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Operator
Good morning and welcome to the Q3 2022 Jack in the Box earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, press star 1 on your telephone keypad. If you'd like to withdraw your question, press star 1 again. Thank you. Chris Braden, Vice President, Investor Relations.
Chris Braden
You may begin. Thanks, Operator, and good morning, everyone.
spk08
We appreciate you joining today's conference call highlighting our third quarter 2022 results. With me today are Chief Executive Officer Darren Harris and Chief Financial Officer Tim Mullaney. Following their prepared remarks, we will be happy to take some questions from our covering Southside analysts. Note that during both our discussion and Q&A, we may refer to non-GAAP items. please refer to the non-GAAP reconciliations provided in today's earnings release, which is available on our investor relations website at jackinthebox.com. We will also be making forward-looking statements based on current information and judgments that reflect management's outlook for the future. However, actual results may differ materially from these expectations because of business risks. We therefore consider the safe harbor statement in today's earnings release and the cautionary statements in our most recent 10-K to be part of our 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 available on our investor relations website. And with that, I would like to turn the call over to our Chief Executive Officer, Darren Harris.
Darren Harris
Thank you, Chris, and good morning, everyone. I want to start by recognizing the hard work of our operators, team members, and franchisees. Despite a tough environment, our strategy is continuing to take hold and prepare us for growth. We look forward to closing out 2022 with the energy and passion that helps make both the Jack and Del Taco brand so special. Now let's begin with our Q3 performance. Our first full quarter with Del Taco as part of the Jack family. and a solid quarter for top-line results across the entire company. Both brands delivered excellent two-year same-store sales performance, rolling over strong comps, record-setting AUVs, and the remaining lift provided by stimulus from a year ago. With a steady improvement of operating hours, open dining rooms, and continued focus on marketing and product innovation, we saw a ramp-up of sales performance exiting Q3, which gives us a favorable sales trajectory heading into the fourth quarter. Of course, we face challenges too, including the hefty inflation headwinds, battling for share of customers dining out, and the risk of recession. But since these macro issues affect the entire industry, what truly matters is how we are addressing these headwinds. which I will review as part of our strategic four pillars and our people foundation. Turning to flow-through margins. Inflation, staffing, and operating hours continue to create pressure on our restaurant-level performance. However, increased pricing, improved training, and focused restaurant-level execution is helping franchisees deliver a better guest experience and assisting with financial fundamentals. All in all, I am encouraged that the progress against our strategy over the last two years is being reflected in our sales performance, and that momentum is continuing. With that, let's review our four strategic pillars within the lens of our Q3 performance and execution plans for the remainder of the year, starting with building brand loyalty. Our craved marketing strategy continues to guide our advertising, innovation, and digital initiatives. We are up and running with our new ad agency, Chiat Day, and just debuted our first creative work with Mark Hamill that's been very well received on a national scale. This is just another step in our progress to make Jack a more culturally relevant brand that provides a strong value offering with innovative and craveable products that our guests will seek out no matter what time of day. Our focus on innovation continued in Q3, which featured the launch of our new grilled chicken sandwich and the debut of the Girl Scout Adventurefuls cookie shake. We also brought back some of our fan favorites, popcorn chicken and roost fries, in both classic and spicy flavors. Our burger platforms performed well, particularly our Ultimate Cheeseburger and Sourdough Jack, which are also fan favorites that contributed nicely to sales. Our famous tacos drove strong mix and heavy sales contribution within size, a menu category where we certainly see some additional pricing power. Egg rolls and tiny tacos also contributed nicely to our improving sequential trend of items per check. We will keep innovating around new and exciting snacking products, that have attractive up sales and add-ons as our hook and build strategy remains key to growing check without relying solely on price. We are attacking the breakfast day part in Q4, utilizing newly debuted Mark Hamill creative to announce the return of French toast sticks, which are available as a standalone item or as part of our breakfast platters. French toast sticks are an effective way to increase check while offering guests more food at a good value. We believe this promotion will help boost the breakfast day part as we close the year. While still pressured by traffic, our late night business continued to improve in terms of staffing. In fact, our company-owned core markets are back to pre-pandemic staffing levels, and it shows in our top line results. This, plus an ongoing emphasis on value, enables us to continue adopting to guest behaviors while ensuring we can deliver on a Jack trademark, offering guests everything on the menu all day, every day. A good example of this value offering is our late night munchie meals, a platform where we were able to take price and are now testing a solution that will provide better ordering and operational simplicity. This has me more encouraged than ever that we can differentiate ourselves versus the competition and dominate this late night day part. We also continue making strides in reaching our digital and loyalty potential. Our digital sales grew over 30% versus last year, while the Jack Pack Rewards program, still in its infancy, achieved a milestone of over 2 million members after we recently rolled the program out to our drive-through and in-store guests in Q3. Looking ahead, We're excited about launching our new enhanced visual platform that includes mobile web ordering in quarter four. We believe this platform will help us not only attract incremental e-commerce guests, but also help us create a more seamless, personalized relationship with our loyal guests while retargeting our last users to re-engage across both our app and mobile web solutions. I continue to see digital as an area where the scale and resources of two brands will help us move faster and more efficiently as we evolve and flex our digital and tech opportunities as a new company. Now shifting to our second pillar, driving operational excellence, which entails aggressively recruiting and training new restaurant team members, executing on operational basics through our new guest experience review, and enhance brand standards. Our staffing initiatives are yielding positive results, particularly on the company-owned side, as we are increasing total employment per store. And we are training those store team members better than ever and continue to increase our completion of training certification. This is enabling us to better execute our day parts, open more dining rooms, and meet our high expectations for serving guests. Our guest experience review and focus on process and implementation of new brand standards helped speed of service improve while alerts fell throughout the quarter. Consistency in our guest experience drove top line growth and those who executed our brand standards saw the highest sales growth within the system. By quarter end, the year over year gap in service times actually narrowed something we haven't seen since the onset of the pandemic. We are already working closely with our franchisees to implement the staffing initiatives that are clearly working on the company side, as well as getting more dining rooms open. In Q3, we gained on our objective of opening more dining rooms, now at around 55%, and we're getting better by the day. These restaurants continue to average a low single-digit sales lift upon reopening. Now, let's discuss our evolving market. We are pleased to report a completed letter of intent to re-franchise seven stores in Oregon by year's end, with plans to close the remainder of company-owned stores in the market. The transaction also includes six stores in Southern California and a development agreement, advancing our commitment to an asset-light model and demonstrating our re-franchising capability that will ultimately lead to growth. We're excited and encouraged to be placing Oregon, a territory that I'm confident can grow over time, in the hands of a top operator within our system. We are working on LOIs to re-franchise two other evolving markets, which upon completion will also include development agreements. The bottom line, our ownership of these markets was always designed to be temporary, and we intended to get them in the hands of capable operators who want to invest in operations, re-images, and growth. The net impact will be better performing markets, more consistency in restaurant-level margin trends as we enter into 2023, and the further simplification of our business model towards asset life.
