Jack In The Box Inc.

Q4 2021 Earnings Conference Call

11/23/2021

spk_0: the day everyone and thank you for standing by welcome to the jack in the box for quarter fiscal twenty twenty one earnings conference call my name is peter and i will be or conference operator today a design all participants are in and only mode after the prepared remarks the management from jock and about will conduct a question and answer session and a conference participants will be given instructions at the time as a reminder this conference is being recorded or replay of the call will be available on in the box corporate website starting today i know like to turn to over to brandon vice president of investor relations with go ahead
spk_1: bags peter a good morning everyone we appreciate you joining today's discussion highlighting our fourth quarter and full year twenty twenty one results joining us today our chief executive officer down harris and chief financial officer in the lady following their prepared remarks we are happy to take some questions from our sell side coverage analysts during are prepared remarks and the queue and a portion of today's call we may refer to non gap items please refer to the nine gap reconciliations provided in today's earnings release which is available on the investor relations website at jack in the box dot 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 cautionary statement and the company's most recent ten k are considered a part of today's discussion material risk factors as well as information relating to company operations are detailed and our most recent ten k ten to and other public documents filed with the fcc 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 twenty twenty two guidance updates included in this morning's earnings release twenty twenty two sg a day of ninety two to ninety seven million this and this excludes net coli gains and losses and now includes selling and advertising expense twenty twenty two commodity outlook up six to seven percent compared to twenty twenty one and twenty twenty two labor costs outlook up eight to ten percent compared to twenty twenty one and as we previously stated during last quarter's earnings twenty twenty two cap bags and other investments of sixty five to seventy five million dollars which includes both capital expenditures and franchise ten an improvement allowances and incentives or three to five your outlook related to camps unit growth in systemwide sales metrics which all factor into that outlook be getting this year remains the same as previously stated also this morning for additional disability we provided a company own store funding outlook look for twenty twenty two and twenty twenty three as well as due to the unique operating environment expected to continue next year a one time restaurant level margin outlook for twenty twenty two symbol speaks
spk_2: this further in his prepared remarks
spk_1: lastly please make sure to mark your calendars for our management and franchisee q and a of open to investors and the general public via webcasts with sell side coverage analysts welcome to join and ask questions of the group the event will take place on tuesday december fourteenth at two pm eastern time eleven am pacific and we look forward to virtually seeing you there and with that detail out of the way let's get started i will not turn the call over to our chief financial officer timberline it
spk_3: thanks chris and good morning everyone
spk_4: reply to discuss or fourth quarter and four years old with you today or solid for corner topline results demonstrate the progress we're making against us for teaching plan on a clear path to deliver best in class unit economics were franchisees and achieve a long term growth targets that we laid out on thus or there we remain as focused as ever i'm getting our fundamentals and place which he these goals
spk_3: overall our franchise these and operators particularly or restaurant managers continue to drive solid financial performance and you for we need to a deluded eap yes of one dollar any sense or nine point eight percent increase from the prior year
spk_4: in a few moments or provide more detail on a component of these earnings we cheat system wide sales growth of eight point six percent as compared to queue for twenty twenty and same store sales growth and twelve point three percent on a two year basis breaking down a you for positive karma of zero point one percent or franchise business increased zero point six percent while our company operated sores were down four point four percent the difference was primarily due to franchisees taking more aggressive action on price increases faster than company on occasions as well as franchisees demonstrating greater success with our we worker hiring and retention our performances quarter was heavily driven by price while average check held constant i like the provides further detail on how labour and the current operating environment and tiger a same store sales for the course we conservatively estimated that limited operating hours due to staffing challenges negatively impact and are caused by roughly three percent also supply chain challenges for them by labor issues within distribution channels in fact that our cop negatively by an additional one percent when we don't typically provide quarter to a trans within it's unique top line environment we wanted to known that we are seeing a very good start que one and then the first six weeks we are training at a low double digit to your that with cops and the low to mid single digit range we continue to believe that our top line fundamentals are solid state and are taking action to ensure we successfully execute on our day parts and maintain a reliable weidman you offering and operating hours or guess have come to expect from jack in the box shifting to unocal we opened for restaurants during the quarter and closed five as part of our broader initiative to make our system and store bismarck fisher these closures included one company owned and for franchisee restaurants for this quarter there were no offsetting agreement do the nature of these