Jack In The Box Inc.

Thank you for standing by. At this time, I would like to welcome everyone to the Jack in the Box second quarter 2024 earnings webcast. 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Once again, star one. And if you'd like to withdraw your question, simply press star one again. Finally, in the interest of time, we ask that you limit yourself to one question. Thank you. I would now like to turn the call over to Chris Brandon, Vice President of Investor Relations. Chris, please go ahead.

Thanks, Operator, and good afternoon, everyone. We appreciate you joining today's conference call, highlighting results from our second quarter 2024. With me today are Chief Executive Officer Darren Harris and our Chief Financial Officer Brian Scott. Following their prepared remarks, we will be happy to take questions from our covering sell-side analysts. Note that during both our discussion and Q&A, we may refer to certain non-GAAP items. Please refer to the non-GAAP reconciliations provided in the 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 the 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 lastly, I'd like to update you on our upcoming conference and event plans for the next few weeks. On Tuesday, June 2nd, we will be attending the Stiefel Conference in Boston. On Wednesday, June 3rd, we will be attending both the Baird and Cohen Conferences in New York City. On Thursday, June 4th, we will be attending the RBC Conference in New York City. And on Tuesday, June 11th, we will participate in the Oppenheimer Conference which will be held virtually. We look forward to seeing many of you at these events. And with that, I would like to turn the call over to our Chief Executive Officer, Darren Harris.