Chris Braden
Our third pillar, growing restaurant profits, involves executing our financial fundamentals roadmap.
Darren Harris
This is an area in which we remain extremely focused, now more than ever, considering the inflationary headwinds, so that we have a disciplined design to find ways to improve our economic model. Restaurant-level EBITDA will always be a top priority for our team. Our operations services team and franchising margin task force are working to improve margins by 200 basis points through new restaurant-level processes, equipment, and technology. We regularly explore the appropriate balance between efficiency and cost savings, but without jeopardizing the guest experience. We're making good progress on some of the opportunities we've identified. A few highlights include testing simplified build logic and packaging that will improve processes and throughput. A hydro rinse machine that standardizes the cleaning and sanitizing process with over 1,000 units either shipped or on order. Cheese pumps are currently in test at over 20 restaurants. And albeit longer term, our fryer automation test with Miso is underway at a restaurant in San Diego. We look forward to continuing to share learnings from these and our future margin driving initiatives along the way. When complemented with improvements in the inflationary environment over time, We are confident that they can be extremely effective toward improving our restaurant-level bottom line. We were able to mitigate some inflationary impacts by leveraging our pricing power across key categories and core items. We will see opportunity to increase price across some of our core items, but also believe we need to reinforce our value position in some of our day parts and across key consumer segments in the fourth quarter. We still see it as imperative to sustainably build check beyond just price take through our hook and build strategy. This add-on approach will continue to be part of our plan to deliver solid top line performance as Jack has achieved reliably over time. And lastly, our all important fourth pillar, expanding Jack's reach. Let's start with a quick update on our re-image program. which continues to garner interest and early participation from our franchisees during its first full quarter since the official launch. We now have re-image forms submitted for 373 franchise restaurants, and within that, 173 restaurants approved to receive our incentive offer. We also have four company-owned re-images to be in construction in Q4, with another eight company locations to be completed in 2023. These company locations will all be testing a new craved image, which reflects a step up from the most recent industrial image version. We continue to see traffic-led sales gains with re-image openings, and we look forward to updating you on the future success of this new image, along with the significant process we begin to make with our remodel program in 2023. We continue to see an increase in the number of development agreements. We're now at 62 for 233 restaurants since the program launched last summer. Under these agreements, 13 restaurants have already opened, leaving 220 remaining for future development. We have more site approvals in the past six quarters than the previous three years combined, with more site approvals on the way in the fourth quarter. In addition, we are getting closer to two key market openings which will likely begin in 2023. Salt Lake City, which is an example of a wagon wheel territory with proximity to core markets and high demand for the brand. And next is Louisville, a white space territory that we're excited to enter. Our improved approach to new market openings consists of both franchise and company-owned build in an effort to maximize field and support resources, plus position the markets for greater penetration and awareness that will lead to success. We look forward to providing more detail as we get closer to cutting the ribbon on these restaurants in 2023 and updating you on their performance.
Chris Braden
Let's shift to Del Taco.
Darren Harris
We are very pleased with results from the first full quarter with this outstanding brand as part of our new company. Tim will take you through the specifics, but here are a few high-level highlights from our results. It was a very good quarter for sales performance, reflecting the underlying brand loyalty and demand for Del Taco's craveable menu. Notably, the $20 under $2 menu continued to perform well, despite it being a substantial price increase within the value platform. We actually saw increased mix in some areas of the menu that took price increases and will seek to capitalize on items-per-check opportunities, much like we are doing with hook-and-build on the jack side. The Del Taco team demonstrated two notable things this quarter. First, the ability to execute record levels of price increase at just under 12%. Franchisees have seen improved transactions along with the price take in many instances, which is fairly rare within the industry. And second, effective labor management within restaurant-level margins during a difficult time. In fact, labor margin percent improved in Q3 despite higher wage rate inflation. Snack and dinner performed well, helped by delivery and improved staffing. We also saw a nice contribution from dine-in due to an increase in company and franchise dining room openings. Hours of operation are now in line with 2021 with a target to return most stores to pre-COVID hours as the summer progresses. On the unit growth front, the attractive new Fresh Fletch prototype continues to energize franchisees who signed 11 new development agreements, bringing the total of signed agreements since 2021 to 79 restaurants across 11 states. We continue to be very excited about this progress and the brand's growth potential. I want to especially thank Del Taco franchisees and team members for a great quarter of performance. Inclusive of our ongoing integration and synergy efforts, we look forward to working together to finish the year in strong fashion. To close, I'm extremely pleased with how our corporate team members and franchisees continue to fight through the elements, control what we can, and remain focused on the end goal of growth. We believe our long-term fundamentals are stronger than they have been in our company history and look forward to using the remainder of 2022 to position ourselves to deliver unit growth in the near future. Thank you again for joining the call today. And now I'll turn it over to Tim.