closures we keep in mind that most of our clothes locations continue to pay both royalty and rank contributions we remain very competent are gross route as he and believe our best in class economic opportunity for franchisees will enable us to have jack in a box and forty states but he or twenty thirty trying to ravenous we reported two hundred and seventy eight million up twenty three million or nine percent year over year the increase was largely due to higher system wide sales health by the fifty third week and twenty twenty one as well as positive same store sales for a company on stores which make up about seven percent of those stormed out and less than ten percent of system wide sales restaurant level margin was twenty point one percent while franchise level margin improved eight point seven percent or six point one million our franchise level margin performance was driven by the thirty third week and a higher franchise fees while our company on store decline was largely result of the cost pressures that are impacting us and the broader industry as a whole dna expenses increased approximately four point nine million compared to keyboards wayne twenty this excludes the fifty third week and twenty twenty one which accounted for about one point five million in the fourth quarter excluding that coli games of two hundred thousand que for versus a one point three million game last year teenage increased by three point eight million i reported effective tax rate as a percentage of earnings from continue operations before income taxes was twenty five point four percent of the quarter as compared to twenty three point six percent in he for twenty twenty this was primarily due to a onetime benefit of favorable federal and state audit findings recorded in the prior year when you combine all of these elements net earnings increased to thirty eight point nine million for the fourth quarter compared to thirty seven point eight million a year ago additionally adjusted eva darwin just over seventy four million in the fourth quarter compared to just over seventy eight million the prior year are deluded eat yes and you for it was one dollar any sense an increase of nine point eight percent or sixteen cents here's a breakdown of at sixteen cents a lower diluted share town driven by share repurchases that benefited us by ten cents or provide more detail on cherie priest in a moment frank's from operations impacted us negatively by six cents net interest expense positively impacted us by two cents our affected tax rate negatively impact on us by two cents and lastly the fifty third week positively impacted us by twelve cents
spk_5: shifting to cash
spk_4: our economic model remain strong and resilient and it continue to generate significant free cash flow throughout the quarter for four years my twenty one we generated attracted naqqash provided by operating activities of approximately two hundred million after deducting for callbacks we have generated strong free cash flow approximately one hundred and sixty million we spent approximately forty one million on callbacks primarily toward weeds right of first refusal transactions remodel refresher company operated restaurants and digital and technology initiatives during the fourth quarter we we purchased approximately six hundred and seventy seven thousand shares for seventy million are approximately one hundred and three dollars per share on average bring our totaled twenty twenty one year to date repurchases to two hundred million on november nineteen a board of directors approved a new stock buyback program providing authorization for an additional two hundred million expiring in november twenty thirty this new authorization further demonstrates the boards confidence in a long term capital allocation strategies thanks you for we return nine point one million to our shareholders in the form of with force and quarterly dividend payment bring our four year twenty twenty one dividend payments to approximately thirty seven million i also wanted to briefly at labrie on the guidance out with measures we provided earlier this morning first on the guidance it is clear the business will continue to face external cost pressures and do this unique environment we thought some additional one time visibility into our company owns a restaurant little margin for next year would be helpful as noted not release we expect our company on restaurant level margin to be between twenty and twenty one percent for twenty twenty two would you could made the high single digit price increases in addition to just the cost and pricing elements keep in mind he in fact that it's why stores we took we took on and twenty twenty one in oregon kansas and oklahoma
spk_6: whereas
spk_4: to the margin in the near term as well as our ability to maintain full hours of operation as we work to improve performance as restaurants we hope to improve the stores as soon as possible to actively look to read franchise them once they are in a sound operating state while there are likely few surprises on expense and capital from with the latter being previously disclosed it is clear we are committed to continue to make necessary investments in our business if you're growth this includes and investing in our digital and set priorities that love a direct impact on both are top line capabilities store level profitability he what one additional area guidance for the someone's release was our company on restaurant finding out what we plan of fun up to five company on restaurants and twenty twenty two and between seven and seventeen and twenty twenty three
spk_7: we wanted to provide visibility into possible capital and that's within existing twenty twenty two giants give you more insight into are evolving game plan to open company and stores along with franchisee locations in other markets where appropriate
spk_3: and as an adjustment the twenty to two hundred million board authorized
