JACK
#<UNK> <UNK>, Wells Fargo.
<UNK>, we don't typically share those details, but let me just try to give you some color in another way.
I've been here for 14 years.
And in that timeframe, we've never had a product as successful as Buttery Jack.
So it's by far the most successful thing that most of the folks working in the brand today have experienced.
And when you look at the work that went into it, what's nice about what we are experiencing is, we expect similar quality cues and changes across the core menu, coming into next year.
And we think that's going to be met with a very similar response from the consumer.
And <UNK>, just let me add to that is, the Buttery Jack, in terms of the food and packaging costs, one of the things that contributed to the margin in the quarter was, the Buttery Jack actually had a lower food and packaging cost than what the LTO that we promoted in last year's second quarter, which was the Bacon Insider Burger.
And then also, it's replacing the number one and number two position on the menu board.
It's replacing the Sirloin Burger.
It also has a lower food and packaging cost than what the Sirloin Burger has, also.
So it helped generate some nice mix benefit on our food and packaging costs in the quarter, as well.
<UNK>, couple things to think about there.
First off, the Company operations have historically been 24-hour operations.
And our ---+ as we started focusing on late-night, our franchise locations, many more of them went to 24/7 locations.
In addition, on the franchise side, you have a bit more pricing than what you see us take on the Company side in recent quarters.
And then also, traffic for the franchise side was even better than traffic for the Company side.
And keep in mind, part of what you see there is just, in the base case, the benefit that the franchisees get from a percentage standpoint, on a lower AUV base, compared to the Company ops.
<UNK>, this is <UNK>.
I'll just ---+ one other thing to add onto that, with now 80% plus franchise operated, we get ---+ sorry, we earn slightly more operating EPS, on a 1% change in franchise same-store sales, than we do in ---+ with Company same-store sales.
So that adds nicely to our earnings growth.
<UNK>, we're hopeful that we will see that.
I can tell you that, I was just sharing internally, I spent the last six weeks out in the marketplace, visiting with Qdoba and Jack in the Box franchisees and corporate employees.
And there is certainly a lot more conversation.
In fact, the primary conversation has been about growth, from our operators of both brands.
And where we are with it today is that the Jack in the Box brand is working on these core improvements that we're talking about.
And I think the franchisees are starting to gear up for growth.
And they are looking at it through the lens of, if we can continue to make these improvements, then I want more restaurants.
So our hope is, and our anticipation is, that growth rate will go up.
And we're going to prepare for that.
Then <UNK>, just with respect to timing.
What we're seeing, to <UNK>'s point, is we are seeing a significant increase in the interest from our franchise operators to building new Jack in the Box restaurants.
But because there is a drive-through, and it's a freestanding, ground-up building, that process takes anywhere from, call it, 18 months in Texas to 2 plus years in California.
So activity today doesn't create a new restaurant next month.
It has a much longer timeline.
That's a great question.
We will provide that information to you on our November call.
And ---+ but we'll certainly have to re-look at that, given where the current trends are.
One thing I want to just caution everybody, for the Q3 and Q4 outlook for the Jack in the Box margins, one thing to consider is, Q3 and Q4 margins are generally more significantly impacted by higher utility costs.
As it costs more to heat ---+ or excuse me, it costs more to cool our restaurants in hot weather than it costs to heat them in colder weather.
So we usually see a 50 plus basis point change, just in utilities, seasonally.
<UNK>, just one thing to think about is, as you said, there was a weather impact.
And as you focus on the one-year basis, you could see the transactions as flat to slightly negative.
But when you look at the two-year basis, even with weather, we don't have that situation.
And that's why, when <UNK> asked the question earlier, I was trying to help folks think about the stack of sales generators over the last year-and-a-half.
Because if you look at the innovation of last year, it drove sales and transactions.
And then we stack, on top of that, the new value proposition this year, which early on, drove both sales and transactions.
And only recently, with some weather impact, do we see the transactions moderate a little bit.
But when you look at the stack, over a two-year basis, you actually have a very healthy mix of both sales and transaction growth driving the performance.
So when you look all things in, and you think about what we have been able to do, with the value proposition that has raised the average check, without reducing significant traffic, all in all, it's a big win for us.
And when you're able to then stack, on top of that, the next set of product innovation, which we anticipate happening into the beginning of next year, we're feeling really good about the outlook.
Yes, <UNK>, we never break out what our expectations are ---+ or I'm sorry, <UNK>.
I knew I'd get one name wrong today.
(laughter) I apologize, <UNK>.
It probably don't be the last one, either.
But don't typically ---+ in fact, we don't ever provide breakout on our same-store sales numbers, until the end of the quarter.
Yes, <UNK>, this is <UNK>.
So we actually out-paced the NPD QSR sandwich segment by 760 basis points.
That's the national numbers that include 16 of the chains.
And you can see, it's the biggest ones.