Tim
Thanks, Darren, and good morning, everyone. My quarterly review will begin with financial results for both of our brands before closing with remarks on guidance and capital allocation. Note that Q3 marked the first full quarter of Del Taco within our consolidated results. Starting with Jack in the Box, system-wide sales fell 1.4%, while same-store sales declined 0.6% in the quarter, consisting of positive company-wide same-store sales up 3.5% and a franchise same-store sales decline of 1%. When removing the impact of our four evolving markets, our company's same-store sales would have been approximately 200 basis points higher. During the quarter, system-wide sales declined relative to same-store sales due to a one-week shift affecting the calculation of same-store sales related to the 53rd week in 2021. This one-week shift had a more positive impact on same-store sales due to lapping less of the stimulus benefit in its calculation when compared to the fiscal quarter comparison. The decline in system same-store sales was largely attributable to fewer transactions and reduced operating hours, particularly during the late-night day part, as well as unfavorable mix and lower units per transaction compared to last year. These were mostly offset by price increases. The Jack in the Box brand continued to experience staffing challenges that resulted in lost operating hours compared to the prior year period, although we showed consistent improvement within the company portfolio, helping mitigate its impact on third quarter sales performance. Furthermore, we experienced improvements in speed of service trends, which Darren touched on earlier, as the quarter progressed. And for the first time in several quarters, we were pleased to not experience any meaningful product supply disruptions or shortages during Q3. The quarter began with negative same-store sales trends, as we elapsed stimulus checks from last year. But as that impact faded, the trend turned positive. The snack and dinner day parts drove most of our quarterly sales improvement, seeing the least amount of traffic pressure of all day parts and benefiting from fan favorite menu items, notably popcorn chicken and a double bacon cheesy jack. Transactions for both the breakfast and late night day parts declined, And to address this in Q4, we will run a popular breakfast LTO along with improvement in staffing during the late-night day part. Same-store sales increased sequentially on a three-year basis by 70 basis points. And company-owned same-store sales were also 70 basis points higher than our 2019 performance of the same period. Core premium menu items, driven by the Cluck Chicken Sandwich, Ultimate Cheeseburger, and Sourdough Jack, and value items driven by the chicken sandwich inside, such as tacos and tiny tacos, contributed positively to Q3 sales. As we have long stated, we will continue to innovate and seek to benefit from the return of fan favorites, as well as employ our successful barbell strategy to balance value and premium offerings. Notably, restaurants with open dining rooms at quarter end were at about 55% of the system, It experienced higher sales gains year over year than stores with closed dining rooms as in-store activity continued to increase. Regarding store count, during the quarter, there were three openings and three closings, maintaining our Jack restaurant count at 2,207. Inclusive of Del Taco, there are now over 2,800 units across the entire company. Jack restaurant level margin for the quarter was 15.8%. inclusive of our temporary evolving markets portfolio. As a reminder, the evolving markets are comprised of Oklahoma, Kansas City, Oregon, and Nashville, which were acquired for the purpose of re-franchising. Excluding these four evolving markets, restaurant level margin would have been 19.3%. Additionally, we are pleased to enter into an LOI for the Oregon market. And as Darren mentioned, we are nearing agreement on two of the remaining three markets. In addition to the impact from these markets, restaurant-level margin was pressured by unprecedented commodity and wage inflation at levels consistent with industry trends. Pricing of 9.7% helped us manage the cost environment, and we will continue to take a disciplined and measured approach to pricing strategies as a means of mitigating the impact on our margin and bottom line. Food and packaging as a percentage of company-owned sales in the period was up 3.6% versus the prior year, primarily due to commodity inflation of 16.8%, as well as unfavorable sales mix, partially offset by menu price increases. The inflation we have experienced is across all categories, with the greatest impact seen in proteins, sauces, oils, and beverages. Excluding evolving markets, this impact decreases to 3.3%. Labor as a percentage of company-owned sales in that period was up 3.6%, due largely to wage inflation of 13.2% compared to prior year, as well as the impact of our evolving markets. These two cost pressures were partially offset by price increases and by lower incentive compensation. As you all know, the labor market remains tight, and we have selectively increased wages in key markets to attract and retain talent. Excluding evolving markets, Labor as a percentage of company-owned sales was up 2.2%. Occupancy and other costs as a percentage of a company's sales in the period was up 2.5%, due largely to 29 restaurants within our evolving markets portfolio with lower than average sales volumes and higher costs for maintenance, repair, and utilities. Franchise-level margin in the quarter came in at 41.4%, or $70.8 million. a $6 million decrease compared to the prior year, with just over $2.7 million due to the St. Louis area franchisee bankruptcy. Without this impact, franchise-level margin would have been 42.2% for the quarter, only 110 basis points lower than the prior year of 43.3%. Jack S. G&A in a quarter was $26.9 million. Excluding advertising, G&A was $21.8 million, $4.7 million higher than the prior year. The driver of the increase was net COLE losses in the period versus a gain in the prior year. This increase was partially offset by lower litigation matters, incentive compensation, and other. Adjusted EBITDA was $73.2 million, down from $79 million in the prior year, due primarily to lower restaurant and franchise-level margin, as well as net COLE losses. Consolidated gap EPS for the third quarter came in at $1.08 compared to $1.79 in the prior year. Operating earnings per share, which includes certain adjustments, came in at $1.38 for the quarter versus $1.64 in the prior year. The decline in operating earnings per share was primarily attributable to lower company restaurant-level margin and