spk_4: or authorization expires in twenty twenty three nights when he very throughout our fight the financials before handing it over there are solid performance result despite the challenging fourth quarter environment demonstrated the strength or economic model epo the company and store level we've made meaningful progress on all fronts of our for killer strategy and were on a great position to continue to society successfully execute on each of those pillars putting in fiscal two thousand twenty two 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 and cash returns have maintained best in class status within the industry we are confident that we can build on his momentum as unified system to advance or growth strategy and expand our reach into new markets and we will address significant shareholder value that continue to focus on operating efficiently investing wisely and building our final fundamentals for long term growth
spk_8: thank you again for joining the call today and now turn it over to deron
spk_4: they determined good morning everyone
spk_2: as i look back at our quarter for and full fiscal year results i am extremely proud of the ability of his brand to remain strong and our performance during his interesting times
spk_8: the energy and perseverance of our restaurant staff and our franchise operators excel during a challenging time in our industry i'm truly grateful again wavering strength and agility with which are team members and company in france has restaurants operate
spk_4: that's in large part thanks to them that we continue to see growth in sales and progress with enough for strategic pillars while our industry does have headwinds we are laser focused on mitigating their impact or we remain discipline and centered on a long term health of the business in our strategy
spk_8: now diving into the results for the fourth quarter we're pleased to report of the same store sales for the quarter and a strong twelve point three percent cop on a to your bases
spk_4: as we navigated nice we do a unique and volatile top line environment within the industry
spk_9: while we generated most of our cells from ticket we remain focused on driving a balance of traffic and average check for the long term i'm confident that we are well positioned to achieve this objective as are operating environment normalizes
spk_4: given our proven ability to offer both credible food and value to customers that are seeking it
spk_8: we're 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 an industry on the unit count front we continued our process to some selectively close doors as we optimize our footprint and position jack for more profitable unit growth
spk_9: we expect to cause less stores and twenty twenty two than we did this year and as ten mentioned we continue to gain economics from many of the restaurants we close be a rant on agree to rocky contribution we are confident that are 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 macro economic headwinds
spk_4: between are varied menu
spk_8: best practice sharing among our franchisees and the market share we haven't our top market we believe we have the pricing power to operate from a position of strength
spk_2: i will as usual categorized my comments within our strategic pillars
spk_9: and in the fourth quarter our team certainly continue to make impressive progress on each this is what will truly position as to unlock the brand's true potential
spk_4: beginning with building brand loyalty are updated brand positioning and craved marking strategy the significantly improving our brand awareness and perception helping us achieve our highest creative metrics since two thousand and nineteen 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 a burger category
spk_8: and while burger performance was strong you can never count out our tacos a spicy tiny tacos and quarter for was our highest volume lt of the year and shed strong attachment and up sell into the loaded version
spk_4: finally are all day breakfast message a good example of learning from our guest feedback help reinforce a brand strength and drove another solid performance from our breakfast day part which included strength from the stacked croissant el tio as well as our core breakfast menu item
spk_8: our menu diversity price point and guess have allowed us to remain resilient and flexible to shift and customer behavior helping to diminish the impact of the recent volatility
spk_4: i believe it's a plex more nervous systems are building a long term product pipe pipeline
spk_9: has me very confident that menu innovation remains one of our core strength
spk_4: our progress within the ecommerce and loyalty spaces and able digital to become central to our guest experience and brand fabric we had a tremendous your digital growth achieving and ninety point six percent increase in digital sales in two thousand and twenty one versus the prior year
spk_8: we achieved the digital run rate milestone during quarter for bikes eating nine percent of sales be a digital channels part of the success can be attributed to our first full quarter with our jack pack rewards loyalty program leading to sixty one percent increase in app downloads this quarter versus a year ago
spk_9: we will continue to lean in on investing in executing in this area of this isn't two thousand and twenty two be exclusive offers and experiences while optimizing the digital guess journey this includes launching mobile web ordering and offering our loyalty program in store during the front half of two thousand and twenty two now onto our next pillar driving operational excellence
spk_4: always awesome continued improvement in a breakfast a part we continue to feel the impact of challenges related to staffing and hours of operations as ten minutes
spk_9: these factors had particularly impacted our late night business
spk_4: 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 option to not only takes your and lead a dominate the state park versus the competition
spk_2: it was tony dardens first full quarter leading operations and his experience and insight has refocus on three main areas where we see the strongest opportunity for near tim near term improvement
