Operator
And your next question will come from Brian Mullen. Your line is open.
Brian Mullen
Hey, thank you. Just a question on company-owned store developments. Looks like over the next two years, targeting anywhere from 12 to 20 units. It's good to see. When you think about the targeted AUVs for those stores, should we be thinking about the current overall system-wide average, which is kind of in that high $1.8, $1.9 million range, or should we be thinking about kind of the current AUVs of your company-owned store base, which are some of your highest volume units?
Peter
Yeah, I would think that... the former is what you would be evaluating. Some of the recent performance of the units that we opened in 2018 and 2019.
Jack
Yeah, and as we talked about in December, we'll provide overall details around our economic model and how Those have improved over the last year.
Peter
Yeah, and really the best, I think, reference for this is to go back to the Investor Day materials. We scope out what the unit economic models are in that, as well as our drive-through-only unit economics and what the AUVs are for each of those formats.
Jack
Thank you. Our 2018 and 2019 openings were averaging $1.8 million to $2.1 million in AUVs.
Operator
And your next question will come from Nick Satyen. Your line is open.
Nick Satyen
Thank you. Going back to the unit development question, you know, the sort of low end of 1%, you know, if we think about that for, you know, 22, are we talking about gross or are we talking about net development?
Darren
Oh, that's gross units that we're opening. New locations.
Nick Satyen
Got it. And in terms of the geographies where you plan to open the stores over the next couple of years, is it kind of even between sort of California and Texas and some of the less penetrated markets? Is it more concentrated in the less penetrated markets?
Jack
It's definitely for sure California and Texas. We still have plenty of opportunity, but we've seen expansion in a lot of underpenetrated markets and some where we're seeing signing of development agreements in those markets. So it's across geographies within our existing footprint. And then with some company store development, we will proceed into one or two new markets if you consider Salt Lake City a new market and one other market.
Nick Satyen
Got it. And then just can you update us on where we are with remodeling? You know, what percent of the system is remodeled now? What percent of the company-owned units are remodeled? You know, what the remodel cadence going forward is going to look like?
Peter
Yeah, so just a high level. We know we've got, you know, 400 and change locations that could use refresh remodels. We're really going to pace out how this goes. We've slotted, last quarter we discussed having roughly 20 million of, you know, annual remodels. capital earmarked for these remodel refreshes. And like I said, we're going to ensure that there are guardrails in place so we don't go meaningfully beyond that on an annual basis. And really, it's more or less a first-come, first-served type approach with our franchise system. But generally speaking, we're evaluating these on a one-off basis. So there's various programs in place that they can choose from, and it's going to be site-specific. So You know, we'll look at the need. We'll look at the term of the lease, the term of the franchise agreement, ensure that an ROI is appropriate and that they don't select a remodel package that doesn't provide something that surpasses a return hurdle rate associated with that, and then move forward that way. But, you know, this is, again, this will be the first year that we're rolling this out, so we'll be cautious in how we deploy our capital.
Nick Satyen
Thank you very much.
Operator
Our next question will come from Zachary Frankfurt. Your line is open.
Zachary Frankfurt
Hey, it's Gregory. Just one question. You guys have talked a lot about the pipeline for franchise stores the next couple of years. Can you maybe talk about what that might look like from a gross opening perspective in 22? I would imagine the pipeline as you're working with franchisees is pretty well built for what you know is going to open in 22 and roughly what that number could look like.
Peter
Yeah, so look, I think the point we're trying to, what we really want to get across here is the scale of new signups that's happened. This company in a long time hasn't had a robust pipeline in place. Actually, they haven't had much of a pipeline at all. And in the last two quarters, we ramped up to, you know, three digits of units of restaurants committed to open. So I think we're developing a tangible pipeline We're able to tangibly demonstrate that we're following up on our growth strategy that we laid out on Investor Day, which was to say that we want to get to or we plan on getting to a 4% net unit growth run rate by 2025. And the pipeline that Darren mentioned puts us well on pace to achieve that. So we're pleased with the performance that Tim Linderman and the development team have had so far. And we're excited that the franchisees are on board with us, and they're equally as excited as we are to get growth going.
Darren
All right, thanks.
Operator
Your next question will come from Jared Garber. Your line is open.