franchise-level margins at Jack. as well as a higher interest expense connected with increased borrowings to fund the acquisition. Turning now to the Del Taco segment. System-wide sales were up 3.3%, while same-store sales rose 3.5%, consisting of a company same-store sales increase of 2.3% and a franchise same-store sales increase of 4.8%. The difference in same-store sales performance was primarily due to pricing as well as a number of non-California markets posting outside same-store sales performance, as these franchise markets continue to demonstrate considerable brand loyalty. Notably, the brand outperformed the fast food industry during the quarter for 11 out of 12 weeks and exceeded the quarterly industry benchmark by more than 200 basis points. Similar to Jack, Del Taco looked toward price in helping combat inflationary headwinds related to food and labor. Average check rose as a result in spite of modest transaction declines. The impact of reduced operating hours on the quarter was immaterial to the system-wide same-store sales result and the trend line was stable. The snack and dinner day parts drove the majority of the sales improvement versus the prior year in 2019 and was aided by delivery growth that over-indexes at late night. Compared to 2019, same-store sales growth was mid-single digits for the company and double digits for franchise with positive results across all major geographies. During the quarter, the twofer quick combo meal platform had the greatest contribution of sales through higher pricing from the $5 and $5.50 to $6, while the $20 under $2 menu, which launched in Q2 to help preserve and drive value, contributed a notable sales lift from the chicken roller refresh. There were five closings, of which two were company and three were franchise, and the quarter end Del Taco restaurant count was 594. Since the beginning of the fiscal year, which includes both before and after the acquisition, there have been three Del Taco openings and 11 closings. Del Taco restaurant level margin was 17.6% compared to 21.2% in the prior year. The variance was due primarily to pressure from commodities, wage inflation, and the impact from purchase accounting. Company-owned pricing for the quarter was just over 11%. Food and packaging as a percentage of company-owned sales in a period was up 2.7% versus the prior year, primarily due to commodity inflation of 20.5%, that was only partially offset by menu price increases. While commodity inflation was pervasive across all categories, The greatest headwinds were seen in proteins, oil, avocados, cheese, and tortilla shells, which collectively represent 70% of the overall impact. Labor as a percentage of company-owned sales in that period was down 0.4% versus the prior year. The rate per hour inflation was 10.8%, but same-store sales increases and well-controlled labor hours resulted in an improved labor margin percentage. Finally, occupancy and operating costs as a percentage of company-owned sales in the period were up 1.3% due to higher utility costs and delivery fees. Franchise-level margin in the quarter came in at $5.1 million, or 42.7%, a decrease of 1.6% from a year ago. This modest decrease was mostly due to the impact of increased leasehold interest amortization and franchise IT support costs. while favorable same-store sales and royalties, as well as lower support and other costs, contributed positively. We are focused on successfully integrating Del Taco and realizing our target synergies, which will be a continued priority as we close out 2022 and head into 2023. Moving on to guidance. We are updating our restaurant-level margin guidance, as well as our CapEx and other investments for full year 2022. Jack restaurant-level margin is now expected to be around 16%, which includes high single-digit price increases. Our previous guidance was around 17%. Restaurant-level margin, when removing a temporary evolving market, is expected to be around 19%, also 1% lower than our previous guidance of around 20%. And lastly, our company-wide CapEx and other investments guidance is now at $50 to $55 million for full year 2022, due primarily to lower franchise incentive capital deployment towards restaurant re-images. Our previous guidance was $75 to $80 million. All guidance measures not mentioned remain the same as previously disclosed. And as we said in May, our intention remains to provide specific Del Taco guidance beginning in November for full year 2023. Turning now to our capital allocation strategy, we have previously discussed that our primary goal is investing in growth while being disciplined in returning cash to shareholders via share repurchases and quarterly dividends. This combination, in our view, is the surest means to unlock shareholder value over the long term. Our strategy also entails operating an asset-light business model, which would involve re-franchising Del Taco along with our Jack in the Box evolving markets. However, identifying appropriate partners as part of this effort is critical both in terms of strengthening our franchisee base across both brands so that we can deliver attractive annualized net unit growth by 2025, as well as maximize proceeds. We continue to pursue sale leasebacks for our own Jack in the Box properties in consultation with our advisors who are evaluating optimal structures within the securitization. This program is underway, and we look forward to providing more updates in the future as further details are finalized. Shifting to share repurchases. As I said on our Q2 call, we would be resuming share repurchases in the back half of this year and stand by that commitment. While we did not repurchase any shares during Q3 as part of our 200 million share repurchase authorization, we intend to execute 25 million in share repurchases in the fiscal fourth quarter. These repurchases demonstrate our commitment to deploying capital to drive shareholder return when we have excess liquidity available and can do so at an attractive price. In closing, we are making progress on simplifying our business model through re-franchising Del Taco, addressing evolving markets at Jack in the Box, and continuing to provide short-term visibility where it would be most helpful. On behalf of myself and this leadership team, I would like to thank all of our team members and franchisees across Jack and Del Taco for their efforts and perseverance. As we navigate through the near term, We are looking confidently towards our future of harnessing the combined power of our two brands. We have great optimism for what lies ahead for Jack in the Box. And with that, we'd be happy to take some questions. Operator, please feel free to open the line for Q&A.