spk_4: first we have been rolling out our new guest experience and brand standards significantly raising the bar on the expectations we place on ourselves and servicing are guess second investing in our up services team and tactics tactics which include refining process systems and technology to drive financial performance we will also continue to enhance our restaurant level technology and martek stack capabilities
spk_2: and down the road automation to help with labour optimization this will provide our guess with convenient interaction with the brand especially for off from as ease of use
spk_8: and third strengthening our training infrastructure which will not only help us exit you better but it will help us achieve a critical goal of developing our people and store love a culture we have seen with an industry that it will take more than just money to acquire and retain talent
spk_9: in addition a 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 the much restaurant
spk_4: or third pillar growing restaurant profits was certainly a highlight of two thousand and twenty one and i'm excited about our upcoming investor have been on december fourteenth were an additional management of france's he's taking your questions we will provide insight into our unit economics performance and twenty twenty one
spk_8: if you haven't already mark your calendars please do it will be a great opportunity for you hear from somewhere franchisees directly
spk_9: and lastly or final pillar of expanding jax reach we continue to get much closer to a consistent level of positive net unit growth and were confident that we're well on a way to reaching our long term that unit growth goal for percent by twenty twenty five
spk_8: as you've seen and i credit tim letterman and team for their hassan progress against our topic objective we signed twenty three develop agreements committee to one hundred and eleven future restaurant openings which is a record for jack
spk_2: or thirty one completed site approvals most since back in two thousand and seventeen
spk_9: especially considering we spent a good part of the year repairing are france as a relationship mapping markets and rebuilding it store pipeline and now we're ready to succeed
spk_8: see also spent time getting our france as 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 meet it opens on paper that make no mistake it is a clear leading indicator that are france's these are as excited as ever about growing in this brand and we will continue to keep you informed and these new development agreements with both existing and new france of these throughout twenty twenty two
spk_4: cozy up my thoughts on the quarter a year like twenty twenty one really makes me appreciate our franchisees company leaders and everyone in our restaurants working so hard to represent the brand and summer guess i feel extremely lucky to represent as management team our corporate teams and operators and our france as he's out there making it happen each and every day
spk_8: are people france has even the culture we're creating a jack of us more than anything is what gives me tremendous excitement about our future i'm one of my favorite highlights of twenty twenty one won't show up on an income statement
spk_9: but it's something we're extremely proud of tied to the critical critical objective and of improve franchise the relations it reads and france has relationship institute survey showed that our overall satisfaction score france has improved fifteen point five points compared to twenty twenty it is now at seventy two percent which is significantly above the sector benchmark
spk_8: with more franchise than than ever
spk_4: before noting that they are strongly satisfied with the relationship and ninety two percent saying that they feel optimistic about the future of the brand
spk_8: this is what it's all about serving others
spk_4: and it gives me tremendous confidence that we are taking the steps that matter in accomplishing our strategy or helping jack reacher potential that we all know exists
spk_9: i look for to further executing on this potential and on these goals and twenty twenty two we appreciate you joining us today
spk_0: and we're happy to take your questions as a reminder to ask a question you'll need to press r one on your telephone again that are than 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 they send by while he compiled a kill and a roster
spk_4: and your first question will come from andre charles he made
spk_10: excerpts scott i'm so you're spotify the one roll off the bat one question off the bat just a quick clarification because i'm getting some lesser and pounds is the load double digit tier tom save disclose for your point you quoted a date it is that line with the top three the song for killers once you perhaps tracking on your so a little bit above are a little bit below that level and then just my main quest was surprising you don't dare you expressed you know your confidence the ability for the for the a brand take a l the level price but you're just just given the industry
spk_9: is running the highest percentage of pricing in the last thirty years to keep us build it was sitting around your confidence that consumers can digest be typing or your price and twenty twenty two your i recognize that you can to innovate around add ons is that the items to help promote value because it's too late to drive traffic with premium items that compelling price point to help make those margins
spk_8: yeah ah i answered the second question person and alternate to tim
spk_9: one is if we look over the data from last year we took less price than others in the industry at one of the points that gives me clarity around or ability price and then in our test
spk_4: that we're taking related to price we're seeing upside opportunity in our core menu were 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 the margin pressure and tim any kids are liana and the first one it as we reported dispersing queue for we reported that while point three two years stack and what we're saying is in the first six weeks we are training at a low double digit to your stack with you know
spk_10: is consistent with you for performance with parts in a single your comps and the low to mid single digit range