It's all of the major peers.
So we don't get the regional data, but that's the national number.
I would also say, keep in mind that weather really wasn't a factor for Jack in either period.
So you would have to look at that more on a regional basis, too.
I guess ---+ we don't have the data to know what the peers are doing in those two markets.
The $0.06 charge, <UNK>, is just related to the Company units.
Franchisees will replace their own equipment, and do whatever they deem appropriate with their write-off.
But it won't impact the Company at all.
We're just beginning to roll out, <UNK>.
We expect to have that done by the end of the calendar year.
So there is less than 100 that are out there right now.
And that's just recent.
Correct.
No, it's the same number, pre-tax and post-tax.
But I'll ---+ there's no additional tax benefit to that, versus any other tax benefit for any other expense.
But I'd say, for now, you can assume that's going to be pretty evenly split.
The reality will be, it will depend upon the actual implementation schedule, and how close we are to keeping on that actual implementation schedule.
But I'd model it pretty even.
Yes, we are seeing, generally, egg prices trending up.
And fortunately for us, most of our supply are coming from it yet-unaffected areas, by and large.
It doesn't mean that we are completely unaffected.
But I think our major supplies are coming from those other yet-not-affected areas.
Eggs are only about 3% of our overall spend, and our assumption about increasing egg costs are included in our 2% commodity guidance for the full year.
A couple things that are interesting <UNK>.
So we experienced ---+ and I'm going to just compare and contrast a couple things, from the past to today.
In the past, when we rolled out a breakfast platter, we sold a ton of them at dinner and lunch and late-night.
And you're seeing the same thing with Buttery Jack.
Although we do sell, obviously, the majority of them at lunch and dinner, because we serve the whole menu 24/7, there is a ton of Buttery Jacks being sold, even a breakfast.
So your assumption that it is primarily a lunch and dinner product is correct.
I don't know that it's more of a dinner versus a lunch.
I think we just need a little more time to learn that.
But it's certainly a lunch and dinner product.
But like all of our other products that just ---+ they are a hit with the guests, we tend to see a more than you would imagine percentage of sales going through the other day parts, as well.
Yes, it is.
Yes, so a couple things to think about, <UNK>.
First off, keep in mind some of our oldest facilities are in cities like Los Angeles and Houston.
They happen to be our smallest-footprint facilities, with our smallest kitchen.
And they also happen to do well over $2 million in sales a year.
So from the standpoint of any constraints, we don't see those.
Actually, the newer restaurants can facilitate even higher sales than that.
And those are what we're building today, and we would expect that the $1.8 million is something we can grow on top of.
And what's really going to be the driver of that, we believe, is the menu, primarily.
And then supporting the menu would be operational efficiencies.
But the big learning, I think, that came out of the research was that, from a prioritization standpoint, we were going to get more of a return ---+ an early return on investing in menu enhancements than we were on operational efficiencies.
So it's not that we are forgetting operational efficiencies; it's just that from a prioritization standpoint, we're going to drive the menu to be a better menu first, followed by, or least paralleled by, operational efficiencies.
Let me start with the last question first here.
I think we're not married to a number.
There's nothing magic about 81% or 82% or 85% or 75%, or 90%, for that matter.
The real issue for us is, can it be accretive to operating earnings, in a post-refranchising world.
And with the average unit volumes trending above $1.8 million right now, that makes that a very high hurdle to be able to refranchise, and make it accretive to earnings.
So I think we're pretty happy with where we are on that.
It doesn't mean that we never look at one-off type transactions.
But again, we're at $1.8 million volume, and 20%-ish margins.
It makes it very difficult to justify refranchising transactions.
I think the Board is still comfortable with this 2 to 3 times leverage.
I think, in this quarter, with the share repurchase, we actually did nudge above 2 times for the first time; we were working pretty hard to get there.
The Board is still obviously, with another $100 million share repurchase authorization, very bullish, with respect to us continuing to return cash to shareholders.
And a 50% increase in the dividend, I think, also indicates their appetite to continue to do so.
And I think the ability for us to get credit, and the free cash flow that we are generating, bodes well for us to continue to be very active, with respect to returning cash to shareholders.
So we ---+ everything you said is accurate.
We're going to focus on Qdoba first.
And the infrastructure that we're building for the Qdoba business actually bodes well for Jack in the Box, as we start to move into the same space.
The Qdoba process is well underway, and we would anticipate being able to, into next year, start to test and initiate the use of that new technology.
And keep in mind, Qdoba has not been out of that space.
We've actually been active in that space for quite some time, and we have experienced quite a bit of success with it.
But we believe, with the changes to the platform, we'll be able to engage consumers even better.
And we believe that will drive even stronger results.
Generally opens the day after, or two days after, we file the Q, depending on how early we file the Q.
So soon.
I think that is all the questions that we have for today.
Thanks for joining us, and we look forward to speaking with you soon.