Operator
Thank you. At this time, I would like to remind everyone, in order to ask a question, press star 1 on your telephone keypad. Your first question comes from Brian Bittner from Oppenheimer & Company. Please go ahead.
Brian Bittner
Thanks. Just a clarification and then a question. Just a clarification, just so we're all on the same page. The EPS guidance and the brand level same-store sales guidance that was given last quarter, that simply remains unchanged and intact, correct?
Tim
Yeah, that's correct, Brad.
Brian Bittner
Okay. And just, Darren, the sales trends for the third quarter, they outperformed our expectations. They accelerated on a three-year basis. And On this call, you're saying you're seeing a continued ramp up in sales exiting 3Q. So I just think generally speaking, investors are somewhat worried about Jack's exposure to the lower end consumer. So based on these updated trends, is it safe to say you're not seeing a degradation in consumer spending patterns? And there's just a lot of mixed messages out there. So we'd love your thoughts there. And what just makes you incrementally confident that these two brands are are better positioned in an environment where your core customer is feeling more pressure than normal?
Darren
Thank you, Brian, for the question. We're really confident with both brands and what we're seeing with our strategy working. We've been very careful in the pricing process that we've taken and how we've promoted our items. And as we look forward, we'll continue in our hook and build strategy that continues to work. I think what gives me the most confidence beyond the execution of our strategy and our innovation strategy is that we still have upside from a standpoint of improving our staffing, you know, continuing to open dining rooms. And then what I'm seeing across both brands is this really strong execution at the restaurant level that gives me a lot of confidence that The marketing approach that we're taking is resonating. The execution is happening. And then the last piece both brands continue to build on is digital. And so at Jack, as an example, we're rolling out e-commerce, and now we're starting to take advantage of the database we're building on loyalty to continue to grow same-store sales. So we feel good about executing on our current strategy, but also some of the other new things we have in the works. As far as the different income levels of the consumer, I think the whole industry is facing headwinds as it relates to the lower-income consumer. What's interesting about our approach is as we went into our strategy, we did some segmentation work and really understood that the higher-income consumer is one that we could reach at Jack, and we did a good job of communicating our message to them and growing sales there. where we saw a little bit of the weakness, just like the industry is on the lower-income consumer below 50,000. But what's interesting about that is as you go further down on that decile of even further income levels, we actually grew during the quarter at the lowest income level. So we definitely see the opportunity in the middle band of our income deciles, and we'll continue to find ways to drive value and how that value equates to the consumer it can mean a lot of different things. And I'll say one more thing about value. You know, the way we think about it is our pricing team has done a lot of work looking at, you know, where we have opportunity or where there's sensitivity. You know, we look at what is value, and value means a lot of things currently. Is it in the promo offer? Is it in pricing? Do we package it in combos, family packs, a la carte? How are we communicating? Is it through a different channel, whether it's digital, app, and dine-in? And then we also get a segment by guest or income level. So there's a lot of different ways for us to approach this, and we've done a lot of work and research with pricing and understanding how do we get better at communicating to our consumer.
Brian Bittner
Great. Thank you.
Operator
Your next question comes from Lauren Selberman from Credit Suisse. Please go ahead.
Lauren Selberman
Thanks so much. Just a quick follow-up. Are you seeing any differences across regions as it relates to comp performance? And then my question is actually on value. How are you thinking about everyday value balancing elevated costs and sort of what's the franchisee appetite for value in a more challenging environment? Are you starting to see the industry more broadly get more aggressive on that front? Thank you.
Darren
Yeah, let's start with the value question. You know, we definitely are seeing the industry get more aggressive across promoting value. And as I mentioned in the last statement, value is going to mean different things for different income levels and product types and channels. And so that's where we see the opportunity both for Jack and Del Taco is looking for those opportunities both with our premium items and value items. And I'll use the example from Del Taco. Within their $20 under $2 menu, which has been very successful, they were able to drive substantial price increase and still be seen as a value product. And we have opportunities like that at Jack as well that we've pushed. At the same time, during the quarter, they promoted the Del Taco, which is more of their premium line of tacos, and it did extremely well. It's really dependent upon the consumer. It's depending on how we communicate it, and it's depending on what means value for each individual segment of the consumer base. As far as regionally, on the jack-in-the-box side of the business, we definitely saw strength in California and Texas, our largest markets, and we definitely saw some challenges in the Northwest and the Midwest as far as on our sales side. And a lot of that goes back to that key challenge that we've all been faced with is staffing. Those are the areas that have been most impacted by staffing. And so if we get our dining rooms open, we see about a 0.8% improvement in sales. And so we know that those markets could perform even better if they could staff and get their dining rooms open.
Tim
Yeah, just to underscore Darren's point, a lot of that Midwest market is our evolving market basket. Excluding those markets, our same-store sales on the company portfolio would have been roughly 200 basis points higher, or somewhere around 5.5%.
Operator
Thank you very much. Your next question comes from Brian Mullen from Deutsche Bank. Please go ahead.
Brian Mullen
Thank you. Just a question on the potential to re-franchise company-owned Del Taco units over time. Just talking about this high level, it would be helpful to hear what you hope to look like on the Del Taco side when that process is fully behind you. So how long it takes, how many transactions take place. Are you hoping close to a 5% franchise mix there, similar to how you looked at Jack prior to COVID? Or is there some reason that we should be considering where you would maybe look to retain more Del Taco units over the long term?