spk_0: okay got gotta consists of that or three other guys thank you very much
spk_11: again
spk_8: and your next question will come from lauren silberman your line is open think the much i want to fact that the development commitment the hundred eleven you find what markets or the unit than anything you can expand their whether they're with newegg disenfranchised here or any additional call it could be helpful and then what's your visibility and depriving of the opening of those location thank you yeah lorne we i'm your focus as we rolled out our france's development program was in the back half the year and we initially went to our existing base of franchisees and said that's we want to give the first opportunity for growth and we're still working through that pipeline of of interest so most of the franchise agreements were in existing markets outside of women 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 to agreement signed in salt lake city which will help us expand into an adjacent market what we've called are wagon will approach so excited about
spk_12: ah the company investing along franchisees in salt lake city as an example to grow the rest came from existing markets
spk_0: i'm in from a standpoint of timing you know we're building a pipeline that your is fueling the next year two years of growth so at a time we signed by the time they find real estate an open it's it's pretty consistent with what we've talked about on these calls it it takes about twenty four months to really start to see those openings a come to fruition
spk_13: thank you
spk_4: your next question will come from john glass line is open
spk_9: yes hi haggard this is brian i'm on for john maybe just one the supply chain challenges if you could provide more detail on that what was the cause specific items were availability was low and i guess which are you getting past those issues and and what have you been doing until to kind of to gonna get over that hurdle yeah unfortunately we had a challenge with one of our large disease
spk_4: where they had a staff walk out and so for about eight to twelve weeks of the quarter we were working tirelessly with our france as easy to make sure that we could supply our existing restaurant so we definitely felt that was the biggest challenge during the quarter which we think is a one time of that you know not an know a thing that to is normal to really to to this whole environment where and and and with that both our our our partner at the dc and us we learned about new ways to mitigate that for the future and we put new multiple layers of protection and place so we didn't have to go through that challenge again but it was that we sent them we didn't anticipate and now we're prepared for beyond a shadow of it out yeah and brightest the add to that an obviously the industry's got her going supply chain pressures and challenges as their noted you know words to given a brethren you the flexibility of our man were able to handle this is the in a much more advantageous way than than a lot of our peers that and a lot of pressure here and a quarter was really driven by this distribution challenge more so than and you know call it a product challenge so you know high level as we look proactively that to face this particular headwind are now our primary strategy is to build capacity and increase specification flexibility so there's a couple of things that were really doing had on to address that know one is that we're increasing the use of our reverse auction system more so
spk_0: traditionally and what this does is it allows us to i'm much more much quick quick much faster have much faster rp cycle time as we evaluate know opportunities
spk_14: and then secondly we implemented a new technology that provides automation and allows us to more efficiently management marriage spec compliant so as there's with say pressure on a certain products that that we're we're getting were added challenge is getting were 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 in your point being where it were taking some pretty aggressive action on on supply chain overall
spk_4: thank you your next question will come from jeff farmer the line is open audrey thank you and your mid to high single the menu price guidance for twenty twenty two is in liners it's just below that level of body and wagering inflation that you pointed to for for that for the year arm so guess my my question is your guide guiding your for your basis points are restaurant level margin sort of pressure novel on you mention the acquisition of front franchise restaurant as 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 place near seen on both commodity wage rates why are you seen almost have wondered why do you expect to see almost of one basis point i had one on the roster level margin yeah so you know this primarily two things here one is as you the as you read we noted that it others
spk_7: the acquisition of certain markets that have the press margins that we're bringing into the restaurant brought martha restaurant level margin so it's have you to bring a depressive fact also outside a price and you have restricted hours or a component that goes into the as well so you know until we start seeing a loosening of the labor market we're we're including than a calculus of our our top
spk_4: forecasting and margin for gas and so there's an effect being driven just by reduced or reduced labour hours and just you know just on that point lower their just to point out how we're we're attacking that as well you know we're hoping that is outside with with a few things we're we're putting in place only the company stores is you know we've had successful experiences with using mobile app based application portals that allows us to speed up the processing and selection of employees and in lieu of having our our restaurant managers take time out of their day to review applicants as you can imagine that the application processes is wrapping up much more more so than pretended so is tool has has been a second efficient for us you were actively utilizing social media and online channels to to get greater impression and reach so really casting arnett wide in hopes of attracting
