Jack In The Box Inc.

Good day, and thank you for standing by, and welcome to the Jack in the Box Incorporated Quarter 1 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on the telephone keypad. And please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Chris Brandon, Vice President of Investor Relations. Sir, please go ahead.

Thanks very much, and good morning, everyone. We appreciate you joining today's discussion, highlighting our first quarter 2022 results. Joining us today are Chief Executive Officer Darren Harris and Chief Financial Officer Tim Mullaney. 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, 10-Q, and other public documents filed with the SEC and are also available on the Investor Relations section of our website. And with that out of the way, let's get started. I will now turn the call over to our Chief Financial Officer, Tim Mullaney.

Thanks, Chris, and good morning, everyone. We continued to make progress on our long-term strategic plan and delivered same-store sales results of 13.7% on a two-year basis in the first quarter, despite a continued challenging operating environment. We're working diligently with our operators and franchisees to mitigate the effect of inflation and labor pressures on our business and remain confident in our path to deliver best-in-class unit economics to fuel our growth strategy. As I will discuss in a moment, we are well on track to achieve the long-term growth targets that we laid out on our investor day. We're also making steady progress toward closing our acquisition of Del Taco and beginning the process of integrating our teams while working to identify and unlock meaningful synergies as well as knowledge-sharing initiatives. We will provide more insight into these efforts in the coming quarters. Let's turn to some detail on our Q1 results and our start to 2022. We are very proud of our franchisees, operators, and restaurant managers who have navigated a tough environment to generate positive system-wide sales growth, led by a same-store sales increase of 1.2%. This growth can largely be attributed to price increases in addition to an effective add-on strategy during the quarter. Same-store sales performance in Q1 was nevertheless pressured by limited hours of operation due to labor shortages and some unusual weather impact in the Pacific Northwest. To mitigate the impacts due to the current inflationary environment, we increased pricing by 5.5% year-over-year within our company-operated restaurants. This also allowed us to narrow the performance gap between our company operated and franchisee restaurants in the quarter. Turning to earnings, we delivered diluted EPS of $1.85 for the first quarter, with our operating EPS coming in at $1.97, just below flat when compared to a year ago. I'll provide additional context on our earnings performance in a moment. In terms of future unit growth, The quarter was highlighted by the completion of 26 development agreements signed for 98 future restaurant openings, bringing total agreements to 50 and restaurant commitments to 201. This is the highest level of unit growth commitments in company history. While the results of building our development pipeline have been robust and encouraging, we continue to make the needed efforts toward portfolio optimization, including the targeted closure of underperforming units. In the first quarter, we closed 12 units while opening two for a net decrease of 10 units. While we knew this process would take some time, we are making great progress on getting the current store base where it needs to be for our growth strategies to take full shape. As always, keep in mind that with the exception of naturally expiring franchise agreements, most of our closed locations continue to provide economics in the form of both royalty and rent contributions. Overall, we remain confident that our growth strategy and focus on best-in-class financial fundamentals will enable us to reach 4% net unit growth in 2025 and have jack-in-the-box in 40 states by the year 2030. Turning to revenues, we reported $345 million, up approximately 1.8% year-over-year. This increase was largely due to the growth in system-wide sales and same-store sales. For our company-owned stores, which, as a reminder, make up about 7% of total store count and less than 10% of system-wide sales, restaurant-level margin was 18.3%, driven by cost and labor pressures, as well as the impact from our evolving markets, which we are working to re-franchise. Franchise-level margin, driven by 93% of our unit portfolio, was up 0.4% from a year ago due to improved sales performance. SG&A expenses increased approximately $4.8 million, mostly due to COLE unfavorability and partially offset by a decrease in incentive compensation. A reported effective tax rate was 26.5% for the quarter as compared to 25.1% in the first quarter a year ago. This was primarily due to the non-deductible COLE losses in the current year versus non-taxable gains in the prior year. Combining all of these elements, Net earnings decreased to $39.3 million and adjusted EBITDA was just over $91 million in the first quarter. Shifting to cash, our economic model remains resilient as it continued to generate attractive free cash flow in the first quarter. We generated free cash flow of approximately $24.7 million and spent approximately $9.4 million on CapEx, primarily toward lease right of first refusal transactions, maintenance, remodel and refresh of company-operated restaurants, and digital and technology initiatives. In terms of our capital allocation, at the beginning of the second quarter, we were able to take advantage of the favorable interest rate environment to repay in full a tranche of the company's existing 2019 senior secured notes and to fund a portion of the company's acquisition of Del Taco. Our $200 million buyback authorization remains in place and we'll continue to view share buybacks as part of our total shareholder return strategy, and we'll likely revisit this approach in the back half of 2022. Our board also recently declared a quarterly dividend of 44 cents per share, which will return approximately $9.3 million to shareholders and will be paid out during Q2. I'd like to quickly touch base on the addition of Nashville to our evolving markets. Joining Oregon, Kansas, and Oklahoma, as markets that we intend to re-franchise in the near future. The effect on restaurant-level margin from these markets is temporary, and we quantify their impact at 200 to 250 basis points until they exit the company-operated restaurant portfolio. In closing, and before I turn it over to Darren, I'd like to provide some perspective on a Del Taco transaction and how it fits into our overall financial outlook. As we discussed when we announced this transaction in December, Adding Del Taco is an opportunity to scale our business, improve profitability, and share best practices while strengthening our capital structure. We believe that this transaction is particularly critical in the current environment as it will provide us operating and financial synergies that will help mitigate some of the macroeconomic headwinds we are facing. As we continue to work through our integration planning, We continue to be excited about the opportunities that this transaction will provide and the possibility of exceeding our previous target of $15 million in run rate synergies. We will provide further updates on this and other aspects of integration upon deal close. To wrap up, we are very pleased with our start to 2022 and how the business managed despite a backdrop of inflationary headwinds and labor challenges while delivering strong sales performance and record-setting growth in our new unit development pipeline. Thank you again for joining the call today, and now I'll turn it over to Darren.