Darren
Yeah, you know, we'll continue to give further guidance there when we come to an investor day and investor conference related to the specifics on Del Taco. But what I can say is we want this business to be asset light and to look very familiar to the Jack footprint eventually. And that time, you know, what we're going to do is we're going to do it in the right way. We're going to get the right partners. And so whether that's 12 months or 24 months, we think it's a relatively short period to move to asset light. And as we shared all along, not only did we know going into this acquisition that we had Jack franchisees in existing markets that were interested in buying Del Taco, we knew there was already some pent-up demand from when Del Taco executed a couple transactions 12 or 18 months ago. And so we felt very confident that re-franchising is a part of our strategy and that we can execute against it. And just to provide solid substantiation of that, We've already had two offers on two markets with Del Taco that we're still considering those offers and whether we accept them. And we are just about ready to launch a full-scale, you know, re-franchising effort for Del Taco.
Jack
Thank you.
Operator
Your next question comes from Gregory Frankfurt from Guggenheim Securities. Please go ahead.
spk20
Hey, thanks for the question. I think last quarter your system pricing was a point lower than the company stores. So I guess just confirming, are you guys running at like 9% pricing for the system? And as you talk with franchisees, obviously you can't dictate where their pricing is, but what's your advice to them and kind of are you comfortable with that level of pricing right now running through the system?
Jack
Thanks.
Tim
Yeah, Gregory, our pricing is high single digits for the system. As we mentioned, company pricing 9.7. We caught up as a company port basket to the franchisees, which have historically been higher. So we've sort of leveled out there as an overall system. So high single digits and the nines is a good target.
Operator
Your next question comes from Dennis Geiger. Please go ahead.
Dennis Geiger
Great, thank you. So some encouraging development updates continue as it relates to the unit growth side of things. Darren, just kind of wondering as it relates to latest thoughts on the environment, cost pressures, rates, et cetera, if any of that is impacting anything with respect to the cadence and the pace of signing agreements or opens, I think, in past quarters. It's not really, so just kind of wanted to get the latest update on that front, if you could, please.
Darren
Sure. Dennis, it's a great question. And the way I would categorize it is this, is we are making substantial progress with the jacked base of franchisees against our development. As an example, we've approved more sites in the last six quarters than we have in the prior three years. So we're building our pipeline. We feel good about that. We're signing development agreements still, mostly with our existing base. And yet, we also see interest from new franchisees. Now, what I would say on the other side of that is with this economic backdrop, we definitely see new franchisees taking their time evaluating the opportunity, which I think is just natural with this and the backdrop and the environment we're in. But we continue to see a lot of interest, especially on the re-franchising deals. As we mentioned on the call, we have a couple of other evolving markets where we've had LOIs that are deep in the process of finalizing that are both with new franchisees that also want to develop and grow these markets. So we feel really confident about the strides we've made related to development. The one other thing I would add is that, as you've heard from many of my peers in the industry, we are definitely facing headwinds as it relates to cost of development, We're definitely facing headwinds on availability of equipment to local market conditions, whether it's labor. And we've done our best to set ourselves up to execute against our growth strategy by expanding our vendor base, going out and using our balance sheet to make sure we have equipment available to us, and then working hand-in-hand with franchisees to make sure that that pipeline stays intact. And lastly, I would just say our franchisees have continued to show excitement for growth because they know this current environment is temporary.
Jack
Great. Thanks, Derek.
Operator
Your next question comes from John Tower from Citi. Please go ahead. John Tower from Citi. Your line is now open.
John Tower
Sorry about that. I've got to figure out how to use the mute button. There we go. So, quick question for you on, or actually two related to kind of macro in California. First, there's the stimulus hitting this fall. I'm curious to know how the company is planning to capture more than its fair share of, you know, stimulus dollars as it hits the consumer's wallets this fall. Yeah. particularly plans in place to have that carry forward? Are you going to do things through the apps, say, to capture people into loyalty programs? And then the second question is on the FAST Act. I'm curious to get your take on what you think, whether or not that bill ends up making its way through the legislature in California and into law, and then potentially what it means for your business.
Darren
Yeah, let's take that last question first. And It's hard to speculate what will happen. Obviously, we're paying a lot of attention to it to make sure that we're prepared. And so both us and our franchisees hope that the Senate and the governor see that if passed as it's currently written, that it will do more harm than good. But whatever happens, you know, Jack and our franchisees, we will be prepared to handle it accordingly. And so, you know, we understand that. As far as the stimulus, you know, look, we think the strategy we've been employing, our hook and build strategy, innovation is what differentiates Jack. And a great example is we went back to spicy strips, breakfast LTO with our French toast sticks. And then we've also prepared innovation into the next calendar year. So we think there's definitely an opportunity for us to take advantage of the stimulus through what's been working, but also through innovation. And then also when I talk about innovation, I'm talking about digital. As we roll out our e-commerce platform, we think we've seen a lot of good progress as our digital business is up 30% year over year just in Q3 to take advantage of the stimulus checks.
Operator
Next question comes from David Tarantino from Baird. Please go ahead.
David Tarantino
Hi. Good afternoon or good morning. I had a clarification question or a couple of clarification questions on your comments on the recent sales trends for Jack in the Box. And I think, Darren, you mentioned that the growth improved as the quarter progressed. But I wanted to ask, were you referring to growth versus last year or growth versus 2019 or both?
Darren
Sales as the quarter continued. So, you know, as the quarter continued, we saw improved sales year over year, and as the quarter continued sequentially.
Tim
Yeah, in addition to that, you know, so you look at year over year. So we began a quarter with negative same sort of sales trends, right? And then as we lapped the stimulus checks and they fell off, the trend turned positive as we exited and gives us optimism going into this existing quarter.