Jared Garber
Hi, thanks for taking the question. I kind of wanted to tie a couple threads together here, but we have record franchisee free cash flow in, I guess, 2020 and 2021, but obviously next year in 22, the margin outlook would suggest that the cost environment is going to materially pressure those restaurant-level margins, not only for the company stores, but franchisees. But at the same time, you're developing this increasing pipeline for development demand. So can you just walk through, and I guess maybe we'll hear about this a little bit more in a few weeks, but what those conversations are like with franchisees now and how they're thinking about managing through the cost environment in the somewhat near-term, hopefully, and maybe what's underlying some of the longer-term unit growth pipeline developments?
Jack
Yeah, I think there's a few things here. The conversation we're having with our franchisees are, really critical around our pricing discipline and how do we take price on our core menu. And so that's been a lot of the discussion, and it's been healthy dialogue and people not only learning from the company and the data that we're generating, but from each other and the moves that are being made around the country. So that's a key component of it, and it's been that spirit of partnership. Beyond that, we've presented to our franchisees our focus our strategy around financial fundamentals and where we find opportunity within process and technology to remove costs from the model. So, you know, there's a lot of encouraging, you know, an encouraging bridge of how we can take additional points or improve additional points in labor. So the franchisees are healthy. Their cash flow is healthy. They've expressed their desire to reinvest in the brand because we know these headwinds, you know, are a period in time. and that we've shown that through pricing and through margin improvement initiatives that we can overcome some of the challenges that we're facing in a short-term environment.
Jared Garber
Thanks. And just one quick follow-up. I'm not sure if you gave this earlier, but any mix on the franchisees that are signing up that incremental development demand? Can you remind us of the mix there between current and new franchisees?
Jack
Yeah. All the numbers... our existing franchisees because our first priority in the process was to, and we still have other existing franchisees interested in developing. We're only about six months into this program, and we gave kind of a window of first opportunity to our existing base. So the numbers we've reported are only our existing franchisees, and we're not finished yet with their level of interest. We're still working through market by market, territory by territory, You know, we've mapped every market in the country. We've put data around it so franchises can go out and explore with our real estate team where they would like to grow. And so we're only through a small portion of the process with existing franchisees. As I mentioned, we've launched our marketing for new. We have a good pipeline, and we're in process of, you know, kind of working through what existing franchisees want first, and then we'll start to sign up new franchisees.
Jared Garber
Great. Thanks.
Operator
And your next question will come from James Anderson. Your line is open.
James Anderson
Hey, thanks for the question. Just wanted to talk about some of the technology you're investing in and how that could potentially improve labor productivity going forward, but also if there's an opportunity to have franchisees participate in that investment potentially with some sort of technology fee that they would pay on a per store basis. Thank you.
Peter
Yeah, a couple of things that we're actively working on and exciting about that would help in-store labor is we're working on robotics, particularly at the Fry Station. We'll have a test underway shortly here, and we're optimistic about what that has for us in the long term. We're also looking at automated drink machines as far as pulling labor out of the system, as well as self-cleaning milkshake machines as well. So These technologies are things that, in our analysis, can be fairly meaningful when we look at the economic model in the long term and across the system as a whole as far as being able to reduce required average labor hours per week.
Jack
Beyond that, we've also rolled out a software program technology for the restaurants that enable them to help manage labor more effectively and food. And we're at the early stages of actually taking the technology and being able to drive out cost. So all of it enables us to project better from a labor standpoint and enables us to manage food costs more aggressively. And so those are tools that the brand has not implemented historically that we now have that can really help improve our restaurant-level economics. We also, like I said, I mentioned in my early comments that we've invested in a team in ops services that their entire focus is how do we improve restaurant-level economics through process systems and technology. And so they've got a bridge built and a plan to figure out how we can remove two points at a minimum from the P&L. So that being said, we also, as you know, we've recently hired a new CIO, Doug Cook, who has brought some ideas to the table on how we can continue to improve through AI tools and drive costs out of our system. But also, I think your question was also about tech fees. We charge that today. We have the ability to increase that over time, but we would have to sit down with our partners, our franchisees, and help them see the roadmap. and participate in that journey with us. And we've been doing that accordingly. We've showed them our tech roadmap and have started bringing them along in the process to where we're taking technology.
Operator
Again, if you would like to ask a question, you may press star 1 on your telephone keypad. Our next question will come from Chris Carroll.
Chris Carroll
Hi, good morning. So just as a follow up on pricing, can you talk a little bit more about how and when the anticipated mid to high single digit pricing gets phased in? Sounds like franchisees have already begun to take more pricing, but any additional detail on the pacing of pricing actions at the company owned restaurants will be helpful. Thanks.