spk_8: employees into the stores or restaurant workers into the stores
spk_9: and then we've also been successful utilizing shift differential pay so we're trying to attack attract and retain the employees particular an hour late night day parts
spk_8: the have greater success in in fully starting a restaurant so you know as we use these three levers and the future were hoping that to the point that you're making were able to have greater success and closing that margin gap in the mid one thing that at him and we implemented day we pay as well and with with the premium differential pay we have now we are in process of rolling across all company restaurants but where we did we saw twenty five percent increase in operating hours and we're starting not only to see had stabilized but improve
spk_0: i'm and and during that the the court our staffing was impacted most and the northwest in the midwest
spk_4: and least impact of in california and texas so
spk_13: yeah we're seeing some light
spk_7: of and some improvement in that time in that specifically in our late night our challenge with staffing
spk_15: and your next question will come from brian mullen your line is open
spk_8: it's a you have just question on company owned store development will take over the next two years targeting anywhere from twelve to twenty units with the see you when you think about the targeted a you these for those stores should be thinking about it the current overwatch overall system wide average which is twenty necktie one point eight one point nine million dollar dollars
spk_7: years or should we be thinking about ten the current you these of your company and borges which are or samir has volume units
spk_16: yeah i would think that
spk_8: that the former is what you would he would be evaluating some of our the recent performance of that of our of the units that we we opened and twenty eighteen and twenty nineteen yeah we're in as we talked about him in december will provide overall details are on our economic model and how those have improved over the last year yeah it and and really the best at a reference for this is to go back
spk_0: the invested a materials we go about what the unit economic models are and that as well as our our rights are only unit economics and what the a these are for each of those formats
spk_17: there are two thousand and eighteen
spk_13: and nineteen openings
spk_9: we're averaging one point eight that up and took two point one million dollars and navy
spk_17: and your next question will come from nyc satkin you line is open
spk_8: thank you and a going back to the unit development question you know a dead sort of low and outset of of one percent say you have to think about that for for for you have twenty two are we talking about gross are we talking about net development
spk_9: oh that's a gross gross units that we're opening new new locations
spk_8: got it and in terms of the job that the geography where you plan to open the stories of the next couple years is a kind of even between sort of california texas and some of the less penetrated markets is it more concentrated in them in the less penetrated markets
spk_17: it's definitely him for sure california and texas we've got plenty of opportunity but we seen an expansion a lot of under penetrated markets and somewhere were spinning signing of development games in those markets
spk_4: but it's a quarter of would ya or fees
spk_18: within our existing footprint and then with some company store development will we will get we will proceed in the one or two new markets if you consider salt lake city and new market and one other markets
spk_4: got it and then just key update us on on on where we i would be models you know what presale system as is remodeled now ups and a companion a derby model you know what what the remodel cadence the going forward is going to look like
spk_7: yeah so just a high level we know we've got you know four hundred and change locations that could use refresh remodels we're really gonna pace out how this goes we've we've slotted in will last quarter we discuss adding roughly twenty million of
spk_4: our annual
spk_7: capitals sort of earmarked for these remodel refreshes
spk_19: like i said we're going to ensure that their guard rails and play so
spk_17: so we don't go meaningfully beyond that on an annual basis
spk_0: the and really it's more or less a first come first serve type approach with our franchise system but generally speaking we're evaluating these on a while basis so you know there's various programs in place that that they can choose from and it's can be site specific so you know what will look at the the need will look at that
spk_20: term of the least the time of the franchise agreement ensure that in our allies 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 they move for that way but yeah this is again or with this will be the first year that we're rolling this out so will be cautious
spk_17: and and in how we deploy our capital
spk_21: thank you very much
spk_7: or next question will come from zachary of frankfurt airline is open
spk_4: hey hey gregory the i'm just just one question i either to talk a lot about the pipeline for franchise towards the next couple years he he knew each other what that might look like from a gross opening perspective in twenty two out imagine the pipeline and you worked with french diseases pretty well built for what you know can open twenty two and roughly what that number could look like yeah so
spk_19: look i think of the point where china what we really want to get across here is the scale of news sign ups that's happened this this company in a long time hasn't had a robust pipeline and plays actually they haven't had much of a pipeline at all and the last quarter's we ramped up to you know three digits of units
spk_4: of restaurants committed to open so they were developing a a tangible
spk_22: what were able to to casually demonstrate that were following up on our our growth strategy that we laid out on investor day