David Tarantino
Understood. So I just want to make sure I understand it. So you're talking relative to last year, not necessarily relative to kind of the pre-pandemic level. And I guess related to that, I mean, I guess how does the trend look exiting the quarter relative to 2019 levels, if you're willing to share? Is it similar to what you did in the quarter or is it better or worse?
Tim
Yeah, so same-store sales has continued to increase sequentially on a three-year stack basis, if you look at it that way, by about 70 basis points. We were pleased to see that performance. And then on the company side, same-store sales were also 70 basis points higher versus that 2019 pre-pandemic period.
David Tarantino
I'm sorry to keep asking about this, but which period are you referring to? Is that the quarter or is that the exit rate for the quarter, I guess?
Tim
We're looking on a three-year basis, so the company portfolio is performing 70 basis points higher than our 2019 performance for that same portfolio on a quarterly basis.
Jack
Okay. Thank you very much.
spk02
your next question comes from jared carver from goldman sachs please go ahead great thank you this has been on for jared a question on del taco i guess with a full quarter plus in the books what have been some of the key early learnings from the brand along with any realized or potential further synergies thanks yeah we um you know so far since we've acquired del taco you know mostly
Darren
what we've been impressed with is the management team that we have in place and the people within the Del Taco business. It's definitely a tight-knit family that's clear on how they execute and how they go to business and work every day and very similar mindset to Jack, which is a challenge put in front of them. It's accepted and they get excited about how are we going to solve the problem and make this business work. And so I've been really encouraged by the team I was up there a week ago where we had a town hall and had everybody back into the office. So it was good to connect with all the team members face-to-face and just see their level of camaraderie and how they work well together. I also like what I've seen is how our teams are working together and sharing ideas back and forth. And more than just synergies, where I see the real opportunity is how do they share information and shared knowledge to create momentum? And I'm definitely seeing that take place And some examples of that are some of the things they're doing with automation, some of the things we're doing with automation versus both brands having to test it separately. You know, the groups on their own decided, hey, we'll take something in the kitchen, a jack, and they're going to take something on the drive-thru with some AI technology and test it, and they're sharing that information back and forth. So we both create momentum. And then the last thing is, you know, I think overall, From a synergy standpoint, we are on target with what we expected to meet the $15 million and that we're furthest along in the merging of our supply chain, working together and working with the Del Taco business and their franchisees.
Tim
Just to add to that, we also get shared experiences and knowledge sharing on how they're approaching the value consumer as an example, which was brought up earlier on this call. Del Taco had a very successful quarter in their sales. The same store sales were up 3.5%, and we saw that they were able to penetrate to that value consumer very successfully, particularly with their 2-4 quick combo meal platform, which was incredibly successful, along with their $20 under $2 menu, which was also successful. So we're able to share those learnings on how to approach product development and communication to the consumer with these LTIs as well.
Operator
Your next question comes from Alex Slagle from Jefferies. Please go ahead.
Alex Slagle
Thanks. Good morning. The question on the TACO franchise development, and you mentioned the building pipeline here, but it also seems like the pace of development has paused. I'm not sure if that's timing or related to the integration and pending actions following the acquisition or if macro or equipment or whatnot, but any thoughts as it relates to that, why that slowed, and then a little bit of a pickup on the closures, perhaps some optimization efforts, but if you could comment, I'd appreciate it.
Darren
If I understood the question correctly, it was related to Del Taco and their openings, and more than anything, it's just delayed timing-wise from where they were in previous quarters, so They still have signed some additional development agreements this year. They've increased their sites in process, so it's mostly timing.
Tim
Yeah, and the closures, we feel they'll talk about fairly mild closures. There were five. Two of those were company that we felt more comfortable closing, and then the remaining three were franchise. So we don't see that as a sizable issue inside that brand.
Alex Slagle
Great. Thanks.
Darren
Lastly, we'll provide additional guidance on Del Taco in November.
Operator
Your next question comes from Chris from RBC Capital Markets. Please go ahead.
Chris
Hi. Thanks for the question. On the updated CapEx guidance, which is now 25 million lower than before, is that more of a timing shift or does it in any way represent a change to reimage incentive strategy? Ultimately, just trying to understand what normalized CapEx can look like following this year.
Tim
Yeah, that is primarily a timing shift relative to remodels, refreshes, or reimage programs. The guidance that we gave out, the 50 to 55, is fairly consistent with what we've historically done. So having said that, and as we mentioned earlier, we've got very robust interest in this remodel re-image program. We have 373 applications that came in from our franchise system for that program. We've internally approved 172 of those. So it's a matter of getting through that process, the formality of it, and then getting the cash out the door. So that will come at some point fairly shortly here, but relative to our guidance, there was a little bit of a mismatch there. We have seen so far with those units that have done this program so far, very attractive traffic-led sales in those units, which we're very encouraged by.
Darren
The only thing I'll add to what Tim had to say on that piece is just like we're building a franchise real estate pipeline, the incentives in place, getting franchisees negotiations with their landlords, and moving the process forward with, you know, kind of, you know, some of the delays that we see at the city level with permitting. It takes a little bit of time for this to ramp up, but the good news is we have a lot of franchisees of express interest, and as Tim just said, we've approved 172 for the incentives.
Operator
Your next question comes from Nick Setian from Wedbush Securities. Please go ahead.
Jack
Thanks for taking the question, Darren.
Darren
You know, the value menu approach on the part of Jack in the Box, or I guess the lack of one for the past decade or so, has been one of the main topics of debate. Do you think there's a need for a systemic approach to value at Jack in the Box, particularly now that you have the learnings from arguably one of the better brands out there in terms of their approach to value?