Peter
Yeah, so we're fully cognizant of how price is being taken across the industry today. You know, we've got a lot of dry powder built up, given that we've had sort of moderate price increases in 2021 for company stores. As an example, for 2021, we took roughly 3.5% on price, with only 3.9% coming in the fourth quarter. So the typical cadence would be roughly there's four opportunities that we've historically taken to increase our prices. We're likely looking to see how we can accelerate that pacing in 2022, and we're also actively evaluating how much we can take within the various sensitivity bands that we have for the consumer. So this is something that's clearly top priority for the company. You know, we understand that the margin pressures and headwinds we have, and we understand our ability to mitigate those by taking price. And, you know, again, that we have dry powder to do that. So we're actively evaluating, you know, that acceleration. Thanks.
Operator
And your next question will come from Jake Bartlett. Your line is open.
Jake Bartlett
Great. Thanks for taking the question. My question is on the margin guidance for the restaurant-level margin guidance. And I'm hoping you can give us a little more detail on how much those acquisitions, the 20 stores you acquired, are pressuring the margins. And it sounded like the other part of it is potentially negative company same-store sales. And there's a big differential in the fourth quarter between company and franchise sales. But I also look at the company footprint as more California. And you mentioned that California is not seeing the sort of hours and the labor pressures. I think that you cited more the Midwest and the Northwest. So one is, why is the company, Saints for Sales, being so pressured if in California not seeing the impact there? And then just digging in a little bit more into how those acquisitions impact margins.
Jack
Yeah, I'll let Tim answer some of it, but one of the things to keep in mind is the acquisitions that we made are outside of California and Texas. They're in Oregon, Kansas City, and Oklahoma. So those are areas that were outside that kind of core, and it's pretty meaningful the number of stores that we bought in those markets.
Peter
Yeah, absolutely. So for those units, ballpark, we're looking at about 130 basis points of margin pressure due specifically to that.
Jack
The other thing we've been able to do in the meantime since the quarter is we've been in a process of renegotiating leases with some of our organ stores that we will see improved flow through as a result.
Jake Bartlett
Great. And maybe just a detail on why the company, it seems for sales, is underperforming so much, given it seems like they have less of the hour pressure.
Peter
Yeah. Well, there's two things. Typically, the franchisees certainly have, again, been more aggressive and have moved faster in taking price. So that's been significant. They've also taken a different approach and had different success with retaining hourly workers and staffing their stores and been perhaps more nimble on that. in Q4. And then also, as you mentioned, there's geographic disparities between where our company stores are located and the franchisees as a whole. And then lastly, I would say, you know, for company performance, the late-night mix versus what the franchisee late-night mix also has some degree of impact as well.
Jake Bartlett
Great. Thanks a lot.
Operator
Our next question will come from Gregory Frankfurt. Your line is open.
Zachary Frankfurt
Hey, just one follow-up. I think you guys have, on the debt side of things, it hasn't come up in a while, I think you guys have a make-hole early next year. Can you just remind us how you're thinking about leveraging debt? If you were to increase your current total debt amount, how you would think about potentially using those proceeds? Thanks.
Peter
Yeah, just as a reminder, so we bought $70 million towards share repurchases in Q4 for the year 2021 fiscal year. We repurchased $200 million, which we believe was a healthy share repurchase program relative to our history. We just received board authorization for another incremental $200 million, which expires in 2023. So we have the ability to continue in an opportunistic manner share repurchases that we feel gives the best TSR back to our shareholders. And obviously it also allows us to deploy capital, whether it's organic capital or debt capital, to ROI-driven opportunities within our business. I mean, we talked a lot about technology investment today inside the four walls, so we'll be focusing on that. in addition to any other way that we can help grow the overall business, like company store development or remodel refresh programs for franchisees.
Zachary Frankfurt
Can you just remind us what the targeted leverage is for the business right now?
Peter
Yeah, so we gave a range of four to five and a half times. So we'll look to obviously stay within that band. and maintain flex for our long-term strategy.
Lauren
Thank you.
Operator
And this concludes today's Q&A. I'll now hand it back over to Darren Harris for the closing remarks.
Jack
Thank you all again for joining today. We will see you on December 14th for our franchisee event, and we look forward to speaking with you in February to discuss our first quarter 2022 results.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.
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