spk_0: and we say it which was to say that we want to get to when we plan on getting to a four percent net unit growth run rate by twenty twenty five and the pie by that that that their and mention the puts as well on pace to achieve that so we're pleased with the performance that symlin or men and and the development
spk_23: that of you have had so far and
spk_13: yeah what we're excited that the franchises are are on board with us and and eat their equally as excited as we are to get road going
spk_23: thanks
spk_8: next question will come from jarred garber the line is open hi thanks for taking the question i'm gonna want to tie a couple threads to get a year but you know we have a record franchise be free cash flow and i get twenty twenty twenty twenty and twenty twenty one but obviously next year toy to the margin outlook would suggest that the cost environments going to materially pressure those restaurant the margins and i'm way for the company towards the franchisees but at the same time you're developing this you know increasing pipeline for development demands of you just walks through and i get me to hear about this a little bit more a few weeks but what those conversations are like within with with for inside these now and how they're thinking about managing through the cost environment and in the somewhat near term hopefully and and you know maybe what's underlying some of the the longer term or unit growth pipeline developments yeah as a there's a few things here ya that the the conversation around with our friends as these are your really critical around our pricing discipline and how do we take price on our core menu
spk_23: and so that's that's been a lot of the discussion and it's been healthy dialogue and people you're not only learning from the company in the data that we're generating but from each other and and the moves that are being made around the country
spk_8: so that's that's a key component of it and it's been that spirit of partnership beyond that your we've presented to our franchisees
spk_4: you know our our strategy around financial fundamentals and where we find opportunity with and process and technology to remove removed costs from the model so you know there's a lot of encouraging you know encouraging bridge of how we can take additional points or improve additional points in labor so the french how these are healthy there cash healthy healthy they've expressed their desire to reinvest in the brand because we know these these headwinds you know or appeared in time and that we've shown that your through pricing and through in a margin improvement initiatives that we can overcome some the challenges and we're facing in the short term environment
spk_8: thanks and just one quick follow up on musharraf you gave this earlier but any next on the on the franchise franchisees that are there are signing up getting incremental development demand can you remind us of the mix everything korean and new franchisees yeah it's the all the numbers are existing printer these cars our first
spk_23: priority in the process was too and we done other existing franchisees interested in in developing a were only about six months into this program and we we we gave a you know kind of a window of first opportunity to our existing base so the numbers we've reported or only or existing franchisees and we're not finished yet with
spk_0: with their level of interest we're still working through market by market territory my territory
spk_24: you know we mapped every market in a country we put data around it so french's gotten explore with a real estate team where they would like to grow and so we're only through of a small portion of the process with existing franchisees as i mentioned we've launched or marketing for new we have a good pipeline and were in process of you can a working through
spk_4: oh what existing franchisees one first and then we'll start to sign up a new franchisees
spk_25: great thanks
spk_4: and your next question will come from james anderson a line is open they thanks for the questions wanted to talk about somebody or technology or invest in it and how that could potentially improve labor productivity going forward but also with there's an opportunity to have her franchisees participate in that investment potentially with some sort of the technology see that they would pay on a personal basis
spk_9: thank you
spk_8: had a good to be a couple things that there were actively working on exciting about that that would help in store labor is is oregon robotics politically at the price days and law the tests under way shortly here and and we're optimistic about about what that has worse in a long term i also looking yeah automated drink machines as far as polling labor at the system as well as self cleaning milkshake machines as well so yeah these these these technologies are things that you know in our analysis to be very meaningful when you look at the
spk_26: that not of model in the long term and and across the system as a whole as far as being able to reduce average require an average labour hours per week
spk_8: beyond that we've also ruled out
spk_9: a software program technology for the restaurants and enable them to help manage labour more effectively and food and where the early stages of actually taking the technology and being able to drive out cost so all of it term enables us to project better from a labour standpoint it enables us to manage food costs more aggressively and so those are those are tools that the brand has not implemented
spk_8: historically that we now have that can really help improve
spk_9: or a restaurant lower economics we also like i said i mention on that in my early comments that we've invested in a team in op's services that their entire focus is how do we improve
spk_0: the restaurant lower economics due process systems and technology and so they've got a bridge built in a plan to figure out how we can remove two points at a minimum i'm from the piano so that being said we also as you know we've recently hired a new ceo