Darren
Yeah, I think, you know, in the past, Jack was a little bit slow to, you know, approach everyday value. And, you know, if you think back to 2016 and the massive value wars, you know, what's a little bit different about our approach this time is we do have Del Taco that's done a lot of research around that. With this new team in place, as we've done our segmentation work and understood our guest base better, we've done a lot of work behind the scenes on how do you create value with our guests And as I mentioned earlier, there's a lot of different ways for value at Jack, both, you know, to the premium product and to the, you know, what we consider our value products. It also comes in how we price it, how we promote it, what channel, whether it's digital, you know, app, dine-in, whether it's a different day part, you know, whether it's a la carte or family pack. So we have a lot of thoughts and an approach that we plan on taking to reach and be prepared to compete from a value standpoint.
Operator
Your next question comes from Jeffrey Bernstein from Barclays. Please go ahead.
Jeffrey Bernstein
Great. Thank you very much. It's a question on inflation and the related pricing. I think you said commodity inflation was up 17% this quarter and labor up 13%. I'm wondering if you can share your outlook for that as we look, I guess, through the current fourth quarter or any initial thoughts on 23%. It does seem like there's potentially some easing on both fronts, so trying to get your sentiment on that. In response to that, I know you're running a 10% price. I'm just wondering what would that pricing be if there was no incremental pricing taken? Just trying to assess the health of the franchisee and their profitability as we look ahead with hopefully inflation easing and the pricing outsized. Thank you.
Darren
Yeah, for the full year, you know, we expect to be the high end of our guidance. You know, it's a little higher, you know, than the second quarter. It was a little higher than that in the third quarter. And we expect to see moderate some moderation in the fourth quarter. So as expected, it affected company-operated margins from that significant commodity and wage inflation, as well as the rising costs. But we expect some of these pressures will continue to impact margins for the remainder of the year, but ease.
Operator
Your next question comes from Jim Sanderson from North Coast Research. Please go ahead.
Jim Sanderson
Hey, thanks for the question. I just wanted to talk a little bit more about the SG&A, it seems to me Del Taco's numbers were a little bit higher than I had expected relative to system sales. How should we look at that as an opportunity to see some improvement in that budget as you consolidate operations going forward?
Tim
Yeah, I mean, clearly, you know, we have some synergies as part of this acquisition, which, you know, we're just at the early stages of realizing. However, in our view of the quarter, We saw the G&A relatively in line. There's some one-time costs that we don't perceive as being run rate that occurred in the quarter. But generally speaking, from a G&A point of view, we felt we came in in a very disciplined, controlled manner for the quarter.
Jim Sanderson
Okay. And just a quick follow-up on the evolving markets. Could you run through the actual number of stores in those markets? Because it seems to me there could be a nice step up in store margin as you go through that re-franchising process in the next couple of quarters. Just like to make sure I have the detail.
Tim
Sure. Great point. And we're glad you brought that up. So as we mentioned in our prepared remarks, we have four markets inside of evolving markets. Around 30 units in aggregate. We have an LOI that we just announced. Darren mentioned that we're very close on two more of those markets. So in the near term here, we anticipate having three of the four markets resolved and refranchised. So we know that that's obviously been a drag on our restaurant-level margin in recent quarters, and we're looking to have that come to a close fairly soon.
Jim Sanderson
All right. And that would only leave one market that you'd have to work with.
Jack
That's correct.
Jim Sanderson
Thank you.
Operator
And your last question for today comes from John Glass from Morgan Stanley. Please go ahead.
John Glass
Thanks very much. I wanted to ask about breakfast. Once upon a time, I think breakfast was like 20% of your sales. I don't know if you can just level set where that day part is today and maybe talk a little bit about trends. You did talk about reemphasizing it, so I don't know maybe if that's not gotten the attention some of the other day parts have gotten. So besides product innovation you mentioned, what other things are you doing at the breakfast day part? So you just talk about the product innovation, percentage of sales, you know, particularly as there's a lot of competitive pressure, obviously, in that day part. What do you think that opportunity is, if you think there is a significant increase in opportunity there?
Tim
Yeah, we haven't broken out, you know, or disclosed precision around the composition of day parts. I will know that it's, you know, there is a vast disparity amongst our large day parts of breakfast is meaningful. Also, breakfast is a product category in addition to a day part for us. So it's clearly important to the business. Darren mentioned earlier in his remarks as well, we're going to come in fairly aggressive in Q4 with a breakfast promo with Mark Hamill that's gotten some national attention, introducing our French toast sticks, which has been a historical favorite for the brand. So we're excited about the upside opportunity we have in that day part.
Darren
The other thing I would say is when we We did some research on why our breakfast day part had slowed slightly in this quarter and we had some key learnings that we were applying in Q4 and we're already seeing the benefit. One is we stopped promoting it on a tertiary message through media. We've reengaged that and it's absolutely helping and we came back out with a really good offer with our French toast sticks that are loved and immediately we're seeing our breakfast day part bounce back. That's part of our approach is to aggressively communicate the right message around breakfast at the right time. And we're going back to some tried and true methods.
Operator
And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks.
Jack
We appreciate the time you've taken today.
Darren
We're excited about where Jack in the Box is in our evolution of our strategy and all the different things that we're doing to execute against our four pillars of building brand loyalty, driving ops excellence, growing restaurant profits, and ultimately expanding Jack's reach. We also will look forward to seeing you for quarter four in November and giving you a further update. Thank you. Thank you.
Operator
This concludes today's conference call. You may now disconnect.
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