Thank you, Chris. I appreciate the opportunity to speak with you today regarding our performance and results. To start, I want to thank everyone in the organization for their efforts in driving material progress on our breaking-out-of-the-box long-term additions of targeting top-tier AUVs improving restaurant-level economics, driving digital growth, and building new restaurants with compelling returns for franchisees. Now at this point, you're aware of the consumer headwinds impacting our industry and the need to drive transactions and win share, especially with the lower-income guest. Providing a compelling value offering, in essence what you get for what you pay, is more important than ever to our barbell strategy and messaging. Today I'll talk more about our second quarter results and long-term goals, but we'll also share our near-term plans to play offense by executing on our exciting second half of the year marketing calendar. Although Q2 proved to be a challenging sales environment, I'm encouraged by the improvement at Jack near the end of the quarter and leading into May. Brian will speak more on what occurred during the quarter and our current trends, and while there are still headwinds, the direction through the early stages of Q3 is more encouraging. Q2 margins and earnings were better than expected, particularly as we lapped our strongest comp quarter last year for Jack, producing 7% same-store sales growth on a two-year basis while adapting to the initial effects from AB 1228. Speaking of AB 1228, I'm proud of how our California franchisees joined together with our company leadership teams to execute strategic price increases, implement our margin savings plans, share best practices, and test equipment and technology that can support labor savings in the future. Interestingly, our California restaurants at both brands have performed on par, and in some cases better, than other regions across the country, particularly with our company-owned restaurants. As transaction and mix pressures persisted throughout Q2 for both brands, I want to spend some time on our focus areas for the remainder of the year. Let's start with Jack in the Box. Later this month, we will launch our Munchies Under $4 platform, which will accomplish three things. First, provide a strong value message for our guests. Second, support our hook and build strategy with disciplined pricing on our add-on and upsell favorites to increase attachment. And lastly, support value through digital channels. We are aggressively building direct guest connections via first party, growing the Jack Pack rewards program, and gaining further data and insights that we can utilize to create personalized marketing strategies for the future. We're examining all marketing channels and promotional windows as an opportunity to drive value to complement our premium offer messages, particularly within digital, where we are generating 13% of sales and growing. We will also deliver opportunities for value across all five Bay parts. And on that note, I'd like to share a few of our upcoming marketing calendar highlights that I'm confident will drive sales during the second half of 2024. In two weeks, we will be concentrating on the late night day part where we can continue to win share. Backed by popular demand will be our Chicken Tater Melt, a favorite from our original Munchie Meal menu. And to make it even more exciting, we are partnering with Ice Cube to help us reintroduce it. Cube's Munchie Meal. will help bring back this item that has been in high demand from our long-time late-night fans for the past couple of years. We were thrilled to learn that Ice Cube, the rapper, actor, film producer, and Rock and Roll Hall of Famer, was a huge Jack in the Box fan, and we are eager to roll out the campaign via television and our social channels. This partnership further displays the pop icon status of Jackbox as he partners with other celebrities to deliver the unique offering our guests and fans expect. Also, at the end of this month, we will launch Wings system-wide. Our product test this past November drove both transactions and outstanding feedback from our guests that craved this product and wanted to order it again. We will initially promote Wings via digital and social, then plan to support the product with a major campaign in the future. Our Smash Jack, which launched in the second quarter, drove high single-digit mix, and improved the average check by 200 basis points, and really resonated with our premium guests. Consumer scores for the product have been outstanding, and in fact, we are looking to further innovate and develop new builds utilizing this differentiated and craveable burger patty. Brian will have more detail on how Smash Jack performed and its supplier delay which impacted Q2 results. We will drive breakfast top line by making French toast sticks, a proven fan favorite LTO item, permanent on our menu. This will provide a strong offering in addition to featuring breakfast messaging in every marketing window. And lastly, in the spirit of continuing to capture culturally relevant moments, we will be partnering with one of Jack's celebrity friends this summer in one of the most anticipated major motion picture events in recent years. Stay tuned. Despite the challenging consumer environment, I'm excited by what this team is creating to connect with guests and drive transactions. And as you can see, our second half marketing promotional calendar is robust and will occur as we lap easier comparisons from a year ago. We will lead with value and follow with innovation while communicating in our own unique Jack way. Part of our breaking out of the box strategy, we shared plans at our investor day to modernize our technology and data capabilities at the restaurant level and within our Martech stack. This strategy includes our plan to aggressively pursue digital growth. Our first-party platforms continue to grow meaningfully, and our third-party activity remains stable as we battle in a pay-to-play marketplace. First-party channels grew over 80% during the quarter and has grown, on average, 75% each quarter for the past year. We believe we can continue this strong growth through the launch of our next-generation mobile app later this year. with an emphasis on building active users and capturing data to reach our guests more effectively. At the restaurant level, we recently announced our partnership with Q, which will serve as the unified commerce platform at the heart of our new point of sale that will be installed across the entire Jack in the Box system. The new POS unlocks a variety of ways to enhance the guest experience and pursue our vision for the Jack restaurant of the future. It will significantly enhance our digital and in-restaurant loyalty integration, improve customer data capture, and streamline integration with our web and mobile ordering platforms. It will unlock the ability to effectively deploy kiosks and upgrade our back office inventory and labor management systems. And in the longer term, it will improve our ability to deploy automation and use AI throughout the restaurant. Turning to unit growth and restaurant-level economics, our focus on increasing restaurant-level margins is critical to our long-term growth and will ultimately benefit the entire system. These efforts contributed toward Jack's 23.6% restaurant-level margin this quarter and was driven in part by ongoing equipment, technology, and financial fundamentals initiatives that our franchisees are embracing. Of the programs we have rolled out to the system, an example being Hydro-Rent equipment, we are currently at over 50% full system adoption. Next steps for additional savings include the 3-in-1 toaster, and then inventory and labor tool rollouts. We are very encouraged at the way these initiatives are supporting our long-term ambition of franchise restaurants, realizing 15% four-wall EBITDA and an under five-year payback on new restaurants. Aligning to our ambition to drive higher AUVs, last month we rolled out our new Craved Reimage and Refresh program to the franchise system. Coupled with a $50 million commitment toward this program, We are thrilled with the interesting excitement from franchisees with submitted requests to remodel over 500 restaurants. The performance of our new restaurants with this design has been outstanding, and we are confident these remodel efforts will drive incremental same-store sales. Franchisees will utilize this design in new restaurant builds and now have this image option in a remodel format, which has created even more excitement around the remodel program. We now have 71 restaurants in the design and permitting stages for our previous industrial design, and all restaurants from this point forward will feature the new Crave treatment. Turning to new market performance. We opened our first restaurant in Mexico during Q2, and much like our other new market locations, its performance has been beyond expectations. We will open our second Mexico restaurant in June, with a third set to open later this year. The success of our first opening there has generated interest from other operators throughout the country, and I am pleased to report that the trailing 12-month AUV for all new market restaurants, which now includes Mexico, is nearly $100,000 in weekly sales on average. Jack also continues to have success in signing development agreements with new franchisees, particularly in Florida, where we will open our first restaurant in Orlando in early 2025. We recently signed a new franchisee with outstanding restaurant experience to open in Tallahassee, and we now have 31 total restaurant commitments in Florida and have seen a continued increase in franchise development interest. Maximizing unit economics and lowering build costs are critical elements in achieving our ambitions of a sub-five-year payback and hitting net unit growth of over 2%. Our design and construction teams continue to identify ways to value engineer our CRAVE prototype and have made significant progress toward our build cost goals for both brands. While it will take some time to fully realize our new restaurant payback objectives, there is a clear path to making this happen. On the development front, there are 88 restaurants in the design, permitting, and construction stage, and we remain on track for both brands to hit our gross openings expectations range for the year. Shifting to Del Taco, I am pleased with Tom and Sarah's efforts to get the team aligned on the right strategy to improve sales and profitability. As an early example, we are encouraged by Dell's new menu simplification test. It is showing signs of improving sales, speed of service, and margins. And Dell's ability to test kiosks, which are producing increased ticket and lower labor cost benefits, only helps our progress toward it being a future system-wide opportunity for both brands. New restaurants recently opened in Utah, Alabama, Florida, and California continue to perform well, leading to recently signed agreements to expand in Atlanta and Greensboro, North Carolina. In terms of back half 2024 plans, due to our everyday value, we will launch premium innovation that supports our barbell strategy, starting with bringing back the popular birria, including a new burrito, as well as another quality product with the introduction of al pastor. In addition this week, Two fan favorites will return, nacho cheese after a 12-year hiatus and many fan requests and funnel cakes. We will couple this with a revised media activation strategy, which will bring heightened awareness to both our campaigns and new brand positioning. We look forward to updating you on the progress of these Del Taco initiatives under our new leadership throughout the remainder of 2024. We have the right team focused on the right things to achieve both our goals and the brand's potential. In closing, I am confident in our ability to navigate industry headwinds in the short term, while also ensuring that we remain focused on executing our strategy to achieve our long-term goals. Our strong margin and growth fundamentals are evident and will continue to support our ambition targets. Thank you again, and I'll now turn the call over to Brian.