spk_27: doug cook who has brought some young ideas to the table and how we can continue to improve through a i tools and drive up costs of our system but also you know i think your question was also about taxis a week we charge that today we have the ability to if you increase that over time but we would have to sit down with our partners or fantasies and and and help them see the road map and participate in that journey with us and and we've been doing that according
spk_4: we we've we've showed them are tech road map and have started bringing them along in the process to where we're taking technology again if you would like to ask questions you may press r one on your telephone keypad or next question will come from chris carol i ag morning so just as a follow up on pricing in sokolova more about how and when the anticipated made the high single that uprising gets phased in sound like i've franchisees have already begun to take more pricing but an additional detail on the pacing uprising acts and at the yeah company owned restaurants or be helpful thanks
spk_19: yeah so it wouldn't work fully cognizant of the how price has been taken across the industry today we that it with alive dry powder build up given that we've had sort of moderate price increases
spk_0: and twenty twenty one for accompanied stores as an example for the for my twenty one we that's roughly three and a half percent on price with only three point nine persons present coming in the fourth quarter so the typical cadence would be roughly there's there's four
spk_13: opportunities that with that we the survey taken to increase our prices oh we were likely looking to see how we can accelerate that pacing and twenty twenty two and were also actively evaluating how much we can take within the very sensitivity bands that we have for the key soon emerge so this is something that's clearly top priority for the company we understand that the margin pressures and headlines we had any has been our ability to mitigate those by taking price and you know again that we have dry powder to do that so
spk_8: the radically evaluating that exhilaration thanks
spk_4: and your next question will come from jake bartlett line is open
spk_8: great thanks for taking the question my question is on the on the margin guidance for the rest are limo morgan guidance and i'm hoping you can get him as a little more detail on your how much news acquisition between stores you acquired are pressuring the margins in it's emulate the other part of it is is potentially now
spk_28: give companies thing for sale them there's big differential new in the fourth quarter can compete in franchise and but alpha look at the and become be a footprint is more california in the nation that california's not seen is the food and you hours in the labour pressures i think the selling more the midwest in the north wow
spk_4: so the new one is your why is the company since yourself new things are pressured or if if if in california not noting that the impact their in and in just digging in a little bit more into had those accusations impact margins yeah i'll let him answer some of it but one of these to keep in mind as the acquisition that we made our outside of california and texas very in oregon kansas city and oklahoma so those are areas that were outside that kind of koren use breathe meaningful the number of stores that we bought in those markets yeah absolutely so for those units in a ballpark we're looking at about one hundred and thirty days is plenty of margin pressure do specifically to that the thing we've been able to do in the meantime since the quarter is within a process isn't that of renegotiating liters with somewhere organ stores and we will see improve flow through as a result images to the city telling a lie the company things result is is is underperforming so much i'm given a seems like a did have less the and the our pressure yeah so while there's there's two things typically the franchisees early as as again been more aggressive than and have moved faster and taking price ah so that's been significant
spk_29: they've also at taken a different approach
spk_0: and and had different success with with retaining
spk_30: hourly workers and and starting our stores and then perhaps more nimble on that
spk_20: it in and queue for and that also as you mention there's geographic disparities between where our company stores are located and and franchisees as a whole and lastly i would say you know for company performance
spk_13: the late night mix versus what the franchise the late night next also has some of than that as well great thanks flat
spk_4: next question will come from gregory frankfurt line is open take a just will follow up on but i think you guys have a and on the dead side of things as of them up in a while the you guys the the make or early next year
spk_19: use for my the how you think about leveraging debt
spk_7: if if you were to increase your get corrected told that him out
spk_4: how you would think about potentially using those proceeds thanks
spk_2: yeah you know just as much so we bought seventy million towards cherry purchases and queue for for the year twenty twenty one fiscal year we we two hundred million with in which we bleed was a healthy
spk_4: repurchase sherry purchase program relative to our our history we just received board authorization for another and pronounce it incremental two hundred million which expires in two thousand and twenty three so we we had the ability to continue in an opportunistic manner share repurchases that we feel gives the best tsr back to our shareholders and and obviously it also allows us
spk_0: to deploy capital whether it's organic
spk_8: the capital or that capital to our allies rogan opportunities within our business and we talked a lot about technology investment today yeah the inside of will also be focusing on that ah in addition to any other way that we can help you grow grow the overall business like company started element or we might are we friends read remodel refreshed programs for franchisees
spk_0: he is merged with the target leverage is is for the business right now
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